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yellowsnow
08-28-2006, 04:48 PM
I read the other post about the couple who worked their butts off to pay off their mortgage, but this method is different.

I don't really understand it completely yet, so discuss.

Basically, put as much money as you can into your mortgage.
Then go to a credit union, and get a matrix mortgage. (I'm not too sure what a matrix mortgage is.. I believe it is just another name for a line of credit that is based off your mortgage.)
Next, with every dollar spent to knock down the principal of your mortgage, you use your matrix mortgage to invest.

(the interest on the matrix mortgage is tax deductible)

So keep pumping money into your mortgage, use your matrix mortgage to borrow money and buy invesments. with the interest you make on your investments, pump it back into your mortgage.. and this process continues until your mortgage is paid off, and your investment portfoliio is huge.

I dunno, I haven't really tried it out yet, but am really going to research it some more.

Here's a website that explains it better than I can
http://www.smithman.net/home.html

In the magazines/newspaper reviews, the national post article is pretty good

Toma
08-28-2006, 04:52 PM
Ain't NO ONE gonna give you a line of credit until you have more then 35% of your house paid off.


Originally posted by yellowsnow
I read the other post about the couple who worked their butts off to pay off their mortgage, but this method is different.

I don't really understand it completely yet, so discuss.

Basically, put as much money as you can into your mortgage.
Then go to a credit union, and get a matrix mortgage. (I'm not too sure what a matrix mortgage is.. I believe it is just another name for a line of credit that is based off your mortgage.)
Next, with every dollar spent to knock down the principal of your mortgage, you use your matrix mortgage to invest.

(the interest on the matrix mortgage is tax deductible)

So keep pumping money into your mortgage, use your matrix mortgage to borrow money and buy invesments. with the interest you make on your investments, pump it back into your mortgage.. and this process continues until your mortgage is paid off, and your investment portfoliio is huge.

I dunno, I haven't really tried it out yet, but am really going to research it some more.

Here's a website that explains it better than I can
http://www.smithman.net/home.html

In the magazines/newspaper reviews, the national post article is pretty good

yellowsnow
08-28-2006, 04:55 PM
Yes... but the theory is there, that's why you put all your savings into your mortgage first.

just want people to discuss the theory behind this

danno
08-28-2006, 04:56 PM
i can get a home equity line of credit right now, i've only paid off maybe 10k. but the value is almost double what it was worth so that could be it.

basically if you don't own a house already your in for a hard time, unless there is a drop in prices. don't expect a drop for 10 years though. my 2 cents

Auditor
08-28-2006, 05:58 PM
Yeah its called leverage, just make sure you can handle all the debt.

pinoyhero
08-28-2006, 08:23 PM
Only issue I see is the "assume 10% gain on investments", not unrealistic but by no means can you achieve this risk free. So this method works really well if you can gain a return larger than that of your mortgage rate.

rtsen
08-28-2006, 08:53 PM
Originally posted by Auditor
Yeah its called leverage, just make sure you can handle all the debt.

The technique that yellowsnow is referring to is the smith manoeuvre. Itís different than leveraging because it assumes your total debt is constant; itís more like a debt conversion method changing bad debt (non-deductible interest) to good debt (deductible interest).

With this method, your tax return will be greater each year and you will be able to pay off your mortgage quicker and in theory have a portfolio greater than your mortgage amount at the end of the amortization period.

Hollywood
08-28-2006, 10:19 PM
Originally posted by rtsen


The technique that yellowsnow is referring to is the smith manoeuvre. Itís different than leveraging because it assumes your total debt is constant; itís more like a debt conversion method changing bad debt (non-deductible interest) to good debt (deductible interest).

With this method, your tax return will be greater each year and you will be able to pay off your mortgage quicker and in theory have a portfolio greater than your mortgage amount at the end of the amortization period.

Yup. There are advantages and disadvantages. Your "matrix mortgage is really called a HELOC for short. You need at least 25% paid, then you end up with a line of credit with a little worse of an intrest rate than a normal mortgage, which will end up costing you more money after 25 years if you play it out. "5 years" to me is unrealistc, but not impossible and I am educated in its methods.

HELOC Pros.

- Only need to pay minimum payment, (cheaper than a motgage payment). Good if u get laid off or something.
- Room to invest more.
- No penalty to make extras payments.
- After 10 years or so you will have more money if you sell your house.
- Consolidate dept at your will.


Cons.
- You end up with an astrinomical credit line dept.
- You will no longer ever to get any credit anywhere ever again. No homedepot card, no car loan, no increase in credit card limit. It's viewed directly against your dept ratio in credit apps, does not matter if it's for your house or not.
- If treated like a regular 25 year mortgage, it will cost you more in the end.
- You investing needs to work out, otherwise it could end up costing you more money in the end.

If anyone is interested in the HELOC to investing program I can forward you a contact, he works for a company that specializes in it. Just PM me.

TrevorK
08-29-2006, 07:51 PM
Originally posted by Hollywood

Cons.
- You will no longer ever to get any credit anywhere ever again. No homedepot card, no car loan, no increase in credit card limit. It's viewed directly against your dept ratio in credit apps, does not matter if it's for your house or not.

When I pull my credit report, it does not show my secured line of credit (Which I use instead of a traditional mortgage). This would lead me to believe that it wouldn't play a role in whether I'm approved for any other credit.

Celica TVS3
08-29-2006, 08:00 PM
For those that don't know HELOC = Home Equity Line Of Credit

Hollywood
08-29-2006, 08:32 PM
Originally posted by TrevorK


When I pull my credit report, it does not show my secured line of credit (Which I use instead of a traditional mortgage). This would lead me to believe that it wouldn't play a role in whether I'm approved for any other credit. [/B]

Try it, then u will know..

TrevorK
08-29-2006, 11:12 PM
Originally posted by Hollywood


Try it, then u will know..

Try applying for a CC?

I have, I got my Citibank Platinum card after getting my secured line of credit.

Hollywood
08-31-2006, 12:20 PM
Originally posted by TrevorK


Try applying for a CC?

I have, I got my Citibank Platinum card after getting my secured line of credit.

Yes but how much do you owe on it? Over 200k?

TrevorK
09-01-2006, 10:32 AM
Originally posted by Hollywood


Yes but how much do you owe on it? Over 200k?

I use it for investing, and right now there is ~125K owing. (With a ~200K limit)

biggie_82
09-05-2006, 07:34 AM
It does sound like a home equity line of credit method they used but in order to have a home equity line of credit the max loan to value on the property must not exceed 75% as CMHC/GE will not insure Secured LOC's in most cases.

So in your story it makes sense but there is quite a bit of risk involved due to leveraging.

The huge down payment on the property allowed them some room to get the HELOC (usually at Prime). Since HELOC work like a regular line of credit the only monthly obligation is usually interest only payments (IOP). Any payments done on the side would be considered principal pmts.

Money is then used to invest but in this case it must have been a pretty good damn portfolio to have it paid off in 5 years (interest expense of HELOC is tax deductible and the investments I'm guessing would have been in something that provides some tax benefits as well).

There's also some other unmentioned factors such as change in income/occupation.

A HELOC in terms of prepayment works like an open mortgage. It is possible to pay off in 5 years but risky if leveraging (variable prime rate and the volatile rate of return on investments).

Hollywood
09-05-2006, 09:47 AM
Originally posted by biggie_82
Money is then used to invest but in this case it must have been a pretty good damn portfolio to have it paid off in 5 years (interest expense of HELOC is tax deductible and the investments I'm guessing would have been in something that provides some tax benefits as well).

Yes, there are some tax tricks, obviously on the HELOC side and some tricks with the investing. But you have to invest with specific companies to get access to the tax tricks on the investing side which is risky in itself.


Originally posted by biggie_82
A HELOC in terms of prepayment works like an open mortgage. It is possible to pay off in 5 years but risky if leveraging (variable prime rate and the volatile rate of return on investments).

I agree. 5 years is pretty hardcore.