The perfect MP3 player

Dave Smith DavidSmith at
Mon Sep 19 10:46:18 MDT 2005

> Grant Shipley wrote:

> Get a home equity line of credit (with a fixed interest rate) for 100%
> of the value of your current mortgage.  Then use the equity line to pay
> off your mortgage.  You now only have an equity credit line payment and
> no mortgage.
> Next, put all your money you would have saved in a savings account in
> the mortgage.  Next, put all the rest of the money you wouldn't normally
> pay on your mortgage in there too.  Now, when you need to buy something,
> just take out the amount you need.

This works fine, until the Prime Rate goes up. And then you are screwed
with a capital 'S'. You've basically just put your entire lifestyle on a
credit card, including your home. Woops. The beauty of a fixed-rate
mortgage is that my payments will never change, even 10 years from now
when interest rates are high again. (What, you think rates are going to go
down after a 40-year low?)

The other problem with this is that 98.6% of Americans do not regularly
pay extra on their home mortgages[1]. With a line of credit, I'd bet most
Americans would never pay it off, ever, since no one is requiring them to
pay the principle. They'd just happily pay the minimum interest payment
each month (what's the average credit card debt again?). Maybe you're more
financially disciplined than that. If so, good for you. Go get a fixed
rate mortgage and pay extra on it. Anyway, this kind of setup is great for
banks. Banks want you to stay in debt for the rest of your life. How else
could they build such tall buildings and pretty lobbies?


[1] I don't have a source for this, so take it with a couple grains. You
may want to conduct your own study and ask around. See if you can find
even 1 person in 10 who regularly pays extra on their home mortgage.

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