Any Experience with HELOC as 1st Position and a company called RYU?

Question

I recently did a informational Zoom with a company called RYU that helps advise/setup the use of a HELOC or PLOC instead of traditional 30-yr mortgage using their vetted network. The basic premise is that you use the HELOC instead of a mortgage and then use the HELOC account as your basic checking/savings account - effectively reducing your principal immediately. The idea is that your overall interest payment amount for the simple interest HELOC is less than the compound interest of the standard 30-yr mortage allowing you to pay off a property with significantly less time and interest. Does anyone have experience with this strategy or company? It all makes sense to me, but its also the first I ever heard of this strategy...

Doug Smith · Answer

What a fun question. There are 2 times when this makes sense: 1) when you are sure the Fed Funds Rate and, therefore, Prime is going to drop over the foreseeable future and 2) if you're in a State like Florida where you have a huge or unlimited Homestead Protection and the borrower is in a field where they are prone to lawsuits. 20+ years ago I was a private client banking executive and I had many doctors...very prone to suit. I'm also in FL, which has unlimited asset protection on your homestead. Rates were coming down, so I had physicians use an equity line as a first on their primary, homesteaded residence and then used it like a savings account. If there were to get sued, then the equity was in the home and they could not be attached to pay a judgement. You have to look at the asset protection laws in the state you're working in, but that's what I did a ton in FL. On another note, I personally refinanced a 7.25% mortgage that I got in 2001 with an Equity Line at Prime -1%. Prime got down to around 4% in 2003, so I was paying 3% interest only and, at the time, the interest deduction on taxes was much more favorable than it was before Trump doubled the standard deduction. To answer your question about the company...never heard of them, but that doesn't mean they are not a good company. I am not sure the strategy makes sense right now if you're going for rate savings. Prime is riding at 6.75% right now and conventional rates are well below that currently. With inflation riding pretty high and high oil prices likely not allowing the inflation rate to come down, there's no way the Fed is lowering rates any time soon. Let me know if you want to talk through this more.

Ned Carey · Answer

@Mayur Chaudhari I am not familiar with that particular company but this is a legitimate strategy. But don't pay for the privilege of doing what you can do on your own. You do not need any fancy software to do this.

I haven't done it myself yet but I know others that have.

"The idea is that your overall interest payment amount for the simple interest HELOC is less than the compound interest of the standard 30-yr mortgage."

Nope that is bogus. The people promoting these schemes deliberately hide the way it works so you think you need their software.  The reason it works is what would normally be a cash balance in your checking account is now being used to reduce your mortgage balance. Also on a HELOC the interest is calculated daily vs once a month so you are reducing your costs every day that float is being used to pay off the HELOC. These companies often say you can pay your mortgage off in 7 years, or some other short time frame. But that can only happen if you make significant extra payments and or have a lot of free cash that would otherwise be sitting in a non interest bearing account. Yes this works but don't be scammed by a company that wants to charge a lot to do it.

Mayur Chaudhari · Answer

Thanks. Do you know anyone that has experience doing this?

Mike Grudzien · Answer

I don't know RYU, but I have seen a presentation on this model.  It works if you work it.