Investor · Woodbridge, VA · Member since 2018 · 30 posts · 3 votes
Recently, I came across this program called, "Replace your mortgage" by Michael Lush. During my first call, they collected financial information and I was told I could refinance my existing mortgage into a HELOC and use it to pay off my mortgage in 10 years or so. I can also use the HELOC as my checking account as well. In order to pay off the mortgage in 10 years' time frame, I was told I would have to put all my savings and checking account funds into HELOC. I am intrigued by this idea but at the same time bit skeptical. Anyone here is familiar with this program?
Also, would it be wise to use HELOC to pay off the mortgage or use my savings account fund to buy an investment property? Thanks.
The 15 year or 30 year fixed mortgages are generally cheaper than HELOC loan programs. HELOC mostly tied up to the prime rates and hence rates can go up in the future. HELOC is usually upto 10 year term. HELOC can be called due within 6 month notification; as part of fine print in the HELOC docs.
So, payoff the mortgage by borrowing from HELOC may not be a best option.
Having HELOC as an add on to the existing mortgage is more practical. You can use this HELOC funds and/or savings funds to buy real estate investments.
It is good to do your financial numbers and talk to licensed professional.
Why wouldn't you just get a HELOC against the equity in your property and use that as a down payment on your investment property? Commonly HELOC's have a 10 year draw period with interest only payments and then need to be paid back (principal + interest) over 10-20 years. Sounds to me like the program is attempting to lure you with lower "interest only" payments, likely at a higher rate than a conventional mortgage. Not only would you not be paying down any principal over this time but you are also putting yourself in a worse position in the long run.
@Kazi Islam This is called the velocity banking method, among other names. This has been discussed at length in multiple posts, and the general consensus is while it does work, it is not as big of a "hack" as it seems and some people don't think it is worth the time and effort. What is your interest rate at? If it's below 5.5%, I wouldn't worry about trying to pay it down. Instead, I would make sure you are maxing out your 401k/IRA contributions at the very least, and then pay down your mortgage principal while taking into consideration directing the money towards other investments. With average market returns of around 7% yearly, it does not make the most sense to pay down non-delinquent, low-interest debt. Unfortunately, individuals like Dave Ramsey have done a lot to make people think that all debt is bad debt.