Use HELOC to paydown mortgage fast

415 Replies

Originally posted by @John Nachtigall :

It pre-assumes that people don't have the discipline to pay extra into their mortgage (with say a 15 year fixed), so they force it by putting you in debt (the initial $15,000 lump) and then assume the pressure of the debt will force you to pay it back over the year.

Yes this method only works if 

#1 You make more money than you spend

#2  You are willing to spend less than you make.

#3  it works because people don't have discipline to pay their mortgage beyond the minimum.   But this method forces you to pay down your loans faster while still giving you access to cash when you need it.

But it's FANTASTIC for real estate investors.

Lets say you have 3 rentals that rent for $1000/month and you cash flow $300/month

Each month you have GROSS rents of $3000/month or let's say $2500/month after paying PM costs, repairs, etc....BEFORE you pay the mortgage.

If you get the rents on 1st of the month and you pay down $2500 into the HELOC, but you don't have to pay the mortgage ($1600) until 15th of the month.

NOw you have paid down principle in the amount of $2500 for the first 15 days and $900 for the next 15 days.

If you use the traditional method, you only have $900 extra money that you may or may not use to pay down your loans.   

This is why this method is so powerful. It utilizes money sitting in your checking account to good use AND you still have access to the HELOC, line of credit to pay off expenses and other costs. You can pay debt faster but still have access to money to use when you need it.

@Jerome K. ,

Here's where you went wrong ...

You're ***-u-me-ing that the HELOC is not being repaid. Go back and read again.

@Brian Shurtleff , of course, is way off base - not even close. I've proved my case so many times I've lost track.

... but some people just have to be "right" to feel good about themselves, and I've already made that concession.

The flaw in @John Nachtigall 's  argument is he ***-u-me-s that this is for everyone. In a recent post, I explained why that it is not the case.

@Joe Kim is on the right track with his #2, but off target. The "sweep" strategy is part of basic financial education in some countries other than the U.S. My colleagues and I are working to change that.

So, keep tilting at the windmill, guys! Argue with me all you want. The numbers, however, ...

@David Dachtera

I assumed no such thing. I specifically said it only worked if you had enough money to pay the mortgage and the HELOC and the HELOC interest. That is certainly not "everyone".

We all agree with you David. If you pay more than the minimum mortgage payment every month you will pay off your mortgage faster. You are 100% right. We only disagree on it being related to how HELOC interest is paid, it is actually just behavior economics. I share your love of numbers, so I will use my specific case

I own a townhome worth 475k.   I have 12 years left on a 15 year mortgage.   My balance left is 225k on a 3.25% interest rate.   I pay 2207.81 in principal and interest every month.   Obviously every month the principal part gets a little higher, but the total 2207.81 stays constant.   

So using your "amazing" method I get a HELOC and pay off the WHOLE primary. No more house payment....YES!!! But now I owe 225k at prime + 1% (about 5% at the moment) BOOO!!!!. In no world can I apply my 2207.81 a month to that 225k at 5% and pay it off in LESS than the original 12 years.

The "magic" of your method is to get people to pay more than the minimum each month. In the above scenarios if I upped my payment on the HELOC to $2500 or $3000 it would take less than 12 years. But cost more than if I just did what I did originally, and took a 15 year fixed not a 30 year fixed. I didn't need to be tricked into saving $132,000, I am willing to save that without any mind games

OMG!!   I just realized I invented a new method to saving money.    I am going to call it the Super Calculating Amazing Mortgage Secret (tm), or SCAMS (tm) for short.    Charge a modest $50 for the simple 1 sheet secret instruciton booklet.   I am going to be rich enough to sue...yeah!!!!

 @Mike Dymski @Chris May @Robert C.   You had better not steal my new method.  

Originally posted by @David Dachtera :

@Jerome K.,

Here's where you went wrong ...

You're ***-u-me-ing that the HELOC is not being repaid. Go back and read again.

@Brian Shurtleff , of course, is way off base - not even close. I've proved my case so many times I've lost track.

... but some people just have to be "right" to feel good about themselves, and I've already made that concession.

The flaw in @John Nachtigall 's  argument is he ***-u-me-s that this is for everyone. In a recent post, I explained why that it is not the case.

@Joe Kim is on the right track with his #2, but off target. The "sweep" strategy is part of basic financial education in some countries other than the U.S. My colleagues and I are working to change that.

So, keep tilting at the windmill, guys! Argue with me all you want. The numbers, however, ...

You're right. You mentioned you are repaying the HELOC every year. Even still, this does not change the end result. In a sense, you are increasing your total payment from the original mortgage of $1073, to the mortgage amount plus the HELOC repayment (1073+1301) which is 2374. All your math shows is that if you pay more than the minimum payment, you will pay off your mortgage faster and pay less interest (which everyone here agrees). The HELOC adds no other benefit to this than it would for someone to directly pay this mortgage.

If you have PMI on your property the HELOC method is especially useful. If you don't want to be as aggressive you can pay just want your PMI payment was towards your HELOC and still save quite a bit on what many feel is wasted money for the mortgage payer. I had a property with a PMI over $215 monthly. Used this method to pay the principal down. Knocked my PMI out completely and just paid the $215 monthly towards my HELOC and then rinsed and repeated to keep paying down principal.

Amoritized interest is much more costly than just the little 3-4% interest rate you see. MUCH MORE

Originally posted by @Will Zena :

If you have PMI on your property the HELOC method is especially useful. If you don't want to be as aggressive you can pay just want your PMI payment was towards your HELOC and still save quite a bit on what many feel is wasted money for the mortgage payer. I had a property with a PMI over $215 monthly. Used this method to pay the principal down. Knocked my PMI out completely and just paid the $215 monthly towards my HELOC and then rinsed and repeated to keep paying down principal.

Amoritized interest is much more costly than just the little 3-4% interest rate you see. MUCH MORE

 Two things:

1. Using a HELOC to get a mortgage out of PMI territory actually makes sense. Not at all what this thread was originally about, but yes, that would work.

2. You're veering into the prior false statements about how amortized loans work. Amortized loans do not accrue interest in a meaningfully different way than a HELOC. The interest is not "more expensive than the interest rate you see." The interest rate is the interest rate.

Originally posted by @Chris May :
Originally posted by @Will Zena:

If you have PMI on your property the HELOC method is especially useful. If you don't want to be as aggressive you can pay just want your PMI payment was towards your HELOC and still save quite a bit on what many feel is wasted money for the mortgage payer. I had a property with a PMI over $215 monthly. Used this method to pay the principal down. Knocked my PMI out completely and just paid the $215 monthly towards my HELOC and then rinsed and repeated to keep paying down principal.

Amoritized interest is much more costly than just the little 3-4% interest rate you see. MUCH MORE

 Two things:

1. Using a HELOC to get a mortgage out of PMI territory actually makes sense. Not at all what this thread was originally about, but yes, that would work.

2. You're veering into the prior false statements about how amortized loans work. Amortized loans do not accrue interest in a meaningfully different way than a HELOC. The interest is not "more expensive than the interest rate you see." The interest rate is the interest rate.

Simple interest in a HELOC versus Amortized interest in a mortgage is different. That being said it doesn't mean if you have a 2.5% mortgage and a 6% HELOC its not as attractive but it can still work if paid down weekly.

Originally posted by @Will Zena :
Originally posted by @Chris May:
Originally posted by @Will Zena:

If you have PMI on your property the HELOC method is especially useful. If you don't want to be as aggressive you can pay just want your PMI payment was towards your HELOC and still save quite a bit on what many feel is wasted money for the mortgage payer. I had a property with a PMI over $215 monthly. Used this method to pay the principal down. Knocked my PMI out completely and just paid the $215 monthly towards my HELOC and then rinsed and repeated to keep paying down principal.

Amoritized interest is much more costly than just the little 3-4% interest rate you see. MUCH MORE

 Two things:

1. Using a HELOC to get a mortgage out of PMI territory actually makes sense. Not at all what this thread was originally about, but yes, that would work.

2. You're veering into the prior false statements about how amortized loans work. Amortized loans do not accrue interest in a meaningfully different way than a HELOC. The interest is not "more expensive than the interest rate you see." The interest rate is the interest rate.

Simple interest in a HELOC versus Amortized interest in a mortgage is different. That being said it doesn't mean if you have a 2.5% mortgage and a 6% HELOC its not as attractive but it can still work if paid down weekly.

There is no such thing as amortized interest. There's only interest accrued on an amortized loan. That's a rumor we dispelled early on in this thread.

The only difference is whether you're using the month end balance or daily average balance for interest calculation. We walked through many many examples and the interest savings over the entire life of the loan, assuming you're making multiple payments per month instead of just one, was at most a few hundred dollars.

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

@David Dachtera

So it works if I pay SOME of my primary, but not ALL of my primary.   Explain those numbers to me.    What if I pay all but $1 of my primary, will it still work?   

David, it works because you are paying more than the minimum...it is not magic.

Originally posted by @David Dachtera :

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

Originally posted by @Chris May :
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

Be advised that the Debt Strategies presentation does NOT go into detail on this "sweep" strategy, but does discuss much of what you've read here.

Originally posted by @David Dachtera :
Originally posted by @Chris May:
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

 Well, respectfully, based on the level of understanding that you've demonstrated on here thus far  and/or your ability to explain the concept in a way that experts would agree with, I'm not willing to start promoting you.

Although, the fact that you make money on this theory does help explain why you're not willing to give up on it.

Originally posted by @David Dachtera :
Originally posted by @Chris May:
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

 Maybe you could post your spreadsheets here again.

Originally posted by @Chris May :
Originally posted by @David Dachtera:
Originally posted by @Chris May:
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

 Maybe you could post your spreadsheets here again.

There is no known way to post spreadsheets to the forum, only the copy-and-paste of the summary information in the earlier post.

It should be easy enough to make your own. Here are the column headings of the "Amortization Report" portion ...

Payment  Payment  Addit'l
Number  Amount  Payment  Interest  Principal  Balance

Let me know if you need help with the formulas. You only need to do the first payment line, then replicate, and make some minor adjustments to the first payment which gets values from the entry fields in the summary (header).

Originally posted by @David Dachtera :
Originally posted by @Chris May:
Originally posted by @David Dachtera:
Originally posted by @Chris May:
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

 Maybe you could post your spreadsheets here again.

There is no known way to post spreadsheets to the forum, only the copy-and-paste of the summary information in the earlier post.

It should be easy enough to make your own. Here are the column headings of the "Amortization Report" portion ...

Payment  Payment  Addit'l
Number  Amount  Payment  Interest  Principal  Balance

Let me know if you need help with the formulas. You only need to do the first payment line, then replicate, and make some minor adjustments to the first payment which gets values from the entry fields in the summary (header).

 The way I and others have done it is to load into Google Drive, dropbox, etc and post a link.

Originally posted by @Chris May :
Originally posted by @David Dachtera:
Originally posted by @Chris May:
Originally posted by @David Dachtera:
Originally posted by @Chris May:
Originally posted by @David Dachtera:

@John Nachtigall ,

"So using your 'amazing'" (I NEVER used that word) "method I get a HELOC and pay off the WHOLE primary."

No, you don't. No one ever said you did unless they were confused

You get a HELOC, pay a chunk of your choosing toward the primary, pay down the HELOC over the course of whatever works for your budget, lather, rinse, repeat. All the while continuing to make the scheduled payment on the primary.

Got it now?

 David, are your credit literacy and other presentations posted somewhere online? I'd be curious to see them. Maybe there's some semantic misunderstanding on one or both sides leading to all this confusion.

I supplement my income with my public speaking. The content is not proprietary - it's freely available on the web, but the presentation is my private property (my research, copyrighted IP). 

If you have a local group to whom I could present, I do give out handouts.

 Maybe you could post your spreadsheets here again.

There is no known way to post spreadsheets to the forum, only the copy-and-paste of the summary information in the earlier post.

It should be easy enough to make your own. Here are the column headings of the "Amortization Report" portion ...

Payment  Payment  Addit'l
Number  Amount  Payment  Interest  Principal  Balance

Let me know if you need help with the formulas. You only need to do the first payment line, then replicate, and make some minor adjustments to the first payment which gets values from the entry fields in the summary (header).

 The way I and others have done it is to load into Google Drive, dropbox, etc and post a link.

I don't currently use those facilities. I have no need to. 

Originally posted by @David Dachtera :

     

There is no known way to post spreadsheets to the forum, only the copy-and-paste of the summary information in the earlier post.

Sure there is and it's simple to use.   Just upload the spreadsheets to the Bigger Pockets FilePlace and place a link to it here in the thread.

@David Dachtera  ....For the record i have used the heloc method to  pay off a 252k loan in 6years and 10 months.  I know it works. I think it is hard for those who dont fully understand how interest works on mortgages, to understand how this could possibly work.  The whole process works because one has to retrain themselves on how to move their money. It is a simple process but those who havent done it dont get it.

I looked at the spreadsheet summary.  This is simple to understand.  He is enticing people into paying more than the minimum, it is no more complicated than that.

Pay mortgage payment = 22 years of payments (in his summary)

Pay mortgage + HELOC principal + HELOC interest = 9.6 years of payments (in him summary)

There is nothing wrong with it, it is behavioral economics. Pay more each month and be done with loan faster...shocked face. That is why his math broke down when I gave the example of paying the whole mortgage. If it worked because of how the HELOC interest was calculated that would be best case, but it just exposes how it only works because of extra payment. Just like 15 year vs 30 year mortgage, The sad part is he refuses to admit why it works.

I think it is because he is scared of my new SCAMS (tm) program. It is 24.3% better than the HELOC method (unaudited and unverified) and has a better acronym. Plus there is my new program, "improved super calculating amazing mortgage system" or iSCAMS (tm) because everyone knows that putting an "i" in front makes it 37.8% better, I am charging $100 for that program. Buy now and I will give you both for $135, a 10% discount. Act now

Originally posted by @John Nachtigall :

I looked at the spreadsheet summary.  This is simple to understand.  He is enticing people into paying more than the minimum, it is no more complicated than that.

Pay mortgage payment = 22 years of payments (in his summary)

Pay mortgage + HELOC principal + HELOC interest = 9.6 years of payments (in him summary)

There is nothing wrong with it, it is behavioral economics. Pay more each month and be done with loan faster...shocked face. That is why his math broke down when I gave the example of paying the whole mortgage. If it worked because of how the HELOC interest was calculated that would be best case, but it just exposes how it only works because of extra payment. Just like 15 year vs 30 year mortgage, The sad part is he refuses to admit why it works.

I think it is because he is scared of my new SCAMS (tm) program. It is 24.3% better than the HELOC method (unaudited and unverified) and has a better acronym. Plus there is my new program, "improved super calculating amazing mortgage system" or iSCAMS (tm) because everyone knows that putting an "i" in front makes it 37.8% better, I am charging $100 for that program. Buy now and I will give you both for $135, a 10% discount. Act now

Marks for sarcasm, but I'm not telling anyone to pay for anything.  I've offered to send the spreadsheets to anyone who wants them - haven't said a WORD about money.

I've made no bones at all about why it works - that's my whole point, actually.

... but, keep trying to find fault. It's very entertaining.