# Heloc to pay off mortgage faster

684 Replies

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Joshua Smith:

Originally posted by @Eric M.:

You're right, I'm probably not good enough with spreadsheets to prove it in that way. But that doesn't mean I'm wrong.

Joshua, It's OK if you can't come up with your own spreadsheet, but you have to at least show us where Chris made an error in his calculations. It seems that you keep trying to use "logic" for your arguments instead of math. If you can't come up with your own calculations which show that your method is superior AND you cannot show us where Chris has made a mistake in his calculations, I cannot see how you expect anyone to be persuaded by your arguments.

It's because his calculations are correct in that they work out mathematically, but don't take into account how a mortgage actually works in the real world. Your lender calculates out the interest and "schedules" the payments before you close on the loan, but if you don't follow the actual schedule then you make changes to the amount of interest you pay. Everyone agrees on this if you tell someone you pay bi-weekly or make extra principal payments - paying your principal early saves / cancels out interest - woohoo, everyone knows that. In my case, I paid $10,000 and was able to save $21,000 on interest. The fact that I pay $50/month to my HELOC I guess just makes me a dummy, right? Or is it the fact that I don't have a mathematical equation to explain it that makes me a dummy? :-D

How about this. If I tell you that light travels faster than sound, but I don't know the equations to prove it on paper, I'm a dummy. But if I take my car down the road and slam the door and you see it before you hear it and you won't believe it without seeing the equations then you're the dummy. The equations are getting in the way of your real world understanding of what's happening when you pay principal early. You guys write out the equations and I'll save money, I'm fine with that. I actually just wanted to help people understand, but as I said originally, it's too bad people don't or refuse to understand. Have a good one.

If you pay $50/month on a $10,000 HELOC, it will take you 431 months to pay off and will have paid a total of $21,550.

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

How clever and sarcastic of you. Obviously I meant $50 in interest costs. The balance is paid down each month by your surplus funds, but you already know that. But this is awesome, though, you proved my point! For the $10,000 to have equal costs on the mortgage and the HELOC, you'd have to pay take 35 years to pay off the HELOC. When you take 6-12 months depending on your discretionary income, you are obviously saving a ton vs what it would cost on the mortgage. I'm glad we could finally agree.

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Joshua Smith

replied over 2 years ago
Originally posted by @Jeremy Z. :

Originally posted by @Joshua Smith:

Originally posted by @Eric M.:

You're right, I'm probably not good enough with spreadsheets to prove it in that way. But that doesn't mean I'm wrong.

Joshua, It's OK if you can't come up with your own spreadsheet, but you have to at least show us where Chris made an error in his calculations. It seems that you keep trying to use "logic" for your arguments instead of math. If you can't come up with your own calculations which show that your method is superior AND you cannot show us where Chris has made a mistake in his calculations, I cannot see how you expect anyone to be persuaded by your arguments.

It's because his calculations are correct in that they work out mathematically, but don't take into account how a mortgage actually works in the real world. Your lender calculates out the interest and "schedules" the payments before you close on the loan, but if you don't follow the actual schedule then you make changes to the amount of interest you pay. Everyone agrees on this if you tell someone you pay bi-weekly or make extra principal payments - paying your principal early saves / cancels out interest - woohoo, everyone knows that. In my case, I paid $10,000 and was able to save $21,000 on interest. The fact that I pay $50/month to my HELOC I guess just makes me a dummy, right? Or is it the fact that I don't have a mathematical equation to explain it that makes me a dummy? :-D

How about this. If I tell you that light travels faster than sound, but I don't know the equations to prove it on paper, I'm a dummy. But if I take my car down the road and slam the door and you see it before you hear it and you won't believe it without seeing the equations then you're the dummy. The equations are getting in the way of your real world understanding of what's happening when you pay principal early. You guys write out the equations and I'll save money, I'm fine with that. I actually just wanted to help people understand, but as I said originally, it's too bad people don't or refuse to understand. Have a good one.

If you didn't take out the HELOC and instead just made those payments as additional principal toward you mortgage you would save the same amount. And then you could take out a HELOC later if needed.

Look, I'm not saying a HELOC is bad. They certainly serve a function. But they aren't the magic solution that they often get pitched as being.

And for the fifth time, just making additional principal payments is great, but most people don't have large chunks of money lying around or are purposely keeping them as emergency funds and don't want to lock them up in their mortgage.

I'm not saying it's magic, either, it's just a way to pay large chunks of your mortgage without using your emergency funds to do it. You could do the reverse and put chunks of your emergency money into your mortgage and use your HELOC as backup, but that defeats the purpose in my opinion.

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Joshua Smith :Originally posted by @Chris May:

Originally posted by @Joshua Smith:

Originally posted by @Eric M.:

You're right, I'm probably not good enough with spreadsheets to prove it in that way. But that doesn't mean I'm wrong.

Joshua, It's OK if you can't come up with your own spreadsheet, but you have to at least show us where Chris made an error in his calculations. It seems that you keep trying to use "logic" for your arguments instead of math. If you can't come up with your own calculations which show that your method is superior AND you cannot show us where Chris has made a mistake in his calculations, I cannot see how you expect anyone to be persuaded by your arguments.

It's because his calculations are correct in that they work out mathematically, but don't take into account how a mortgage actually works in the real world. Your lender calculates out the interest and "schedules" the payments before you close on the loan, but if you don't follow the actual schedule then you make changes to the amount of interest you pay. Everyone agrees on this if you tell someone you pay bi-weekly or make extra principal payments - paying your principal early saves / cancels out interest - woohoo, everyone knows that. In my case, I paid $10,000 and was able to save $21,000 on interest. The fact that I pay $50/month to my HELOC I guess just makes me a dummy, right? Or is it the fact that I don't have a mathematical equation to explain it that makes me a dummy? :-D

How about this. If I tell you that light travels faster than sound, but I don't know the equations to prove it on paper, I'm a dummy. But if I take my car down the road and slam the door and you see it before you hear it and you won't believe it without seeing the equations then you're the dummy. The equations are getting in the way of your real world understanding of what's happening when you pay principal early. You guys write out the equations and I'll save money, I'm fine with that. I actually just wanted to help people understand, but as I said originally, it's too bad people don't or refuse to understand. Have a good one.

If you pay $50/month on a $10,000 HELOC, it will take you 431 months to pay off and will have paid a total of $21,550.

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

How clever and sarcastic of you. Obviously I meant $50 in interest costs. The balance is paid down each month by your surplus funds, but you already know that. But this is awesome, though, you proved my point! For the $10,000 to have equal costs on the mortgage and the HELOC, you'd have to pay take 35 years to pay off the HELOC. When you take 6-12 months depending on your discretionary income, you are obviously saving a ton vs what it would cost on the mortgage. I'm glad we could finally agree.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

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Mike V.
Rental Property Investor from Campbell, CA

replied over 2 years ago
I’m pretty sure we’re just being trolled now.

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Mike V. :

I’m pretty sure we’re just being trolled now.

Agree. I don't think anyone is actually this dense. Like I said earlier, the last several people to chime in on this have been new users. Doesn't seem legit.

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Jeremy Z.
from Tacoma, WA

replied over 2 years ago
Originally posted by @Joshua Smith :

Originally posted by @Jeremy Z.:

If you didn't take out the HELOC and instead just made those payments as additional principal toward you mortgage you would save the same amount. And then you could take out a HELOC later if needed.

Look, I'm not saying a HELOC is bad. They certainly serve a function. But they aren't the magic solution that they often get pitched as being.

And for the fifth time, just making additional principal payments is great, but most people don't have large chunks of money lying around or are purposely keeping them as emergency funds and don't want to lock them up in their mortgage.

I'm not saying it's magic, either, it's just a way to pay large chunks of your mortgage without using your emergency funds to do it. You could do the reverse and put chunks of your emergency money into your mortgage and use your HELOC as backup, but that defeats the purpose in my opinion.

You aren't saving on interest if you just take out a HELOC and pay off a chunk of your mortgage. You're just swapping one debt for another. I don't know how many times that needs to be explained to you, but it has been well more than five times already.

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Joshua Smith:

Originally posted by @Chris May:

If you pay $50/month on a $10,000 HELOC, it will take you 431 months to pay off and will have paid a total of $21,550.

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

How clever and sarcastic of you. Obviously I meant $50 in interest costs. The balance is paid down each month by your surplus funds, but you already know that. But this is awesome, though, you proved my point! For the $10,000 to have equal costs on the mortgage and the HELOC, you'd have to pay take 35 years to pay off the HELOC. When you take 6-12 months depending on your discretionary income, you are obviously saving a ton vs what it would cost on the mortgage. I'm glad we could finally agree.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

Likewise! Look, if you can ever explain this I'm all ears. Someone can make an additional payment each year - bi-weekly schedule, using a bonus or tax refund, inheritance, etc. and literally erase thousands and years off of their mortgage, you know..... that whole accepted mortgage wisdom thing.... but if they pay give or take $50/month to borrow the money to do it they are a moron that is somehow losing meowny and doesn't know it. You've been too busy doing calculations to actually address this statement at all this whole time. If I said that I got some inheritance from my parents and used it to erase / skip a bunch of mortgage interest, I'm sure it would be a slam dunk, but doing the same thing for $50/month somehow doesn't work out because..... calculations. Maverick calculated that after Goose died he'd be better off hanging back, but then he jumped in and saved the day, Chris. And he got the lesbian in the end. You're Cougar and quit in the first five minutes. 8===o {;}

:-D

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Mike Dymski
Investor from Greenville, SC

replied over 2 years ago
Amortizing Loan Interest Per Day = Principal x Rate / 365 Days

HELOC Interest Per Day = Principal x Rate / 365 Days

$100,000 x 5% / 365 days = $13.70 interest per day (both loans)

Amortizing loans and HELOCs do not accrue interest differently.

The HELOC has nothing to do with the acceleration of the mortgage pay down. The scam is tying the two together and charging a fee. And mimicking the scam for free does not make it work. Saving money and paying down the mortgage early is what accelerates mortgage pay down.

Simple interest is not a matter of opinion.

These mortgage acceleration scam posts all start and end the same. Kind members spend their valuable time trying to help fellow members understand...and then even those members that finally understand still think that it works because their identity is tied to being right.

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Jeremy Z.
from Tacoma, WA

replied over 2 years ago
Originally posted by @Joshua Smith :

Originally posted by @Chris May:Originally posted by @Joshua Smith:Originally posted by @Chris May:

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

Likewise! Look, if you can ever explain this I'm all ears. Someone can make an additional payment each year - bi-weekly schedule, using a bonus or tax refund, inheritance, etc. and literally erase thousands and years off of their mortgage, you know..... that whole accepted mortgage wisdom thing.... but if they pay give or take $50/month to borrow the money to do it they are a moron that is somehow losing meowny and doesn't know it. You've been too busy doing calculations to actually address this statement at all this whole time. If I said that I got some inheritance from my parents and used it to erase / skip a bunch of mortgage interest, I'm sure it would be a slam dunk, but doing the same thing for $50/month somehow doesn't work out because..... calculations. Maverick calculated that after Goose died he'd be better off hanging back, but then he jumped in and saved the day, Chris. And he got the lesbian in the end. You're Cougar and quit in the first five minutes. 8===o {;}

:-D

But you didn't get an inheritance, you took out a loan. With interest.

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Joshua Smith :

Originally posted by @Chris May:Originally posted by @Joshua Smith:

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

Likewise! Look, if you can ever explain this I'm all ears. Someone can make an additional payment each year - bi-weekly schedule, using a bonus or tax refund, inheritance, etc. and literally erase thousands and years off of their mortgage, you know..... that whole accepted mortgage wisdom thing.... but if they pay give or take $50/month to borrow the money to do it they are a moron that is somehow losing meowny and doesn't know it. You've been too busy doing calculations to actually address this statement at all this whole time. If I said that I got some inheritance from my parents and used it to erase / skip a bunch of mortgage interest, I'm sure it would be a slam dunk, but doing the same thing for $50/month somehow doesn't work out because..... calculations. Maverick calculated that after Goose died he'd be better off hanging back, but then he jumped in and saved the day, Chris. And he got the lesbian in the end. You're Cougar and quit in the first five minutes. 8===o {;}

:-D

My $10,000 HELOC has an interest rate of 5%. Monthly interest charge is $41.67.

Today, I paid off the entire HELOC balance with my 20% interest rate credit card, thus saving $41.67 per month!

#winning

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Joshua Smith:Originally posted by @Chris May:

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

:-D

My $10,000 HELOC has an interest rate of 5%. Monthly interest charge is $41.67.

Today, I paid off the entire HELOC balance with my 20% interest rate credit card, thus saving $41.67 per month!

#winning

Congrats! :)

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Gary Floring
from Bremerton, Washington

replied over 2 years ago
"I paid $10,000 (from his HELOC) and was able to save $21,000 on interest (on his primary mortgage in which he accelerated the amortization schedule by approx. 23 months). The fact that I pay $50/month to my HELOC (interest paid per month = $50 x 10 months = $500).

Does everyone accept the scenario above as arithmetically correct (or feasible)????

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Joshua Smith:

You've saved exactly nothing. Zilch. Zero. Nada. Goose egg.

That was your takeaway? I have no words.

Your confidence in your ignorance is remarkable.

:-D

My $10,000 HELOC has an interest rate of 5%. Monthly interest charge is $41.67.

Today, I paid off the entire HELOC balance with my 20% interest rate credit card, thus saving $41.67 per month!

#winning

It's funny, though, you comparing interest rates like that and bringing credit cards into it. I chuckled. The interesting part about it is I'm actually paying that $41.67/month to save on my 67% interest loan, but everyone is stuck on 4-5%, I guess because they don't understand what the true cost of a mortgage is? Maybe redo your equation with 67% on the mortgage side and 5% on the HELOC side and see if that comes out differently.

Someone else talked about slight of hand before in terms of the HELOC strategy, but to me the slight of hand is being able to call a 67% interest loan a 4% loan and trick people into paying for 1.67 houses and only getting 1. If you ever need money and are happy with a 67% interest rate, please, PLEASE come to me and we will draw something up. Here's the page on my mortgage where it talks about the total / true cost, I'd be interested to see or hear about yours and why you're so comfortable paying on schedule and wasting all that money.

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Joshua Smith

replied over 2 years ago
Originally posted by @Gary Florin:"I paid $10,000 (from his HELOC) and was able to save $21,000 on interest (on his primary mortgage in which he accelerated the amortization schedule by approx. 23 months). The fact that I pay $50/month to my HELOC (interest paid per month = $50 x 10 months = $500).

Does everyone accept the scenario above as arithmetically correct (or feasible)????

Gary, I can tell you how to work this out for yourself. Get your mortgage out and find the amortization table. Then find your current loan amount and the balance you will jump to with a large lump sum - say $5000 or $10,000. Let's say for you that's 19 payments. Take those 19 payments and add up the interest portions. You can also add the first and last ones together and divide by two to get the average and then multiply the average by 19 to get the total. That number is how much you will save if you jump from your current balance to the target balance you picked out. There are amortization calculators online to help with this if that makes you feel better, but I don't have a good recommendation because my lender has one built into their site and they also tell me how much time and interest I'm saving off of my mortgage whenever I make an additional principal payment.

Second step. Figure out the cost to borrow the money to accomplish this. Everyone here generally agrees that to carry a HELOC balance of $10,000 at 5% interest should be $40-$50/month and that's without the fancy voodoo of using it as a checking account. But obviously you will need to pay it down. Proponents of the strategy suggest that you should try to pay it off within a year and then repeat the process. Good luck trying to get someone else's opinion, but they think all borrowed money is created equal and it's not. My mortgage is a 67% loan AND if you take my total interest of $213,000 and divide it by 360 payments it comes out to $592/month, so I say it's "front loaded with interest" because I pay over $900/month currently. I get to subtract a dollar or two each time I make a payment - woohoo - so it would take me 194 regular payments to get to that "fair", evenly divided $592/month interest portion. Totally not front loaded with interest, right? LOL

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Gary Florin:

"I paid $10,000 (from his HELOC) and was able to save $21,000 on interest (on his primary mortgage in which he accelerated the amortization schedule by approx. 23 months). The fact that I pay $50/month to my HELOC (interest paid per month = $50 x 10 months = $500).

Does everyone accept the scenario above as arithmetically correct (or feasible)????

I'm not responding to Josh anymore, but I'll entertain your question. The premise of the argument is flawed.

Mortgage payment stays the same. Now there's an additional $50 per month being paid. Whether he pays that $50 to the HELOC, or adds it to his mortgage payment every month, the result is the same. The combined loans will be paid off on the same day whether he splits the balance between HELOC + mortgage or keeps the full balance on the mortgage. The interest savings and early payoff is the result of paying $50 more every month, regardless of whether it's to a HELOC or directly to a mortgage.

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Jeremy Z.
from Tacoma, WA

replied over 2 years ago
"Proponents of the strategy suggest that you should try to pay it off within a year and then repeat the process."

Ding ding ding! And *there* is where you save money on interest. Aggressively paying down the loan with CASH, HELOC or no HELOC.

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Gary Florin:Does everyone accept the scenario above as arithmetically correct (or feasible)????

I'm not responding to Josh anymore, but I'll entertain your question. The premise of the argument is flawed.

Mortgage payment stays the same. Now there's an additional $50 per month being paid. Whether he pays that $50 to the HELOC, or adds it to his mortgage payment every month, the result is the same. The combined loans will be paid off on the same day whether he splits the balance between HELOC + mortgage or keeps the full balance on the mortgage. The interest savings and early payoff is the result of paying $50 more every month, regardless of whether it's to a HELOC or directly to a mortgage.

Sorry, Gary, this has nothing to do with what I've been saying. Chris is butchering the premise completely, so I'll spell it out for you. Go look up any financial personality who talks about a bi-weekly payment schedule or paying additional principal and they will tell you it saves you interest. That's factual. How does it happen? Well, your mortgage payments are scheduled with interest to be applied, but the interest is charged or "accrued" daily. Every day you get a new $20-$30 ding and at the end of the month the interest portion of your payment is way higher than the principal portion early on in a mortgage. So, when you make a lump sum payment, you actually skip to a new spot in the amortization table and all those payments that were "scheduled" were never able to be charged or accrued to your mortgage, so they are erased. If you need confirmation of this, imagine you won the lottery and wanted to pay off your house tomorrow. Would the bank let you skip over the scheduled interest payments and just give them the balance as a payoff or would they charge you the full amount with interest? Obviously, it's the former. And again, when anyone tells you to pay extra principal to save on interest, this is what they are talking about - skipping payments and not allowing interest to accrue. WHERE ELSE WOULD THE SAVINGS COME FROM???

So, what you do is take out a HELOC and put a lump sum against your mortgage. Then you have a nominal interest charge from the HELOC, but you are putting all of your income and bills in there and as long as you make more than you spend the balance will come down over time. Then you repeat the process. Now the downside to this is that all of your discretionary income is essentially being used to pay down the HELOC balance. The upside is that if something comes up, it's a credit line so you can get money out again. You could also just put all of your discretionary into your primary mortgage, but then you can't get it back easily if something comes up. The HELOC strategy is basically a way of paying down your mortgage more quickly while maintaining more liquidity. I gladly pay the $50/month to have the best of both worlds - I put more against my mortgage and save on interest, but I'm also able to keep my emergency funds intact, have investments, etc. instead of using all my discretionary to pay my mortgage faster.

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Gary Floring
from Bremerton, Washington

replied over 2 years ago
Joe Splitrock, regarding your statements above:

"Mortgages are not front end loaded with interest." Followed immediately by:

"The interest is larger on the front end of a loan..."

Don't those two sentences seem to contradict each other?

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Jerome K.
Investor from Ocala, FL

replied over 2 years ago
I’ll bite on this .... again. I guarantee you @Joshua Smith did not read this thread entirely. These are all points that have been proven with actual math to be false (details worked out for both scenarios). “Front end interest” is not a thing. If it was, then why isn’t the first series of payments 100% interest? The interest you pay on payment 1 ( or 2, 3, or x) is a simple calculation of the current interest owed on the outstanding balance.

If this heloc strategy is such a gem, might I encourage you to pay off your mortgage real quick swap your mortgage for you heloc. Run that loan scenario and see how that works out.

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Chris May:

Does everyone accept the scenario above as arithmetically correct (or feasible)????

I'm not responding to Josh anymore, but I'll entertain your question. The premise of the argument is flawed.

Mortgage payment stays the same. Now there's an additional $50 per month being paid. Whether he pays that $50 to the HELOC, or adds it to his mortgage payment every month, the result is the same. The combined loans will be paid off on the same day whether he splits the balance between HELOC + mortgage or keeps the full balance on the mortgage. The interest savings and early payoff is the result of paying $50 more every month, regardless of whether it's to a HELOC or directly to a mortgage.

Another example to drive home the point:

**Scenario 1:**

200k fixed rate loan. 30 years. 5% interest. Monthly payment is 1,073.64.

Day 1, use a HELOC to pay $99,185 on the mortgage. Now I have a 100,815 mortgage and a 99,185 HELOC. Mortgage will now be paid off in exactly 120 months.

But, I have a 100k HELOC that I have to make payments on. To pay off the HELOC in 120 months I have make a monthly payment of $1,052.01.

__My combined payment between the HELOC and mortgage is $2,125.65.__ HELOC and morgage are both paid off after 120 months (yay early payoff!)

**Scenario 2**

Same mortgage. No HELOC. Pay $2,125.65 every month. Mortgage is also paid off in 120 months! The HELOC has nothing to do with it. You pay the exact same amount in both scenarios, and pay off the loan in the exact amount of time.

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Joshua Smith

replied over 2 years ago
Originally posted by @Jeremy Z. :

@Joshua Smith

"Proponents of the strategy suggest that you should try to pay it off within a year and then repeat the process."

Ding ding ding! And

thereis where you save money on interest. Aggressively paying down the loan with CASH, HELOC or no HELOC.

Listen, you guys, this is getting legit stupid now. Please do this for me. Go to the link below. There are already assumptions in the calculator. Please note the total interest with their assumptions is $135,971.07. They have a very standard $165,000 loan at 4.5% fixed 30 year - average mom and pop loan. And btw, also notice you're paying 82% interest on this loan. Ouch.

Now click on where it says "Add Extra Payments" and put 10000 in the middle one where it says "as an extra yearly mortgage payment occurring every" and click "Apply Extra Payments".

Now scroll up and you'll see the new "Total Interest Paid" is $38,876.13. You can see that you've paid about $100,000 less in interest, correct?

Now click on where it says, "Show Amortization Schedule" and you can see that you've paid off this 30 year loan in 10 years.

So, here's the grand finale question. If this looks attractive to you - Do you want to put all of your discretionary income into your primary mortgage to save the $100,000 and 20 years? I mean, assuming that you have a surplus of funds at the end of the month, do you want to lock them away in your mortgage to make this happen? Or would you rather use the bank's money to do it and pay about $50/month to maintain access to your liquidity? That's the only question about this scenario. If you want to save time and money on your mortgage (and it's fine if you don't, that's cool) then would you like to tie up your funds to do it or pay a nominal amount of interest on a HELOC to maintain some liquidity? It's that simple.

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Jeremy Z.
from Tacoma, WA

replied over 2 years ago
Originally posted by @Joshua Smith :Originally posted by @Jeremy Z.:

@Joshua Smith

"Proponents of the strategy suggest that you should try to pay it off within a year and then repeat the process."

Ding ding ding! And

thereis where you save money on interest. Aggressively paying down the loan with CASH, HELOC or no HELOC.Listen, you guys, this is getting legit stupid now. Please do this for me. Go to the link below. There are already assumptions in the calculator. Please note the total interest with their assumptions is $135,971.07. They have a very standard $165,000 loan at 4.5% fixed 30 year - average mom and pop loan. And btw, also notice you're paying 82% interest on this loan. Ouch.

Now click on where it says "Add Extra Payments" and put 10000 in the middle one where it says "as an extra yearly mortgage payment occurring every" and click "Apply Extra Payments".

Now scroll up and you'll see the new "Total Interest Paid" is $38,876.13. You can see that you've paid about $100,000 less in interest, correct?

Now click on where it says, "Show Amortization Schedule" and you can see that you've paid off this 30 year loan in 10 years.

So, here's the grand finale question. If this looks attractive to you - Do you want to put all of your discretionary income into your primary mortgage to save the $100,000 and 20 years? I mean, assuming that you have a surplus of funds at the end of the month, do you want to lock them away in your mortgage to make this happen? Or would you rather use the bank's money to do it and pay about $50/month to maintain access to your liquidity? That's the only question about this scenario. If you want to save time and money on your mortgage (and it's fine if you don't, that's cool) then would you like to tie up your funds to do it or pay a nominal amount of interest on a HELOC to maintain some liquidity? It's that simple.

I'm well aware of how amortization works. I use an amortization calculator on a regular basis. I have 30-year mortgages and a 15-year mortgage. I run different prepayment scenarios frequently.

We have finally fleshed out that the main benefit you are really arguing for here is flexibility. Be aware that flexibility can be problematic if the HELOC gets frozen due to a job loss, etc. or if the adjustable rate goes up thereby canceling out the savings.

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Joshua Smith

replied over 2 years ago
Originally posted by @Jeremy Z. :

Originally posted by @Joshua Smith:

Originally posted by @Jeremy Z.:@Joshua Smith

thereis where you save money on interest. Aggressively paying down the loan with CASH, HELOC or no HELOC.Listen, you guys, this is getting legit stupid now. Please do this for me. Go to the link below. There are already assumptions in the calculator. Please note the total interest with their assumptions is $135,971.07. They have a very standard $165,000 loan at 4.5% fixed 30 year - average mom and pop loan. And btw, also notice you're paying 82% interest on this loan. Ouch.

Now click on where it says "Add Extra Payments" and put 10000 in the middle one where it says "as an extra yearly mortgage payment occurring every" and click "Apply Extra Payments".

Now scroll up and you'll see the new "Total Interest Paid" is $38,876.13. You can see that you've paid about $100,000 less in interest, correct?

Now click on where it says, "Show Amortization Schedule" and you can see that you've paid off this 30 year loan in 10 years.

So, here's the grand finale question. If this looks attractive to you - Do you want to put all of your discretionary income into your primary mortgage to save the $100,000 and 20 years? I mean, assuming that you have a surplus of funds at the end of the month, do you want to lock them away in your mortgage to make this happen? Or would you rather use the bank's money to do it and pay about $50/month to maintain access to your liquidity? That's the only question about this scenario. If you want to save time and money on your mortgage (and it's fine if you don't, that's cool) then would you like to tie up your funds to do it or pay a nominal amount of interest on a HELOC to maintain some liquidity? It's that simple.

I'm well aware of how amortization works. I use an amortization calculator on a regular basis. I have 30-year mortgages and a 15-year mortgage. I run different prepayment scenarios frequently.

We have finally fleshed out that the main benefit you are really arguing for here is flexibility. Be aware that flexibility can be problematic if the HELOC gets frozen due to a job loss, etc. or if the adjustable rate goes up thereby canceling out the savings.

Right, "finally fleshed out" what I've said a dozen times while everyone was busy saying no no no math math math, just swapping debt, etc. I can go back and get my first post for you if you want, but that was the whole point - the difference between putting all of your discretionary income against your mortgage vs using cheap money to do the same thing. Benefits - don't have to save up / can do it right away, still have access to funds since it's revolving, etc.

But, you know.... math math math. Can't be any benefit to something if you don't have a formula that proves it. LOL Glad this is settled. Have a good one.

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Joshua Smith

replied over 2 years ago
Originally posted by @Chris May :

Originally posted by @Chris May:

Does everyone accept the scenario above as arithmetically correct (or feasible)????

Another example to drive home the point:

Scenario 1:200k fixed rate loan. 30 years. 5% interest. Monthly payment is 1,073.64.

Day 1, use a HELOC to pay $99,185 on the mortgage. Now I have a 100,815 mortgage and a 99,185 HELOC. Mortgage will now be paid off in exactly 120 months.

But, I have a 100k HELOC that I have to make payments on. To pay off the HELOC in 120 months I have make a monthly payment of $1,052.01.

My combined payment between the HELOC and mortgage is $2,125.65.HELOC and morgage are both paid off after 120 months (yay early payoff!)

Scenario 2Same mortgage. No HELOC. Pay $2,125.65 every month. Mortgage is also paid off in 120 months! The HELOC has nothing to do with it. You pay the exact same amount in both scenarios, and pay off the loan in the exact amount of time.

Thank you for proving my point in another way, Chris. You could pay extra principal every month, which would leave most people without any savings or you could do the same thing with the bank's money and maintain liquidity. Glad we could eventually get on the same page, no hard feelings from this end. Have a good one.

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Chris May
Rental Property Investor from Durham, NC

replied over 2 years ago
Originally posted by @Joshua Smith :

Originally posted by @Jeremy Z.:Originally posted by @Joshua Smith:Originally posted by @Jeremy Z.:

@Joshua Smith

thereis where you save money on interest. Aggressively paying down the loan with CASH, HELOC or no HELOC.I'm well aware of how amortization works. I use an amortization calculator on a regular basis. I have 30-year mortgages and a 15-year mortgage. I run different prepayment scenarios frequently.

We have finally fleshed out that the main benefit you are really arguing for here is flexibility. Be aware that flexibility can be problematic if the HELOC gets frozen due to a job loss, etc. or if the adjustable rate goes up thereby canceling out the savings.

Right, "finally fleshed out" what I've said a dozen times while everyone was busy saying no no no math math math, just swapping debt, etc. I can go back and get my first post for you if you want, but that was the whole point - the difference between putting all of your discretionary income against your mortgage vs using cheap money to do the same thing. Benefits - don't have to save up / can do it right away, still have access to funds since it's revolving, etc.

But, you know.... math math math. Can't be any benefit to something if you don't have a formula that proves it. LOL Glad this is settled. Have a good one.

"Putting all of your discretionary income against your mortgage vs using cheap money to do the same thing."

What does this word salad mean?