From the BiggerPockets Blog

 BiggerPockets Blog »

Jump to Forum View All

Click a category below to view different forum categories.

BiggerPockets

General Info

BiggerPockets Q&A, Site Questions, & Announcements

1523 topics, 14441 posts — Last Post 04/24/14, 11:47AM

BiggerPockets Exclusive PRO Area

117 topics, 841 posts — Last Post 04/23/14, 08:28AM

New Member Introductions

10991 topics, 86626 posts — Last Post 04/24/14, 11:48AM

Real Estate Success Stories

399 topics, 6215 posts — Last Post 04/24/14, 08:56AM

General Real Estate

General Real Estate

Buying & Selling Real Estate

5997 topics, 47260 posts — Last Post 04/24/14, 11:47AM

Renters

651 topics, 5869 posts — Last Post 04/24/14, 11:50AM

Get Foreclosure Help - Help Stop Foreclosure Forum

317 topics, 2561 posts — Last Post 04/23/14, 08:28PM

Home Owner Association (HOA) Issues & Problems Forum

238 topics, 1611 posts — Last Post 04/23/14, 04:02AM

Do it Yourself

659 topics, 6323 posts — Last Post 04/24/14, 09:58AM

Reviews & Feedback

Real Estate Deal Analysis and Advice

3714 topics, 29782 posts — Last Post 04/24/14, 11:24AM

Real Estate Guru, Book & Course Reviews and Discussions

1139 topics, 11609 posts — Last Post 04/24/14, 10:32AM

Ask About A Real Estate Company

743 topics, 7344 posts — Last Post 04/22/14, 11:25PM

Real Estate Investing

Real Estate Strategies

Wholesaling

5640 topics, 43978 posts — Last Post 04/24/14, 11:25AM

Rehabbing and House Flipping

3354 topics, 31109 posts — Last Post 04/24/14, 07:10AM

Real Estate Development & New Home Construction

554 topics, 4695 posts — Last Post 04/24/14, 06:22AM

Innovative Strategies

705 topics, 6044 posts — Last Post 04/22/14, 04:06PM

Tax Liens, Notes, Paper, & Cash Flows Discussion

868 topics, 6696 posts — Last Post 04/24/14, 11:40AM

Rent to Own a.k.a. Lease Purchase, Lease Options

700 topics, 4961 posts — Last Post 04/24/14, 11:26AM

1031 Exchanges

143 topics, 1063 posts — Last Post 04/24/14, 11:10AM

Foreclosure Investing

General Foreclosure & Pre-Foreclosure Forums

1692 topics, 11317 posts — Last Post 04/22/14, 09:26PM

HUD, VA, and Tax Sales

416 topics, 3103 posts — Last Post 04/23/14, 02:29PM

REOs

1217 topics, 10604 posts — Last Post 04/24/14, 07:13AM

Short Sales

1539 topics, 13154 posts — Last Post 04/23/14, 08:25PM

Landlord & Tenant Forums

Landlord & Rental Property Questions

7254 topics, 71226 posts — Last Post 04/24/14, 10:51AM

Mobile Homes & Mobile Home Park Investing

639 topics, 5146 posts — Last Post 04/24/14, 05:13AM

Investor Basics

Starting Out

7735 topics, 60700 posts — Last Post 04/24/14, 11:31AM

Investor Psychology

432 topics, 6111 posts — Last Post 04/24/14, 08:55AM

General Real Estate Investing

4730 topics, 37330 posts — Last Post 04/24/14, 10:47AM

Real Estate Investor Marketing

1740 topics, 14163 posts — Last Post 04/24/14, 08:42AM

Commercial Real Estate

Commercial Real Estate Investing Forum

1413 topics, 9015 posts — Last Post 04/24/14, 10:58AM

Multi-Family and Apartment Investing

1123 topics, 9399 posts — Last Post 04/24/14, 10:57AM

The Business of Real Estate

Real Estate Technology and the Internet

Real Estate Technology, Social Media & Blogging

645 topics, 4913 posts — Last Post 04/24/14, 05:42AM

Business Basics

Goals, Business Plans & Entities

835 topics, 7593 posts — Last Post 04/24/14, 10:32AM

Real Estate Finance & Legal

Financial, Tax, and Legal

Tax, Legal Issues, Contracts, Self-Directed IRA

2803 topics, 20138 posts — Last Post 04/24/14, 08:22AM

Property Insurance

312 topics, 2059 posts — Last Post 04/24/14, 10:22AM

Personal Finance Discussion

330 topics, 2754 posts — Last Post 04/22/14, 12:06PM

Loans, Mortgages, Credit Lines

Private & Conventional Lending Discussion

2853 topics, 19853 posts — Last Post 04/24/14, 11:40AM

Creative Real Estate Financing

1221 topics, 8863 posts — Last Post 04/24/14, 11:42AM

Crowdfunding Real Estate

35 topics, 463 posts — Last Post 04/19/14, 06:24PM

Real Estate Professionals

Real Estate Professionals

Real Estate Agents

1218 topics, 8043 posts — Last Post 04/24/14, 11:46AM

Bankers, Lenders, and Mortgage Brokers

442 topics, 1931 posts — Last Post 04/23/14, 09:04PM

Contractors

269 topics, 1690 posts — Last Post 04/22/14, 07:33AM

Local Real Estate

Local Real Estate

Local Real Estate Networking & Recommendations

2018 topics, 11761 posts — Last Post 04/24/14, 10:05AM

Americans & International Real Estate

162 topics, 572 posts — Last Post 04/24/14, 03:31AM

Foreigners Buying in the USA

62 topics, 409 posts — Last Post 04/10/14, 06:27AM

Canadian Real Estate

66 topics, 440 posts — Last Post 04/24/14, 05:54AM

Marketplace

Real Estate Marketplace

Real Estate Marketplace

15090 topics, 54147 posts — Last Post 04/24/14, 11:08AM

Real Estate Events and Happenings

168 topics, 2609 posts — Last Post 04/24/14, 11:03AM

Off-Topic

Off Topic

Off-Topic

2907 topics, 32447 posts — Last Post 04/24/14, 07:23AM

Housing News & Real Estate Market

921 topics, 8393 posts — Last Post 04/24/14, 11:45AM

BiggerPockets Real Estate Investing Summit

97 topics, 1752 posts — Last Post 04/23/14, 04:51AM

BiggerPockets Resources

Forums » Ask About A Real Estate Company » Truth in Equity - HELOCs

Truth in Equity - HELOCs

11 posts by 7 users

Signup

Real Estate Investor · Pittsburgh, Pennsylvania


Does anyone have experience using a HELOC to pay off a mortgage early? I just bought my first property and had never heard of such a concept until I was recently listening to the Real Estate Guys Podcast. I've been listening to them for years and have a decent amount of trust/respect for them. This company and the concept seems legit. Any thoughts?

http://www.truthinequity.com/



Real Estate Investor · Studio City, California


BE AFRAID!!! BE VERY AFRAID!! I was wondering about it to and after I investigate it I came to the conclusion that it is very dangrous. The interest rate is variable and in case of extensive inflation, you won't be able to keep up with the payments.



Real Estate Investor · Pittsburgh, Pennsylvania


yeah that is a concern of mine too. at the same time, the interest rate is based on the loan balance which is being depleted very quickly. i'm really exploring my options and trying my best to think differently during these turbulent times.



Banker · Tampa Area, Florida


just pay extra on your mortgage by yourself. it's free and safe!



Real Estate Investor · Studio City, California


Josh is right. If you, for instance have a $100,000 30 years mortgage fixed rate at 6%, aditional $200 a month toward the principal, would pay off that loan in 16.5 years. and you'll save $58,117 in interest. The only draw back is that it requires discipline.

I've been doing it for a while on one of my rentals, putting all my positive cashflow (Which was about $150 a month) against the principal. I have a 30 years loan but I plan to retire in 15 so it should have worked perfectly, however, recent property tax increase, put me in the red, so that cash flow is gone... for a while.



Real Estate Investor · Audubon, Pennsylvania


Here are some other BP threads with more detailed discussion of this concept:

http://www.biggerpockets.com/forums/50/topics/11432-money-merge-account-

http://www.biggerpockets.com/forums/110/topics/32854-payoff-mortgage-5-7-yrs

http://www.biggerpockets.com/forums/92/topics/29914-those-pay-it-off-fast-schemes-

http://www.biggerpockets.com/forums/110/topics/47193-use-line-of-credit-to-pay-down-mortgage-


Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


SFR Investor · Wheat Ridge, Colorado


Originally posted by Josh Green:
just pay extra on your mortgage by yourself. it's free and safe!

I think that's really all this deal amounts to. Its done as a HELOC so you can take the money whenever you want. You dump your entire paycheck into the HELOC, the pay all your bills using the HELOC.

As far as I can tell, the real trick is simply that you pay more than the scheduled payment. If your budget is cash flow positive by $200 each month, that $200 would normally set in your checking account. After a year, you'd end up with $2400 more in your checking account when you started. By using a HELOC as your checking account, that $2400 ends up as extra payments on the HELOC rather than in your checking account. If you take that $2400 and spend it, though, you're at the exact same point you'd be if you were just paying the scheduled payment.

There's a claim that by having your money in the HELOC for all your bills until the last minute, you'll pay less interest. If you're talking 15 days interest not paid on $2000 of bills vs. the interest on the $200,000 balance, this doesn't amount to very much savings.

Another flaw is every HELOC I've every seen has only a limited time "draw" period. Five years seems typical. After than your balance is locked down and you can't take anything out. So, the whole process breaks down at that point. If you dump your entire paycheck in you've just made a nice big payment. But you can't pay the rest of your bills. So, then what? I guess the plan is to refinance into a new HELOC.


Jon Holdman, Flying Phoenix LLC


Real Estate Investor · Pittsburgh, Pennsylvania


Thanks everyone for the feedback and related articles. Jon, thanks for the info on the draw period. I wasn't quite sure how that worked as the company selling the idea of the HELOC didn't get into too much detail. Seems like the 3K they want to get everything started might not be worth it.

This is slightly off topic, but aside from throwing extra cash at the mortgage, does anyone have any opinions on life insurance? Similar to a HELOC the extra cash would be liquid. Not to mention tax free and would earn more than cash in a traditional savings account.



Real Estate Investor · Springfield, Missouri


Hi HELOCs, very unstable and full of pitfalls.Life insurance? Like a single pay policy, modified life, etc...that's nut's, IMO. Ther is the cost of the insurance, every dime you put in is not a saving account, it pays for coverage as well. Life insurance is a very poor performing savings/investment, but not according to those who sell it! Use insurance for the purpose it was originally intended for, to fund losses arising from the unexpected death of an insured! That's all, a mutual fund of government securities won't earn much, but it's better than the wildest universal policy after costs. Life insurance is only a good investment when you know when you're going to drop dead....and you don't get any of it!!
There are creative uses for financial products, but using them to kite checks, living expenses or other investments is not a creative use, more like mismanagement. If you have a specific idea or use, run it by....not saying there is not a ligit use for some product, but if it has been presented as a new "system" beware, nothing is new! It's always based off of tried and true money management techniques. Bill


Financexaminer@real estate investor dot com


SFR Investor · Wheat Ridge, Colorado


If you took out a brand new $200K loan at 6% for 30 years, then paid $3000 on it right away, you'd knock a whole year off the loan. And save $13K in payments.

As Bill says, life insurance is to provide for those you depend on you. Its to replace the loss of your income. Since the usually retirement guideline is that you should take 4% of your next egg out each year if you want it to last forever, you need 25 times your annual salary in cash to replace your paycheck.

OTOH, life insurance death benefits aren't taxable, unlike your paycheck. If you're paying 28% federal, 4% state, and 7.5% FICA & SSI, you're only taking home 60% of your gross pay. So, if you had 60% of 25X, or 15X your annual salary, you could still take the 4% and have the equivalent of your after tax pay. Now, the earnings on the nest egg would be taxable. So, perhaps somewhere in between those two figures.

That assumes two things:
1) There is someone who's totally reliant on your paycheck, and
2) They're going to spend the rest of their life living off the insurance.

If you're young and single, the first doesn't apply. Nobody's dependent on your paycheck, so nobody but you gets hurt if you step in front of a bus. If you retired and living off your nest egg, even if you do have dependents, there's no paycheck to replace. So, in those two cases, you don't really need life insurance, either.

When it matters is if you have a young family, your spouse is staying at home while you work, and you want to provide for them if you bite the big one. Even then, do you want to provide for him or her to live off the live insurance for the rest of your live? If so, then 15X, 20X or even 25X is not the right number. If you're 25 years old now, you would have some expectation of an increasing paycheck for many years to come. The 4% guideline really says take 4% of the nest egg the first year, and then increase the draw by inflation each year. That's not bad, but may not put your spouse where they hoped to be.

More realistically, IMHO, you want to provide your spouse the ability to adapt to the situation. That might mean paying off all your debt, buying a house free and clear, and providing baby setting money while your spouse gets a degree or skill.

Now, the other half of this story is proper savings and spending. If you're not saving at least 10% of your pay, you're slacking off. If you're spending more than you make (i.e., running up credit card bills), you're REALLY slacking off. I don't care if you make $10 an hour or $100 or even more, if you let them, your expenses will ALWAYS be 110% of what you make. If you're like most people, including me, you have to fight that every moment of every day.

So, buy cheap term life insurance, when you need it. If you're staring a family, buy more. Another member made an argument the other day to buy insurance when you're young and healthy to avoid exorbitant rates when you're older or especially if you end up with some nasty disease. I don't entirely buy the idea of buying a product you don't need on the chance that you will need it later and have to pay more, but there's something to consider. If you have a family history of cancer, diabetes, heart disease or the like, maybe buying sooner rather than later is a good idea. But being diligent about controlling the spending and saving is even more important. If you're 50, smoke and have had a heart attack you're going to pay through the nose for life insurance. If you have a $1 million nest egg (a reasonable goal), then that life insurance isn't so essential.


Jon Holdman, Flying Phoenix LLC


Real Estate Investor · Garland, Texas


Is it your primary residence? Is your credit good? If so, why not refinance now to a 15 year mortgage at 4.25%. If you are flush and want to accelerate, do it when you have the extra $$. You could pay it off in less than 10 years without inflationary risk.


Jon Klaus, SellPropertyFast
E-Mail: [email protected]
Telephone: 214-929-6545
Website: http://www.facebook.com/Buttermilks




Sign up