Quote:
Originally Posted by Delicateflower  Yes, TEN years of paying every single month, and they're behind where they started, with nothing to show for it. How depressing is that? It's $100,000 or so down the drain.
And none of that depresses you? You wouldn't feel at all sad at gaining no financial ground in ten years?
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Well if they hadn't taken out that equity, they would have paid that 100K down the drain also, since on a 30 year schedule they would have only paid $18Kish (132K original mortgage, 7.5% interest), so 82K down the drain.
Try this scenario:
Say they did their refi in 2004. They would have already paid on their 132K mortgage for 5 years. They would have made $50K in payments and paid down $8K in principal. Now they do their refi so they have that money to use on things they want or need. Now they have their new $180K @5.5% and 35K @8% mortgages. That puts $91K in cash in their pockets. Now they use that $91K to purchase a rental property free and clear and it provides a positive cash flow of $400 a month. So now even though their payment is now $1300, it is offset by that $400 positive cash flow from their rental property. They make their new payments for 5 years paying another $50K. So in the 10 years since they've bought the house, they've paid $100K in payments. But since they used their equity to purchase their rental property, they now have something that provides them a passive income providing them with long term security they would have had if they had paid down their mortgage instead.
And since for their 10 years of paying their house payment they now have a free an clear rental property to show for, who's to say that's not a better position to be in than to have paid down $18K of their mortgage?
(All numbers completely fictional in this example)
