Texas HELOC State Law

8 Replies

Hi everyone! I am new to this site. I have watched several videos and read articles about using a HELOC to pay down your mortgage. These resources also mention that it only works if you use your HELOC like a Checking Account. I get what they are saying. I have spent all week calling local banks, state banks, and national banks and finally realized they were all saying the same thing - you can't use a HELOC in Texas as a checking account. There is a minimum draw of $4,000 and no debit card. It's a Texas Law! You have to write yourself a check into a different checking account. Now, I know I could keep a big spreadsheet and pay any extra into my monthly payment back into the HELOC. But that makes it more difficult!

Does anyone here have experience using a HELOC in Texas to payoff a mortgage? How did you handle this situation?

My situation: My primary residence is in Texas (15 yr mortgage @3.25%, 4 years into it) and is the home I have been researching all week to get a HELOC. I am leaning toward Amplify based out of Austin. I have an investment property in South Carolina (30 yr mortgage @4.75%, 7 years into it) that currently has renters. I also need to payoff that mortgage and PMI. My original plan was to get a HELOC on the Texas home, payoff $13k debt, $11k towards second mortgage to get rid of the PMI. Dump the remaining money into the Primary Mortgage and start paying down the HELOC, rinse and repeat. Once the primary mortgage was taken care of, I was going to move on to the secondary mortgage. Then, start looking into other rental properties.

I have not yet looked into getting a HELOC on the secondary mortgage. I know the LTV% is less and I assume the rate is higher. I plan to do that next as a possible option.

I know there is pending legislation that will be set to vote on 11/07/17 for Prop 2 SJR 60. It doesn't really sound like it has anything to do with my problem.

Any advice would be greatly appreciated! 

Kim

I'm not totally clear on what your objectives are - but my understanding is you want to pay off the Mortgage on your home and then move on to pay off the Mortgage on a rental property. You currently have a 15-year Loan on your home - which is in itself accelerating the pay off. 

Investigate with your current lender about doing a Bi-Weekly Payment program.  Meaning half of our monthly mortgage payment is made every two weeks. This has the effect of making 13 Payments a year instead of 12. Additionally, if you have sufficient income, add more dollars to your Payments to be credited to Principal, again accelerating your payoff.

Good Luck!

JIM  

512-633-3853

@Jim Cummings , thanks for the reply. Here is a link to the Biggerpockets video and a link to Clayton Morris Video about this topic. The premise is that you use a HELOC to pay down a big chunk of your mortgage at one time and you use your HELOC like a checking account to slowly payoff your HELOC (assuming your income is greater than your expenses). You end up paying a lot less interest on your mortgage while paying it off early. My problem is that Texas doesn't allow you to use your HELOC like a checking account.

I'm hoping to find someone who has successfully used the HELOC method in Texas to gain some insight into how they did it.

Bi-weekly payments are an option (and less of a risk) but the overall interest savings is not as much as paying a big chunk of the principal at one time. The HELOCs I have been researching do have a rate cap.

Thanks!

Kim

I would agree paying a big chunk does accelerate the payoff curve. 

Wouldn't the interest on a HELOC be roughly the same as on your current mortgage?

I would be interested in details if you find a way to make this happen!

JIM

512-633-3853

@Tyler Mullen , I would only want to use what it within my means to payback immediately. The bank has the right to put a hold on my draw and/or require that I pay the full amount I owe immediately. It is not without some risk. I have enough in liquid assets to cover what I would draw from the HELOC.

@Jim Cummings , my mortgage is 3.25% and the best HELOC I could find is 3.75%. With a mortgage, interest is calculated monthly. On a HELOC, interest is calculated daily, as it is on a credit card. I'll end up paying $16k in HELOC interest versus $40k in mortgage interest. But the whole premise is based on using the HELOC like a checking account. Income goes in and expenses go out to bring your daily interest rate down as low as possible.

I know this is an old thread but I'm super curious about this as well. Is Texas anywhere near close to changing the way helocs work in Texas? It's so stupid that we can only borrow up to 50%

Beginning this year, you can take out a HELOC in Texas up to 80% of FMV subjects to first mortgage, of course. That’s it, total loan amount can’t exceed 80% of appraised value. As far as I know, you’ll have to do a draw and deposit into your checking account then write check. I setup my HELOC with RBFCU in January of this year @ 80% FMV with minimum draw amount of $1K/draw. Closing costs are kinda high with ~$300 appraisals fee plus title insurance north $2K. Good luck!

512-856-4289

We went with Amplify in Austin. 80% of appraised value, all done over the phone, appraisal done via online comps. Min $10k draw, which we immediately turned around and transferred back to HELOC. $300 application fee only. No other charges. I called 15 banks and this was the best deal we could find. Oh, and their APR was lower than the market rate!

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