There is no risk in my example. You start off 200k in debt, you end 200k in debt.
I understand that the numbers I used aren't exactly realistic, but the SM does things incrementally, month by month.
Quote:
Originally posted by Wetordry
1) An average GVRD house is upwards from 650k
2) Chances of your house being 50% paid off before you are 40 years old? (ie young enough to be able to accept financial risk?)
3) Using the LOC to cover the mortgage in the above example would mean that the person must be qualitfied for a 200k LOC minimum.... now how many people you know have 50% equity in their house as well as have 200k LOC?
4) If #3 is attainable, and you have a 200k line of credit, you must be pretty rich. There are a whole bunch of investment options other than the Smith maneouvre to help you make wads of cash.
If I was in that situation, i'd put the 200k into condos or real estate elsewhere. You would end up with 2 real estate properties waiting to appreciate in value.
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1) Plug in whatever numbers you want...
2) Using a standard amortization schedule of 25 years, 5.7% interest, and no acceleration other than bi-weekly payments rather than monthly, you will have 50% equity at 16.5 years if you put 0% down. This does not vary by price, but it does on interest rate.
But that 50% number was just there to make the math easy. As soon as you get over 25% equity you can start the SM.
Historically, no one bought housing unless they had a 25% down payment. It's only recent history that you could get your primary housing with less than 25% down.
3) I wasn't very clear... the LOC does not cover the mortage. The LOC is against the equity in your house. You can get readvanceable mortgages from most major banks now. As soon as you make a payment that applies to the principal, it is available for borrowing against. Vancity was the first to do this.
4) SM is not an investment option, it is a method to move your bad debt (non-tax deductible) to good debt (tax-deductible). If you want to use the money to invest in real estate, go for it.