It's a dumb idea that pops up from time to time from some BS guru types. The basic reality is.....instead of using your extra Monday each month to pay back a heloc loan you borrowed to pay down your mortgage.....simply use that extra money each month to directly pay down your mortgage. All the other hype about simple verses compounded interest gobbledygook is just total BS.
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
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.
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.
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.
"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?
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.
"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.
"...it is not magic"
No one ever said that it was.
I can send you the spreadsheets so you see how the numbers work ...
"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.
"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.
"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.
Remember that your assessment of level of understanding is yours, and yours alone, and may or may not be shared by others, as evidenced in this thread.
"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).
"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.
"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.
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
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.
I know no one's going to listen to this, but I'll put it out there anyway...
No, there's no "magic" to a HELOC.
There ARE, however, certain advantages.
1. Deductions?
Check with your tax professional about your ability to deduct the interest on a HELOC from your taxable income.
2. Credit?
A HELOC should be reported on your credit profile as real-estate related. BMO Harris is notorious for getting this wrong and reporting it as simply "revolving" credit. Correctly reported, a HELOC does NOT count against your revolving credit utilization.
Using this strategy, you're borrowing and repaying an amount annually. This helps support a strong credit profile and a favorable credit score.
One downside is the possible impact on your debt-to-income ratio should you seek to replace an auto, major appliance, etc. requiring a new loan just after applying a "chunk" to your mortgage.
Deposit accounts, mattresses, extra monthly principal amounts, etc. each have their own unique advantages. Few of them do you much good come tax time or on your credit report, however.
Just wanted to put that out there ...
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.
Thanx much, Roy! I wasn't aware of that. Let me explore it ...
You - and anyone else - can find the spreadsheet files here:
Amortization of a 30-year loan, $200,000 initial balance, 5% APR.
Amortization of 30 year loan, $200,000 initial balance, 5% APR, loan accelerated to 9.17 years by making a $15,000 additional principal payment once a year ("velocity banking").
I know no one's going to listen to this, but I'll put it out there anyway...
No, there's no "magic" to a HELOC.
There ARE, however, certain advantages.
1. Deductions?
Check with your tax professional about your ability to deduct the interest on a HELOC from your taxable income.
2. Credit?
A HELOC should be reported on your credit profile as real-estate related. BMO Harris is notorious for getting this wrong and reporting it as simply "revolving" credit. Correctly reported, a HELOC does NOT count against your revolving credit utilization.
Using this strategy, you're borrowing and repaying an amount annually. This helps support a strong credit profile and a favorable credit score.
One downside is the possible impact on your debt-to-income ratio should you seek to replace an auto, major appliance, etc. requiring a new loan just after applying a "chunk" to your mortgage.
Deposit accounts, mattresses, extra monthly principal amounts, etc. each have their own unique advantages. Few of them do you much good come tax time or on your credit report, however.
Just wanted to put that out there ...
Tax treatment of using a HELOC to pay part of your mortgage and then using cash to pay the HELOC is identical to using that cash to pay the mortgage directly. No different.