How to Avoid Interest w/A HELOC

Question

I recently have educated myself on paying down debt at a rapid rate and find myself exploring the creative finance world.

Hypothetical Scenerio

You have two HELOC’s both at $100,000 credit line. You use HELOC#1 to Pay off four loans totaling $50,000 w/pymt if $1,000. HELOC#1 payment is now $500 (1% of Bal). You continue to pay the $1,000 payment you’re accustomed, hence an additional $500 towards principal reducing the total interest paid on debt. HELOC#2 has no balance.

The whole purpose of the rapid pay down rate is to pay less interest and pay it down rapidly. AND to use financial tools to leverage our flexibility.

Here’s my question:

Who has used HELOC#2 to pay off (entire balance) HELOC#1 and vice versa effectively paying no interest until full $50,000 is paid off?

Correct me if I am wrong, a HELOC works like a credit card, you pay off the balance each month and there is no interest charged. Does this apply to HELOC’s?

If you have used this strategy and don’t want to publicly share the details please  DM me.

Thanks BP community!

Bill B. · Answer

Here’s an easy way to find out you’re not smarter than a banker. Take out $10k from the heloc and return it 25 days later. See if they say thanks for paying off your heloc, we won’t charge you for borrowing our $10k, even though that’s the business we’re in.

Credit cards have grace period becuase they get more than 1% from the merchant every time you use it. So they’re making 12-24% on their money even when they don’t get to charge you interest.

Kyle J. · Answer

HELOCs don’t work exactly like credit cards. HELOCs typically start accruing interest from the day that that the charge/withdrawal/advance is posted, so even if you paid off the balance at the end of the month you would still owe interest.

Todd Powell · Answer

@Dulce Beltran Interest starts the second you begin to draw the money out. They want to make their money :)

Dulce Beltran · Answer

@Kyle J. thanks, I was hoping that would not be the case and was a long shot, and of course had to ask the BP community! @Todd Powell they're in the business of making money and so are we!

@Joshua Smith thanks for your input!

Joshua S. · Answer

Yes, Kyle has it right, but if you're trying to eliminate interest you can get a HELOC and put a 10-20K chunk of your mortgage balance on it. That allows you to put all of your income toward your mortgage each month, but still be able to pay your bills. The idea is to lower the average daily balance on your mortgage throughout the entire month rather than make normal payments and have your ADB stay the same all month. You can also just put extra principal toward your mortgage every month, but this doesn't have the same aforementioned benefit.

I'm using this strategy and my rate so far has me paying off my 2 year old 30 year mortgage in around 7 years. Good luck either way - interest is a killer. :)

Dulce Beltran · Answer

@Bill Brandt that's what I was wondering, will the lender throw up the red flag and close it out since they would not be making money on the balance. Curious to see if any one has attempted the strategy. Thank you for your input!

How to Avoid Interest w/A HELOC

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