Roger Schlesinger

The title to a text is designed to catch your attention and get you to read the article. I had a much better title in mind but I was afraid "Free Money" would elicit too many responses that are unfit to print so I stuck with what I have come up with: "How Good is This". I must admit that "Free Money" is a much flashier title, and after all, that is what I am going to talk about, but this way I eliminate a lot of skeptics right from the start.

Is there such a thing as free money? I believe there is. There is also "almost free money" that exists in the mortgage industry, or others may say partial free money.

Then there are those who will read this and simply say it is all B.S. The only thing I can say is to use your own definition and come up with your own conclusions. In my opinion, if you have a long-term debt(s) and a fixed payment on said debt and you can refinance to a shorter term and take some cash out of the property, it could happen under the following circumstances. If your new payment is lower than your old payment and you pay it back quicker, then what did you pay for the cash? Nothing!

Example #1:

30 year fixed @7.5% (Believe it or not many of these exist)

Original Balance of $240,000,with a payment of $1,678/mo.

Current balance after 6 years $224,000

HELOC @ 8.75% $100,000, 30-year interest only payment of $729/mo.

Balance after 1 year $100,000

Total monthly payment $2,407 on $324,000 balance.

20 year fixed @6.00% on $336,000 has a payment of $2,407/mo.

The borrower who does this gets approximately $13,000 and doesn't increase his payment, retires his debt 4 years earlier than the first, and earlier than the HELOC because the HELOC isn't being amortized. It is being paid interest only. If you paid the HELOC at a 20 year amortization, your payment would go up $93 a month which would allow the borrower to take a larger loan, $349,000, keep the payment the same, and still pay zero for the now $26,000 cash out, because he still finishes 4 years ahead of the 30 year first mortgage.

Different interest rates will yield different results.

I can come up with hundreds of scenarios that will demonstrate my point, but it isn't the area I wish to really demonstrate. The area I want to concentrate on is the one where credit cards are plentiful. The results are staggering and can really make a difference in your life.


Roger Schlesinger

Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.