Quote:
Originally Posted by OMG!WTF!
I'm actually just trying figure out what the deal is here. Right now I can get a 3 year variable rate loan at prime -.8 or 2.05%. I can prepay up to 20% a year anytime I want...300k mortgage, 60k prepayment, 5k per month in prepayment priviledge. The same site is telling me the best HELOC I can get is 4%. I'm sure I could do better. Mine is 3.65%. The very best spread a HELOC can offer me is 5k for 30 days at a 2.05% spread (assuming I get a bonus paycheck on the first of the month and can't apply it to my mortgage until the end of the month). Or about $8 bucks minus whatever extra interst I'm paying (1.6% extra) on my loc balance.
The thing is, you can find mortgages that are just about the same as an LOC minus the ability to use it as a checking account. If you're just trying to pay down a mortgage, you're way better off getting the lower rate with much better prepayment terms than the fixed part of your mortgage scenario. I'm just puzzled because you you're suggesting people are using this to great benefit. Can you give an example?
If I had or expcted to have a large lump sum (more than 20%) coming in, I'd just get an open mortgage and still pay less interest than an loc.
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Thankfully it's a slow day in the office, mixed with the lack of concentration ability due to the game tonight...
You can't get mortgages that are similar to a HELOC. There are significant differences. (Interest compounding - semi-annual vs. simple daily. Mortgages are not readvancable like HELOCS are. What if you need access to some of the money you used on a prepayment privilege? You can't get it back without refinancing a mortgage. Always nice for the what-ifs. You can always borrow up to the maximum borrowing limit, which is 65% LTV.) As for interest rates on a HELOC - you're right, you can do much better than 4% with multiple lenders.
The difference between prepayment privileges, like the 5k/month you mentioned, and the AIO, is that the AIO gets all of your income/cash flow working for you, not just your savings. If your income allows you to prepay 5k/month, I'd imagine your total income is upwards of 8k. That's an extra $3000 that could reduce your principal for the majority of the month, up until you have to pay out your bills.
I can't really give specific examples of success stories, but again, go check out that calculator. It will give you an idea of how it would work for you. I know many of my clients will turn 25 year amortizations into half of that or less, and save ten's of thousands along the way. I have yet to receive a negative review of the AIO (not lying here), and only positives. I send out annual messages for checkups, and multiple have raved about the AIO. People enjoy the simplicity of it, as the prepayments take care of themselves, and you really become your own banker. For me, it's another tool in the toolbox. It's not for everyone, but it can work very well for some. At the end of the day it's an product that I will make clients aware of, but am happy to go the more traditional route if they prefer. It's not my money, I just want to make sure they are well advised and know what's out there!