Use HELOC to paydown mortgage fast

Use HELOC to paydown mortgage fast

Investor · Draper, UT · Member since 2016 · 120 posts · 57 votes

I want to build equity with my primary home as soon as possible. And I came across a method using HELOC to reduce the interest paid to the mortgage. Does any one have experience with it?

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Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
10y

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.

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  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Roy N.,

    Point taken.

    The nay-sayers, however, are the ones who, even after reading both your evidence, Eric's and mine will still insist that mortgage acceleration doesn't work.

    Myth: Mortgage Acceleration doesn't work.
    Myth - BUSTED

  • Rental Property Investor · Durham, NC · Member since 2016 · 354 posts · 288 votes
    10y
    Originally posted by @David Dachtera:

    @Roy N.,

    Point taken.

    The nay-sayers, however, are the ones who, even after reading both your evidence, Eric's and mine will still insist that mortgage acceleration doesn't work.

    Myth: Mortgage Acceleration doesn't work.
    Myth - BUSTED

    I can't believe you still think you were somehow proven correct. 

    I suppose that I can at least take comfort in the fact that when this topic inevitably comes up again in the future, others can read through this and plainly see that mortgage acceleration schemes do not "work".

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Chris May,

    Again, what can I say? The numbers don't lie and the financial experts (Roy N. and Eric Jones) have agreed that it does indeed work as do the variations discussed in the thread.

    Nay-say if you will. Believe what you will. Think what you will.

    The evidence is irrefutable.

  • Rental Property Investor · Durham, NC · Member since 2016 · 354 posts · 288 votes
    10y
    Originally posted by @David Dachtera:

    @Chris May,

    Again, what can I say? The numbers don't lie and the financial experts (Roy N. and Eric Jones) have agreed that it does indeed work as do the variations discussed in the thread.

    Nay-say if you will. Believe what you will. Think what you will.

    The evidence is irrefutable.

     Haha. I think you misunderstood. I agree with what they posted and it 100% contradicts what you were arguing the whole time.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Chris May

    * Heart-felt Sigh *

    I understand very well, thank you.

    Nay-say if you will. Believe what you will. Think what you will.

    I proved my point many times over. Mortgage acceleration using a HELOC DOES work. Period - end of statement.

    Case - closed.

  • Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes
    10y

    @David Dachtera

    We ALL agree that paying extra on a mortgage will pay a loan off faster and decrease the interest.  The sooner the money is put towards it the less interest you will pay.  There is no MYTH about this.  IT is math not opinion.

    The point we are all trying to make to you is that it has nothing to do with a HELOC. When you transfer this debt to a HELOC you are NOT saving ANY money. You are still paying the same interest if not more. In reality it is costing you more. Yes a HELOC does have other benefits but it does NOT benefit you financially by doing this debt transfer.

    I'll make an example to show what you are trying to say.

    Paying off house with HELOC will pay loan off sooner.

    Why stop at a $10,000 HELOC. You live in a $1,000,000 house and are able to secure a HELOC for $150,000. You take that HELOC's $150,000 and pay off the mortgage. Congratulations you have just paid your mortgage off sooner with your HELOC. But have you gained anything? NO!!! That HELOC is accruing Interest at the same rate and if you paid $632.41 a month it would still take you 30 years to pay it off. And I guarantee the interest rates will go up between now and then.

    MYTH: transferring debt to heloc will pay Debt off sooner

    BUSTED! - it will only pay off the mortgage but leave you with the same or more Debt.

  • Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
    10y

    @David Dachtera I think you should get 2 HELOCs and save even more money!

  • Rental Property Investor · Durham, NC · Member since 2016 · 354 posts · 288 votes
    10y
    Originally posted by @Mike Landry:

    @David Dachtera

    We ALL agree that paying extra on a mortgage will pay a loan off faster and decrease the interest.  The sooner the money is put towards it the less interest you will pay.  There is no MYTH about this.  IT is math not opinion.

    The point we are all trying to make to you is that it has nothing to do with a HELOC. When you transfer this debt to a HELOC you are NOT saving ANY money. You are still paying the same interest if not more. In reality it is costing you more. Yes a HELOC does have other benefits but it does NOT benefit you financially by doing this debt transfer.

    I'll make an example to show what you are trying to say.

    Paying off house with HELOC will pay loan off sooner.

    Why stop at a $10,000 HELOC. You live in a $1,000,000 house and are able to secure a HELOC for $150,000. You take that HELOC's $150,000 and pay off the mortgage. Congratulations you have just paid your mortgage off sooner with your HELOC. But have you gained anything? NO!!! That HELOC is accruing Interest at the same rate and if you paid $632.41 a month it would still take you 30 years to pay it off. And I guarantee the interest rates will go up between now and then.

    MYTH: transferring debt to heloc will pay Debt off sooner

    BUSTED! - it will only pay off the mortgage but leave you with the same or more Debt.

     To add to this...

    David - Did you see my spreadsheet showing the full life cycle of the loan? Using a second line of credit (HELOC, credit card, etc) actually takes slightly longer and costs more in interest than just paying that $300-$310 per month directly to the mortgage.

    You're trying to confuse the issue by now touting the other benefits of HELOCs. The argument originally advanced by you is unequivocally proven incorrect by the spreadsheet I put together.

  • Rental Property Investor · Durham, NC · Member since 2016 · 354 posts · 288 votes
    10y
    Originally posted by @Mike Dymski:

    @David Dachtera I think you should get 2 HELOCs and save even more money!

     Why stop there? Get 10!

  • Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    Readers, if you don't understand an investment you probably shouldn't be making it.

    You probably all understand that you can pay your mortgage off faster by paying more than the required payment. The same is true for credit card debt. 

    If you don't understand the magical benefits of using a HELOC to pay off your mortgage then you probably should just stay away from it.

    It's a bunch of nonsense, as @Eric Jones and @Chris May have pointed out, but if you are not mathematical you probably don't understand what they are saying either.

    Just stick with what you truly understand and you'll be fine.  Just make extra payments to your mortgage.

  • Investor · Richland, WA · Member since 2016 · 16 posts · 3 votes
    10y

    Newbie here,

    I've been following along and trying to do the examples but am not great w excel. My question is, is there a calculator that takes into account the average daily balance and the effect on interest depending on when you put funds into the line of credit and when you have to pull back out monthly? ie. 1st of month you pay down line. 15th of month you use the line. vs. 1st of month you pay down line and 28th of month you use the line.

    Also, is there any vehicle where interest does not accrue immediately when its used? or is this wishful thinking.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Mike Landry,

    "The point we are all trying to make to you is that it has nothing to do with a HELOC"

    Funny - I made that same point! Several times! Didn't read the whole thread, did you?

    "MYTH: transferring debt to heloc will pay Debt off sooner"

    Not sure where you got THAT from! I certainly never said it...

    As I wrote to Eric Jones:

    "Again (and again and again and ...), the HELOC is used solely as an accumulator for the lump sums periodically paid against the 1st mortgage. Other than that, it plays no role in and has no relevance to the mortgage acceleration scenario."

    You could just as easily use another income source, an ordinary checking account ("interest bearing" (* GUFFAW *!)), etc.

    I can't make it any plainer than that.

    Even the OP said as much way back on Page 1.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    Um, @Larry Turowski?

    Can you show me where I (or anyone else) said there is some "magic" about using a HELOC here?

  • Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @David Dachtera:

    Um, @Larry Turowski?

    Can you show me where I (or anyone else) said there is some "magic" about using a HELOC here?

    If Eric and Chris couldn't convince you, I sure can't. 

  • Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes
    10y
    Originally posted by @David Dachtera:

    @Chris May

    * Heart-felt Sigh *

    I understand very well, thank you.

    Nay-say if you will. Believe what you will. Think what you will.

    I proved my point many times over. Mortgage acceleration using a HELOC DOES work. Period - end of statement.

    Case - closed.

    David, we keep thinking the case is closed then you come back and say " Mortgage acceleration using a HELOC DOES work." This is the what we are getting at. Sure you can pay off your loan all you want with your HELOC but it doesn't benefit you one bit. IT DOES NOT WORK at improving your financial balance at all.

  • Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes
    10y
    Originally posted by @Joe Au:

    I want to build equity with my primary home as soon as possible. And I came across a method using HELOC to reduce the interest paid to the mortgage. Does any one have experience with it?

    This is the original post of this thread.  It doesn't work.  You are just transferring debt.  Its still there and still accumulating interest.

  • Investor · Montgomery, TX · Member since 2014 · 386 posts · 151 votes
    10y
    Originally posted by @David Dachtera:

    Here's another way to look at it...

    Let's say you have a HELOC and a 30-year fixed 1st mortgage.

    Take the entire available balance of your HELOC and apply it to your first. Then, pay down the HELOC while keeping up your payments on the 1st.

    Everytime you get a big chunk available in your HELOC, throw it at the 1st.

    Why it works:

    The 1st mortgage is amortized. That means the early payments are mostly interest while the principal balance is high. The payment is fixed and not dependent on the balance owing - the payment always stays the same unless the interest rate adjusts. (Yes, this works for ARM's, also.)

    The HELOC, on the other hand, is like any other revolving credit. The payment is determined by the balance owing or the average daily balance - check the terms of your HELOC to determine what it is in your specific case - plus the interest on that balance for the payment period.

    If you can manage your HELOC payments so you're throwing big chunks at your 1st on a regular schedule you'll payoff your 1st much faster than making double payments or any of that.

    I don't have the numbers or the charts right at hand, but yes - using this technique, you CAN payoff a 30-year fixed in as little as seven years ... nine to ten is more likely, however.

    Note, however, that every time you take a big chunk out on your HELOC your credit will take a hit: the spike in utilization will lower your score and impact your credit profile. Sorry - no free rides.

    David J Dachtera

    Your first post here. The same results can be achieved by just paying extra. Having a HELOC will NOT help you pay off your debt any faster, you are just moving debt around. I think we are all on the same page now.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Mike Landry,

    Nope, just like Eric was when we started out, you're still off track. Re-read the thread starting with Eric's first post - you're making the same mistakes he did, or so it would seem.

    So, show me where ANYone ANYwhere said ANYthing about "moving debt around".

    As I wrote to Eric Jones:

    "Again (and again and again and ...), the HELOC is used solely as an accumulator for the lump sums periodically paid against the 1st mortgage. Other than that, it plays no role in and has no relevance to the mortgage acceleration scenario."

    What about that statement is in ANY way ambiguous?

    Again (and again and again and ...), I've proven REPEATEDLY that it DOES work, and noted that the financial experts cited earlier agreed with me and with the evidence, though some of them, too, "ran off into the weeds" and confused themselves pretty badly at times.

    Now, step away from that river in Egypt, get on a plane and come back home to the States.

  • Investor · Draper, UT · Member since 2016 · 120 posts · 57 votes
    10y

    I don't have an HELOC, can anyone tell me the following graph make sense or not.

  • New to Real Estate · New York, NY · Member since 2015 · 11 posts · 11 votes
    10y

    I am impressed this conversation is still going.  I don't know if the main participants in this discussion deserve medals or need better hobbies...

  • New to Real Estate · New York, NY · Member since 2015 · 11 posts · 11 votes
    10y

    @Joe Au

    That looks like it is working right to me.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Joe Au,

    Well, not sure what you're showing us. It looks like you're paying the $3,000 back in two $1,500 chunks on the right and carrying $3,000 for 30 days on the left.

    So, yes - the right hand side will show less interest due than the left-hand side.

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    @Gregory Dunton,

    Dunno if any of these guys were on a debate team, but they would likely have earned something for so staunchly defending an indefensible position.

  • Investor · Draper, UT · Member since 2016 · 120 posts · 57 votes
    10y

    The graph on the left is the "debt transfer", you pull $3000 from it and do nothing. The right side have 2 bi weekly paychecks deposited to it and then paid expense on the 25th. I am just wondering if this is how interest calculate in HELOC.

  • Rental Property Investor · Durham, NC · Member since 2016 · 354 posts · 288 votes
    10y
    Originally posted by @Gregory Dunton:

    I am impressed this conversation is still going.  I don't know if the main participants in this discussion deserve medals or need better hobbies...

     I can only speak for myself but I probably need a better hobby. My house is finally closing after flipping it and suddenly I have a lot of time on my hands haha. 

    What was life like before I spent every weekend doing reno?

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