Well, I'm avoiding doing other things that I'm supposed to be doing, so as a procrastination strategy, I'm taking a little time to flog the dead horse. Yeah, I know that it's been pretty well demonstrated that TOGA's little program is based on lies and is little more than a pyramid scheme for selling a worthless product, but I really despise liars like him who attempt to defraud folks who aren't comfortable enough with finance to see through the lies.
I hope that you all will indulge me this little horse flogging, if there's just one person out there who can't quite see why this is a scam, and this explanation makes it clearer to them, it's worth it.
So, since TOGA won't actually run some numbers on my hypothetical to show how his magic works (it doesn't) I took the time to do the calculations myself. I used the hypothetical example I proposed earlier. However, I used a more realistic interest rate for the HELOC. The idea that You can get a HELOC for lower interest than a home mortgage (all else being equal) is absurd. Generally speaking, a home mortgage is about the lowest interest rate a consumer can get from a bank for a loan. So I used a more realistic 7.5% for the HELOC, because TOGA finally conceded that you're actually making *extra* payments ( despite the lies on his website that you don't) I picked an arbitrary number of $1000/ month extra to pay down the balance on the HELOC.
You got a $200k, 30 year mortgage on a $250K house. The day you sign the mortgage papers, you run down to the bank and take out a $50K HELOC at 7.5%. You write a check against the line of credit to your mortgage company for $50K. That makes your principal to pay on your mortgage $150, and you begin paying the $1135 monthly payments on your mortgage, and $1000 a month to pay down the balance on the HELOC. It takes 5 years to pay off the $50K on the HELOC, at which point the remaining principle on your mortgage is $119,175 So, you write another $50K check to your mortgage company, which brings your principle down to $69,175, and it takes another 5 years to pay down the HELOC to zero, at which point your outstanding principle on your mortgage will have been paid down to $12,834 through your standard $1135 monthly payments. It will take you an additional 11 months to pay off that remaining principle, for a total of 11 years to pay off your mortgage.
Wow!!! Magic, just like TOGA said, EH?, pay it off in a little over 1/3 the time, whooooweee.
Yeah, except, if you didn't do the HELOC thingy, and you just put the extra $1000 the entire mortgage off in 10 years, not 11. (1/3 the time, not 1/3 the time plus another year) For a given additional monthly payment toward the principle, the HELOC actually lengthens the payoff time. Of course it does, you're shifting debt from a 5.5% loan to a 7.5% loan. You wind up paying *more* interest.
Now, if TOGA responds here, which I don't expect him to because I think even he can see that he's totally discredited here, He'll say "well, you don't just write 2 checks to pay off principal, you do it more frequently with smaller checks, reducing your mortgage principle sooner." Yeah, no doubt you do, but that is also *increasing* the money you owe at 7.5%, which isn't doing you any favors.
Bottom line; the more debt you transfer from your mortgage to your HELOC, the worse off you are, all else being equal.
For a given total monthly payment on your mortgage, the absolute best thing you can do is pay down your principle directly and skip the HELOC altogether.
The gimmick with the HELOC is that if you deposit your entire paycheck into the HELOC, then pay your bills by writing checks against the HELOC, you are in effect putting every cent you don't spend toward paying off the principle. But you could do effectively the same thing by just writing a check for every cent in your checking account to the mortgage company at the end of each month, and you'd pay off the mortgage faster than with the HELOC. (because you're not transferring debt from low interest (5.5%) to higher interest (7.5%).
Even if you could get a HELOC for the same rate as your mortgage (not going to happen), there would be almost no advantage to the HELOC. What little advantage you might gain, would be because you pay your paycheck in up front, and draw from the account, you're effectively paying the principle at the beginning of the month instead of the end. This might result in paying off the whole thing one (1) month sooner.
So; this is what you get from TOGA for $3500, advice to move debt from lower interest to higher interest which actually increases the time you need to pay off your mortgage, all else being equal.
