Pay off your mortgage using a HELOC

13 Replies

My mom came to me today asking about a strategy she heard about where people are paying off their mortgage in 5 years. I was very skeptical about this and told her not to do anything before she did more research. In her excitement, she sent me a few "informative" videos she had found. From the opening line of the videos, all I could think of was "RUN!!!"

I wanted to see if anyone here has ever heard of this strategy and if so, has anyone tried it? From what I could find, the gurus are telling people to convert their personal checking accounts into a HELOC account. This link talks about the theory:

My brothers and I keep telling her no but I would love to poll the audience here to get other opinions. 

Tagging people here that I feel may have come across this before...

@Brandon Hall @Rik Wallace @Brandon Turner

I believe there is a long thread discussing this here on BP. search the forum. I think most advised against it.

Long debated and as @Jason G. said there is an epic and famous thread on here discussing it in detail with tons of people adding perspective, math, and recommendations.

After reading it twice, it seems like a really inefficient way to get a small benefit.

It works, but so does couponing.

I strongly believe that it works as I have multiple HELOCs myself but then there are few should be fully familiar with the concept before jumping in as the loan amount makes a big difference to be in the 1st/2nd lien position to make it work and not to mention financial discipline.

Researching this is how I found BP!!...the EPIC thread came up when I was looking at this strategy.......been cruising here ever since.

My take....can it work? yes....but it takes a very disciplined person to strictly stay with the plan details to get it to work......and its not worth the tiny benefit.

The benefit vs just making extra payments to you mortgage are tiny at best....... want to pay your mortgage off faster? Just make extra payments......and save yourself the hassle

I think the benefit portion varies from "Tiny" to "Huge" if you are someone who spend less than what you make. The more the difference in that equation the merrier the HELOC strategy works for you. It also works great in that fashion if you only have one home and that is your primary home as you can funnel all your money through HELOC. You can also in increase your HELOC credit limit as you pay down the primary mortgage and eventually make it in the first lien to have it as a backup funding for anything you wish to do. The biggest benefit is that the interest you pay on a HELOC is fully tax deductible. I have shaved quite a bit of my mortgage in the last one year by using this strategy.

I have HELOCs in both first lien and second lien. I find it to be better to have it in 1st lien if the loan amount is<200K and second lien if its >200K. Hope this helps.

Be aware of changes in the new Tax Reform bill.  As currently proposed, interest on HELOCs will no longer be deductible.  Interest on mortgages for first and second homes will be deductible up to certain limits.  But not HELOCs.  Consult a trusted tax advisor for more information.  

Thank you Renee for bringing this up; it was an useful point.

However, based on my reading on the web
It appears like the interest on Home Equity loans is still tax deductible if it is used for home or home acquisition related expense. If you are using it to payoff your home mortgage then it sounds like it is still tax deductible; just NOT when you use it to buy an RV.

I think your point is well taken, but needs to be extended further to investors who may use a home equity loan to fund investment property. In such case, the interest does NOT appear to be deductible because it would not meet the definition of qualified residence of the taxpayer or a second home.

According to the bill text available at, qualified residence interest is allowed as an itemized deduction.  Qualified residence interest means interest paid during the taxable year on either acquisition indebtedness or home equity indebtedness incurred to acquire, construct, or substantially improve a "qualified residence of the taxpayer".  A qualified residence means the taxpayer's principal residence and one other residence (second home) of the taxpayer selected to be a qualified residence.

The reform bill also includes limitations around the amount of home equity indebtedness both by itself and relative to acquisition indebtedness.

I would emphasize my original comment, consult a trusted tax advisor before using home equity loans as an investment funding strategy in tax years 2018 and beyond.

I imagine this new bill will be keeping our tax people fully engaged for a while!  :)

Thank you Renee for adding more light and context to the topic. That is very useful info at least for me as I have two HELOCs in First Lien position replacing my mortgage and both of them are my rentals; now I am not sure if the interest paid on them would be tax deductible next year with this new bill!!!!

Originally posted by @Rob Reddy :

Thank you Renee for adding more light and context to the topic. That is very useful info at least for me as I have two HELOCs in First Lien position replacing my mortgage and both of them are my rentals; now I am not sure if the interest paid on them would be tax deductible next year with this new bill!!!!

 If the loans are secured by your residence, but are being used to finance rental properties, the loan interest is deductible as business interest. (This is not an itemized deduction on schedule A, but a business deduction on schedule E.)

If the loans are secured by your rental property, but being used to finance the house you live in, the interest is not deductible in 2017 or 2018. To deduct the interest paid to finance your residence (as an itemized deduction on schedule A) the loan must be secured by the residence. This has been and will continue to be the law. It also can't be deducted as a business expense on schedule E as the interest is not being spent on the business.

If the loans are secured by rental property and being used to finance the rental property (or other rental property) the interest is deductible on schedule E as business expense.

Thank you Paul for your detailed reply. Based on your reply it appears like my HELOC interest is tax deductible( Sched E) as both my rentals are financed through HELOCs in first lien position.

It's very simple, you get a second position HELOC to pay down large chunks of your mortgage $5-$10,000 at a time and then put all of your paychecks and bills against the HELOC and treat it like a checking account. As long as you are making more than you are spending the HELOC balance will come down over time and then when you get to zero you pay another chunk to your mortgage. There are a lot of naysayers on this, but it doesn't make any sense. Everyone will tell you that paying down your principal faster will save you on interest - the whole bi-weekly payment scheme is built on that premise and it's a very mainstream / accepted idea now.

The only difference here is that you are using the bank's money to do it and then paying them a small amount of interest on the HELOC account to make the whole thing work. If the HELOC was a huge cost then the whole thing wouldn't make sense, but it's not. To carry a $10,000 balance on even an 8% HELOC is about $66/month and if you are putting your paychecks toward the keeping the balance down throughout the month the cost is even less. Who wouldn't spend $40-$60/month to save thousands and years off of their mortgage??? And if you try it and don't like it, pay it off and let the credit line sit at zero and pay nothing. It's a no-brainer and really unfortunate that people don't get it.