HELOC payoff strategy
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HELOC payoff strategy
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I have a secret strategy to pay your mortgage off faster. You make bigger payments and/or more frequent payments than the amortization schedule requires. Now the bad news...I have a business method patent on this so you owe me a royalty every time you do it. If you don鈥檛 pay, I sue.
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- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
Originally posted by @Matthew Olszak:
I think we might need a summary of the past 11 pages of just this thread, and likely 100s of others like it. So the title of the thread is "HELOC payoff strategy". It started as an inquiry about a "strategy" sprouted here and elsewhere as a way to pay down your mortgage faster by making your monthly expense payments from a HELOC vs. your checking account, and paying down the HELOC with your paycheck.
That theory has been debunked by the math. There is no question to that. The end conclusions were you have 3 options when paying a mortgage:
- Pay your normal payment - You'll end up paying lots of interest across the life of your loan.
- Pay your normal payment, PLUS something extra towards principal from your regular banking accounts - You'll end up paying a lot less interest across the life of your loan.
- Pay your normal payment, PLUS something extra towards principal from a HELOC - You'll end up paying a lot less interest across the life of your loan.
The MATH, which is a fact and not a matter of opinion or understanding, supports that the difference in savings between option 2 and 3 is a negligible amount at best, possibly worse by going with 3, and by going with 3 you harbor much more risk.
I think those of us still involved in this conversation are in agreement with this?
Then somewhere, in an effort to defend their debunked theory, the supporters of option 3 stated that it provides greater discipline to ensure extra payments are made. Maybe so, maybe not, but that's not a math/factual argument. Then somehow we've diverged into an argument over whether it makes financial sense to make an extra payment at all, either through option 2 or 3. That's a can of worms to open elsewhere, much akin to the cashflow vs. appreciation debate.
The sole purpose of my involvement in threads like this is to hopefully dissuade people who inquire about this supposed "HELOC Strategy" from doing so, and likely save them money from paying someone to learn more about this. Simply countering bad information with MATH AND FACTS.
I agree with your three part summary. I always thought we were comparing number 1 to number 3. But maybe I missed something somewhere. So my involvement was to inform people that there is NO magic to this strategy. To show them there is no reason to pay money for this information because you can get it here for free. Lastly, to question those who bash this strategy and counter the misinformation that is being spread about it by them.
Ultimately, the goal was to pay off the mortgage early. Both number 2 and 3 accomplish this.
Cheers and beers 馃榿
Originally posted by @Chris May:
Originally posted by @Joshua S.:
I'm so excited to see this calculated out, Chris. Maybe I could buy 10,000 different investments at a dollar each and that way I'm "assured" that I will make money. I wonder if the time value of money is negative if I buy good stocks that have a bad year and I lose money.
It's funny that we both feel sorry for each other, though. You have money sitting idle in your checking account and all my money is working for me, but I'm the one not accounting for opportunity costs and the time value of money. :-D
My bad, I shouldn't have gotten this going again.
If you want to pay off your mortgage early, have at it.
Totally. Translation: You can't possibly know the value of your $10,000 in a year or ten years if you're investing for high returns. And the guy who made the absolute maximum return in that time period is the only one who didn't pay any "opportunity costs" or the "time value of money". Everyone else paid for not being in the top spot, but let's compare all the losers because the guy who made 10% is better than the guy who made 2%, but the guy who made 2% is better than the guy who let his money sit around and the stagnant guy is better than the guy who lost money. Aaaannnddd that guy is better than the guy who lost even more money. Meanwhile, they all have different motivations and goals. The guy who made 2%, maybe his priority is to hold onto his money, so he's winning in his own way and so on.
When you're comparing the entire universe of investing to come up with a couple of phrases to encapsulate the idea that "if you're not doing as well as you could be, then you're losing out", it's a terrible, defeatist attitude. It makes no sense to say that you're losing because you're not doing the maximum. I go to the gym to stay in shape, but my goal isn't to look like Arnold Schwarzenegger, because guys that spend that much time on their own bodies are probably lacking something in their lives, missing out, neglecting someone, don't have another skill they need, aren't very smart, live paycheck to paycheck, etc. or some combination of those. You might invest to be able to retire early, but maybe it's more important to me to get out of debt and leave tangible paid in full assets to my kids.
So, at the end of the day I'm sitting here thinking that I could put that next $10,000 in the market and maybe it'll be worth $150,000 in 30 years or maybe it'll be worth $75,000 or $20,000 or $0, so there's no way to know what the "opportunity cost" is. That's why the theory of opportunity cost is only useful if you're comparing two possibilities directly and know both outcomes (ie. rarely or never useful). But I do know that if I pay it back to my mortgage early I get a "return" without investing anything and I get out of debt much sooner. So, why would I gamble on making more with that money especially when getting out of debt is more important to me? To people that are "sure" their investments will outpace their debt, great, go for it. Leverage and hustle and make it happen. I've got my hand in both buckets. I make some passive income every month off of my investments, but I'm also getting out of debt early and getting dollar for dollar returns on paying my mortgage early, so I obviously prefer balance. Maybe you like all your eggs in the "investment" basket and that's fine, too, I just don't get it. And truth be told I'm probably going to turn my home into a rental when it's paid off someday, anyway, so it'll be $2500-$3000/month income at that point. If I still have a mortgage on it at that time obviously it's worth a lot less monthly income.
Anyway, my point is, if you have to compare mortgage interest savings to every other investment that exists to find a flaw with it, you're really reaching. There's no other investment that exists where you can simply speed up paying an existing liability, which doesn't cost you any money and make a dollar for dollar "return", therefore it's one of the best opportunities that exists in terms of "investments" - PLUS, it's a sure thing and you're getting out of debt faster. Hopefully this is over like you said, but probably not, huh?
So, I'm glad we got this all settled. If anyone's in a more constructive mood, I have a question for anyone who's interested. As I posted previously, so far I've paid a total of $30,000 early to my mortgage, but only a portion of that has been through the HELOC and then had my income go toward it and so forth. There was a $10,000 payment I took out of savings to sort of try out the process and see what the savings would look like along with two other payments totaling $2500 that I did on my own before starting with the HELOC strategy. So, $12,500 was mine and the other $17,500 has been through the HELOC. The $17,500 has been an initial $10,000 and then a couple other random payments as well as $200-$300 extra on my normal payments.
Now I know everyone will probably want to argue about this, but although I still have a HELOC balance, from my perspective I've taken $17,500 off of my mortgage, not $17,500 minus my HELOC balance. I say that because although I know the reality is once the mortgage is paid off I'll still have to pay off the HELOC it's going to take 'who cares' amount of time especially because I won't be paying my normal monthly payment anymore. So, again, to be clear - I know the HELOC balance means I haven't technically put a full $17,500 toward my mortgage, but since I don't care when the HELOC is ultimately paid off after the fact, it doesn't factor into what I'm about to ask, in my opinion. The mortgage is my real target, so hopefully everyone can let go of that part of the situation and understand my real question.
So, I've gotten $17,500 off of the mortgage in five months - June, July, August, September, and October - for an average of $3500/month with this strategy. We haven't made any other adjustments to our finances. We aren't skipping lattes or saving anything additional. In fact, my wife has been spending a bit of extra money on a hobby recently and I had been a little worried that we weren't saving enough money to make a real effort toward paying off the mortgage early. In the past, we've generally had a pretty stagnant checking account, but at times have been able to save $1000-$1200/month depending on what else was going on. But here's what I'm getting at. If we've generally stayed even on our checking account or had max $1200 excess for the month, how have I been able to put $3500/month extra toward the mortgage without saving any extra vs what we used to? I'm not trying to say the HELOC is magical and all that like we've covered over and over, but at the same time it seems to me like it's somehow allowing me to put more toward the mortgage than was previously possible with our normal checking / savings, but I can't figure out how. I have agreed over and over that the HELOC is just a mechanism to easily keep all of my extra cash going toward the mortgage, I get that. But knowing that I'll have to pay off the HELOC at the end of this process - aside from that fact - how am I keeping this high of a pace? $3500/month additional payment has me paid off in 5 years with a savings of over $200,000, so from my perspective, why do I care if I need an extra six months or whatever to pay off the HELOC after the mortgage is done?
I don't know, I'm REALLY, REALLY not trying to start an argument back up or anything, I'm just legitimately asking that if I wasn't seeing my checking / savings growing by $3500/month before, but I'm now managing that pace (and say what you will about having to pay off the HELOC afterward, the mortgage has, IN FACT, gone down by that much) with the HELOC, could there be some other force at play that none of us have thought of? Maybe everyone could put their devil's advocate hats on instead of getting the pitchforks out and think about how it could actually be taking place? Let me know if you come up with any ideas. Thanks.
Josh, if you're able to save $1k a mo, how long is it going to take to pay the heloc off? yes, you did throw in $17.5k, but now you have to pay that off before you can do that again. You can't just keep throwing $17.5k in indefinitely. So how much are you going to end up paying in interest for said heloc vs just trying to save as much as possible every month and put it towards the principal interest-free?
Originally posted by @Victor S.:
Josh, if you're able to save $1k a mo, how long is it going to take to pay the heloc off? yes, you did throw in $17.5k, but now you have to pay that off before you can do that again. You can't just keep throwing $17.5k in indefinitely. So how much are you going to end up paying in interest for said heloc vs just trying to save as much as possible every month and put it towards the principal interest-free?
Well, I was trying to avoid this discussion, because I thought it would muddy the waters and we were already spinning in circles, but I'm not "paying off" the HELOC and then reloading it as the original strategy states, I'm paying it down a bit and then taking another small chunk to put toward the mortgage. Basically, I'm keeping the HELOC balance around $8000-$10,000 because I figured that it would allow me to keep more pressure on the mortgage itself if I'm paying a few more thousand toward it every time the HELOC balance drops. This is probably "wrong" because of the flux capacitor rule of investing and all that, but it's the way I've elected to do it and it has allowed me to take $17,500 off of the mortgage in only 5 months.
But to answer your question I pay a total of a little over $100/month in HELOC interest to keep the balance this high.
So, these guys have all said my savings don't technically take place until 30 years from now and all that, which is fine, but here are my real world results so far:
$100/month interest cost toward HELOC (which is a wash considering the savings, in my opinion)
HELOC balance ~$10,000 (will take an additional 6-10 months to pay off after mortgage is done)
$17,500 total ($3500/month) off of the mortgage (Yes, I can pay this indefinitely according to what I'm seeing so far. In fact, my HELOC balance has dropped down again and I was considering making another payment to the mortgage, but with holiday travel and gifts I'm going to hold off and do it in the spring.)
Payoff date Jan 2024
Projected interest savings $203,000
The things I keep coming back to are not the interest rates and how I'm saving money over 30 years instead of 5 and all that, but the fact that $10,000 was COSTING me $20,000 in interest to pay in the old way and about $1200 in interest to pay in the new way and that all my income is going toward paying down the HELOC whereas just a portion of it was going toward paying down the mortgage. I just wish a discussion of the real world merits of the strategy was possible, but it's not because we have to compare it to just putting your extra money toward the mortgage and putting your extra money into investments and rubbing your money on a butterfly's wings and drawing smiley faces on it while listening to Neil Simon records and everything else we can think of. The bottom line is, the strategy is doing what it is intended to do, all I'm saying is that it seems to be working even faster than expected, so if anyone has any idea why that could be feel free to let me know.
Originally posted by @Joshua S.:
Originally posted by @Victor S.:
Josh, if you're able to save $1k a mo, how long is it going to take to pay the heloc off? yes, you did throw in $17.5k, but now you have to pay that off before you can do that again. You can't just keep throwing $17.5k in indefinitely. So how much are you going to end up paying in interest for said heloc vs just trying to save as much as possible every month and put it towards the principal interest-free?
Well, I was trying to avoid this discussion, because I thought it would muddy the waters and we were already spinning in circles, but I'm not "paying off" the HELOC and then reloading it as the original strategy states, I'm paying it down a bit and then taking another small chunk to put toward the mortgage. Basically, I'm keeping the HELOC balance around $8000-$10,000 because I figured that it would allow me to keep more pressure on the mortgage itself if I'm paying a few more thousand toward it every time the HELOC balance drops. This is probably "wrong" because of the flux capacitor rule of investing and all that, but it's the way I've elected to do it and it has allowed me to take $17,500 off of the mortgage in only 5 months.
But to answer your question I pay a total of a little over $100/month in HELOC interest to keep the balance this high.
So, these guys have all said my savings don't technically take place until 30 years from now and all that, which is fine, but here are my real world results so far:
$100/month interest cost toward HELOC (which is a wash considering the savings, in my opinion)
$17,500 total ($3500/month) off of the mortgage (Yes, I can pay this indefinitely according to what I'm seeing so far. In fact, my HELOC balance has dropped down again and I was considering making another payment to the mortgage, but with holiday travel and gifts I'm going to hold off and do it in the spring.)
Payoff date Jan 2024
Projected interest savings $203,000
The things I keep coming back to are not the interest rates and how I'm saving money over 30 years instead of 5 and all that, but the fact that $10,000 was COSTING me $20,000 in interest to pay in the old way and about $1200 in interest to pay in the new way and that all my income is going toward paying down the HELOC whereas just a portion of it was going toward paying down the mortgage. I just wish a discussion of the real world merits of the strategy was possible, but it's not because we have to compare it to just putting your extra money toward the mortgage and putting your extra money into investments and rubbing your money on a butterfly's wings and drawing smiley faces on it while listening to Neil Simon records and everything else we can think of. The bottom line is, the strategy is doing what it is intended to do, all I'm saying is that it seems to be working even faster than expected, so if anyone has any idea why that could be feel free to let me know.
Josh, I have done some quick calcs with the following assumptions:
100k loan, 5.5% rate, 30 yrs + 6% heloc locked in (for simplicity)
First scenario you just pay $1k a mo additional principal. Results:
You will pay the loan off in roughly 76 months with cum interest of $18,552.93
Second is heloc pmts of $12k upfront every year with you paying the heloc balance off by the end of the year ($1k pmt/mo):
You will pay the loan off in roughly 73 months with cum interest of $19,077.72 ($16,352.7 to your bank and $2,725 to your heloc)
We can revise the numbers to fit your particular case, but something tells me we won't see a scenario where heloc option comes out on top (as far as interest saved).
You can find my calcs here: https://ufile.io/6crqv
Originally posted by @Victor S.:
Originally posted by @Joshua S.:
Originally posted by @Victor S.:
Josh, if you're able to save $1k a mo, how long is it going to take to pay the heloc off? yes, you did throw in $17.5k, but now you have to pay that off before you can do that again. You can't just keep throwing $17.5k in indefinitely. So how much are you going to end up paying in interest for said heloc vs just trying to save as much as possible every month and put it towards the principal interest-free?
Well, I was trying to avoid this discussion, because I thought it would muddy the waters and we were already spinning in circles, but I'm not "paying off" the HELOC and then reloading it as the original strategy states, I'm paying it down a bit and then taking another small chunk to put toward the mortgage. Basically, I'm keeping the HELOC balance around $8000-$10,000 because I figured that it would allow me to keep more pressure on the mortgage itself if I'm paying a few more thousand toward it every time the HELOC balance drops. This is probably "wrong" because of the flux capacitor rule of investing and all that, but it's the way I've elected to do it and it has allowed me to take $17,500 off of the mortgage in only 5 months.
But to answer your question I pay a total of a little over $100/month in HELOC interest to keep the balance this high.
So, these guys have all said my savings don't technically take place until 30 years from now and all that, which is fine, but here are my real world results so far:
$100/month interest cost toward HELOC (which is a wash considering the savings, in my opinion)
$17,500 total ($3500/month) off of the mortgage (Yes, I can pay this indefinitely according to what I'm seeing so far. In fact, my HELOC balance has dropped down again and I was considering making another payment to the mortgage, but with holiday travel and gifts I'm going to hold off and do it in the spring.)
Payoff date Jan 2024
Projected interest savings $203,000
The things I keep coming back to are not the interest rates and how I'm saving money over 30 years instead of 5 and all that, but the fact that $10,000 was COSTING me $20,000 in interest to pay in the old way and about $1200 in interest to pay in the new way and that all my income is going toward paying down the HELOC whereas just a portion of it was going toward paying down the mortgage. I just wish a discussion of the real world merits of the strategy was possible, but it's not because we have to compare it to just putting your extra money toward the mortgage and putting your extra money into investments and rubbing your money on a butterfly's wings and drawing smiley faces on it while listening to Neil Simon records and everything else we can think of. The bottom line is, the strategy is doing what it is intended to do, all I'm saying is that it seems to be working even faster than expected, so if anyone has any idea why that could be feel free to let me know.
Josh, I have done some quick calcs with the following assumptions:
100k loan, 5.5% rate, 30 yrs + 6% heloc locked in (for simplicity)
First scenario you just pay $1k a mo additional principal. Results:
You will pay the loan off in roughly 76 months with cum interest of $18,552.93
Second is heloc pmts of $12k upfront every year with you paying the heloc balance off by the end of the year ($1k pmt/mo):
You will pay the loan off in roughly 73 months with cum interest of $19,077.72 ($16,352.7 to your bank and $2,725 to your heloc)
We can revise the numbers to fit your particular case, but something tells me we won't see a scenario where heloc option comes out on top (as far as interest saved).
You can find my calcs here: https://ufile.io/6crqv
No, I realize all that, but listen to what I'm saying. I'm not comparing the HELOC strategy to just paying additional principal. I understand the different merits of each and I'm not interested in that comparison any longer.
What I'm saying is that hypothetically if I was just paying additional principal, then I would have roughly $1000/month to do it, which I would say is about average / normal for most people with decent jobs and frugal spending, BUT that is not the math that is coming out of the HELOC strategy. Somehow, through the HELOC I have been able to put $3500/month extra toward the mortgage, but my before I started this HELOC process my checking and savings wasn't growing at a rate of $3500/month. All I'm asking is let's say there was a constructive, open minded person who came to this forum - what would they say COULD BE causing such a drastic difference in the results of the HELOC vs what I had left over in checking / savings in the past. Like if everyone could imagine that they were open minded and not hellbent on comparing this strategy to simply paying extra principal, what would a person say if they could look at the results I'm telling you and not compare it with other preconceived notions of better ways to do everything? What would a person like that hypothetically say if they existed on this forum?
Originally posted by @Joshua S.:
Originally posted by @Victor S.:
Originally posted by @Joshua S.:
Originally posted by @Victor S.:
Josh, if you're able to save $1k a mo, how long is it going to take to pay the heloc off? yes, you did throw in $17.5k, but now you have to pay that off before you can do that again. You can't just keep throwing $17.5k in indefinitely. So how much are you going to end up paying in interest for said heloc vs just trying to save as much as possible every month and put it towards the principal interest-free?
Well, I was trying to avoid this discussion, because I thought it would muddy the waters and we were already spinning in circles, but I'm not "paying off" the HELOC and then reloading it as the original strategy states, I'm paying it down a bit and then taking another small chunk to put toward the mortgage. Basically, I'm keeping the HELOC balance around $8000-$10,000 because I figured that it would allow me to keep more pressure on the mortgage itself if I'm paying a few more thousand toward it every time the HELOC balance drops. This is probably "wrong" because of the flux capacitor rule of investing and all that, but it's the way I've elected to do it and it has allowed me to take $17,500 off of the mortgage in only 5 months.
But to answer your question I pay a total of a little over $100/month in HELOC interest to keep the balance this high.
So, these guys have all said my savings don't technically take place until 30 years from now and all that, which is fine, but here are my real world results so far:
$100/month interest cost toward HELOC (which is a wash considering the savings, in my opinion)
$17,500 total ($3500/month) off of the mortgage (Yes, I can pay this indefinitely according to what I'm seeing so far. In fact, my HELOC balance has dropped down again and I was considering making another payment to the mortgage, but with holiday travel and gifts I'm going to hold off and do it in the spring.)
Payoff date Jan 2024
Projected interest savings $203,000
The things I keep coming back to are not the interest rates and how I'm saving money over 30 years instead of 5 and all that, but the fact that $10,000 was COSTING me $20,000 in interest to pay in the old way and about $1200 in interest to pay in the new way and that all my income is going toward paying down the HELOC whereas just a portion of it was going toward paying down the mortgage. I just wish a discussion of the real world merits of the strategy was possible, but it's not because we have to compare it to just putting your extra money toward the mortgage and putting your extra money into investments and rubbing your money on a butterfly's wings and drawing smiley faces on it while listening to Neil Simon records and everything else we can think of. The bottom line is, the strategy is doing what it is intended to do, all I'm saying is that it seems to be working even faster than expected, so if anyone has any idea why that could be feel free to let me know.
Josh, I have done some quick calcs with the following assumptions:
100k loan, 5.5% rate, 30 yrs + 6% heloc locked in (for simplicity)
First scenario you just pay $1k a mo additional principal. Results:
You will pay the loan off in roughly 76 months with cum interest of $18,552.93
Second is heloc pmts of $12k upfront every year with you paying the heloc balance off by the end of the year ($1k pmt/mo):
You will pay the loan off in roughly 73 months with cum interest of $19,077.72 ($16,352.7 to your bank and $2,725 to your heloc)
We can revise the numbers to fit your particular case, but something tells me we won't see a scenario where heloc option comes out on top (as far as interest saved).
You can find my calcs here: https://ufile.io/6crqv
No, I realize all that, but listen to what I'm saying. I'm not comparing the HELOC strategy to just paying additional principal. I understand the different merits of each and I'm not interested in that comparison any longer.
What I'm saying is that hypothetically if I was just paying additional principal, then I would have roughly $1000/month to do it, which I would say is about average / normal for most people with decent jobs and frugal spending, BUT that is not the math that is coming out of the HELOC strategy. Somehow, through the HELOC I have been able to put $3500/month extra toward the mortgage, but my before I started this HELOC process my checking and savings wasn't growing at a rate of $3500/month. All I'm asking is let's say there was a constructive, open minded person who came to this forum - what would they say COULD BE causing such a drastic difference in the results of the HELOC vs what I had left over in checking / savings in the past. Like if everyone could imagine that they were open minded and not hellbent on comparing this strategy to simply paying extra principal, what would a person say if they could look at the results I'm telling you and not compare it with other preconceived notions of better ways to do everything? What would a person like that hypothetically say if they existed on this forum?
i'm trying to be as open-minded as I can by using actual math. Use my spreadsheet and revise it using your own example. I'm really curious to see what your average monthly heloc balance is to complete this scenario.
- Rental Property Investor 路 Member since 2018 路 78 posts 路 53 votes7y
@Brian Cardwell I've done the calculation on my primary residence as well and the math works. I've paid off a 3rd of my loan in 2 years using this strategy. I commend you for your perseverance through 285 Comments. You handled all the specific questions amazingly well and I admire you for that.
I've tried to spread this knowledge about the HELOC strategy to those around me but it's very time consuming and most times it results in the response- "I'd rather just pay a lump sum when I can". I've tried to get better at my delivery, but now folks just say, "Let me talk to my bank or CPA to see what they know about it". Basically, "Let me talk to an expert".
I'm looking forward to paying off my loan in 7 years and then perhaps the naysayers will finally believe... but again looking at 285 posts in the thread...maybe not
- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
Originally posted by @Account Closed:
@Brian Cardwell I've done the calculation on my primary residence as well and the math works. I've paid off a 3rd of my loan in 2 years using this strategy. I commend you for your perseverance through 285 Comments. You handled all the specific questions amazingly well and I admire you for that.
I've tried to spread this knowledge about the HELOC strategy to those around me but it's very time consuming and most times it results in the response- "I'd rather just pay a lump sum when I can". I've tried to get better at my delivery, but now folks just say, "Let me talk to my bank or CPA to see what they know about it". Basically, "Let me talk to an expert".
I'm looking forward to paying off my loan in 7 years and then perhaps the naysayers will finally believe... but again looking at 285 posts in the thread...maybe not
Thank you! I get exactly the same response.
I don't know what to tell you except that you're using your HELOC as a financial discipline tool. It's not a "system".
The 285+ posts on this thread are from experts debunking every version of this theory. Everyone left standing has changed their theory on why this "system" works a hundred times and it's been reduced to "well it's not better than just paying more towards my mortgage every month, but putting it on my HELOC instead forces me to do it.
Even some of the BP staff have weighed in to debunk it.
- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
Originally posted by @Chris May:
Originally posted by @Account Closed:
@Brian Cardwell I've done the calculation on my primary residence as well and the math works. I've paid off a 3rd of my loan in 2 years using this strategy. I commend you for your perseverance through 285 Comments. You handled all the specific questions amazingly well and I admire you for that.
I've tried to spread this knowledge about the HELOC strategy to those around me but it's very time consuming and most times it results in the response- "I'd rather just pay a lump sum when I can". I've tried to get better at my delivery, but now folks just say, "Let me talk to my bank or CPA to see what they know about it". Basically, "Let me talk to an expert".
I'm looking forward to paying off my loan in 7 years and then perhaps the naysayers will finally believe... but again looking at 285 posts in the thread...maybe not
I don't know what to tell you except that you're using your HELOC as a financial discipline tool. It's not a "system".
The 285+ posts on this thread are from experts debunking every version of this theory. Everyone left standing has changed their theory on why this "system" works a hundred times and it's been reduced to "well it's not better than just paying more towards my mortgage every month, but putting it on my HELOC instead forces me to do it.
Even some of the BP staff have weighed in to debunk it.
Every one who uses this process that has posted has no mortgage at this point or won't have one soon. It must work. Why hate on something that works. I bet you can't explain why you cellphone works but you don't say that is hogwash. Easy up bro. The process works. If you don't like it that is cool . Don't hate on those that use it and have success.
BTW the BP folks don't know everything. I would hope they are open enough to learn.
- Rental Property Investor 路 Bellevue, NE 路 Member since 2014 路 79 posts 路 38 votes7y
Originally posted by @Victor S.:
it's never too late to resuscitate this horse again. we're only 6 days into the new year, after all...
I'll be the one to do that.
I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal. I had to alter the one they had there because they originially made some false assumptions which I believe I cleared up in my version.
You can play around with the numbers, interest rates, etc. and you can see which one is the best. Just make sure you're honest with your numbers!
That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors or ways to improve it, let me know. - Investor 路 Honolulu, HI 路 Member since 2015 路 106 posts 路 50 votes7y
Originally posted by @Daniel Weed:
Originally posted by @Victor S.:
it's never too late to resuscitate this horse again. we're only 6 days into the new year, after all...
I'll be the one to do that.
I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal. I had to alter the one they had there because they originially made some false assumptions which I believe I cleared up in my version.
You can play around with the numbers, interest rates, etc. and you can see which one is the best. Just make sure you're honest with your numbers!
That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors or ways to improve it, let me know.Wow! What a well put together spreadsheet. I ran the numbers and came up with pretty much the same results.
For those having trouble following Daniel's spreadsheet, I have a slightly simpler version here. My version, however, does not compare mortgage+additional to mortgage+additional using HELOC, but once you grasp the numbers you can take a look at Daniel's spreadsheet which shows they are pretty much the same. My spreadsheet also adds an additional strategy of substituting the mortgage for a HELOC. The concept is the same, but the results are different, depending on how much liquid cash you have on hand. No tricks here, just that you simply start off with a lower balance because you are able to dump that money in from the get go. The bank account column is very important, in my opinion, because it helps people see the full picture of what is going on financially. Without it, you might get lost in how much money you actually have on hand because you are only focusing on the savings and not realizing that the savings are being realized by re-allocating money towards the debt. Hope this helps.
Originally posted by @Daniel Weed:
Originally posted by @Victor S.:
it's never too late to resuscitate this horse again. we're only 6 days into the new year, after all...
I'll be the one to do that.
I put together a spreadsheet based off of one I found on vertex42.com that shows the differences between using the velocity banking method, making just your regular payments, and simply putting all of your extra cash directly towards your mortgage principal. I had to alter the one they had there because they originially made some false assumptions which I believe I cleared up in my version.
You can play around with the numbers, interest rates, etc. and you can see which one is the best. Just make sure you're honest with your numbers!
That being said, while I BELIEVE it is good to go, I can't be 100% sure, so if you see errors or ways to improve it, let me know.Very nicely done, Daniel! I've plugged in some numbers with my scenario and extra payments still beat this heloc numbers :)
- Real Estate Agent 路 watertown, NY 路 Member since 2016 路 29 posts 路 16 votes7y
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
- Rental Property Investor 路 Bellevue, NE 路 Member since 2014 路 79 posts 路 38 votes7y
Originally posted by @Enrique Reyes:
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.
You can plug whatever values into it the top portion you want and it will change the bottom calculations. The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet.
Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.
As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.
- Investor 路 Honolulu, HI 路 Member since 2015 路 106 posts 路 50 votes7y
Whether or not a HELOC is interest only or not matters very little since you can always pull out whatever the additional required payment is right after you make your payment.
- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
Originally posted by @Daniel Weed:
Originally posted by @Enrique Reyes:
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.
You can plug whatever values into it the top portion you want and it will change the bottom calculations. The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet.
Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.
As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.
So can I get some clarification here? Are you saying that with a standard 30 year amortized mortgage, in the first 10 years of your mortgage that the majority of each payment isn't going to interest?
- Rental Property Investor 路 Bellevue, NE 路 Member since 2014 路 79 posts 路 38 votes7y
Originally posted by @Brian Cardwell:
Originally posted by @Daniel Weed:
Originally posted by @Enrique Reyes:
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.
You can plug whatever values into it the top portion you want and it will change the bottom calculations. The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet.
Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.
As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.
So can I get some clarification here? Are you saying that with a standard 30 year amortized mortgage, in the first 10 years of your mortgage that the majority of each payment isn't going to interest?
That isn't what I'm saying at all. The common misconception is that people think they are paying more than the stated interest rate during the first few years because the majority of the payment is going towards interest. I've heard people claim things like 70+% APR because so much of their payment is interest.
A lot of people don't understand that interest is ALWAYS calculated as outstanding principal multiplied by interest rate.
Sorry for any confusion.
- Investor 路 Cleveland, OH 路 Member since 2015 路 6k+ posts 路 2k+ votes7y
Originally posted by @Brian Cardwell:
Originally posted by @Daniel Weed:
Originally posted by @Enrique Reyes:
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.
You can plug whatever values into it the top portion you want and it will change the bottom calculations. The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet.
Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.
As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.
So can I get some clarification here? Are you saying that with a standard 30 year amortized mortgage, in the first 10 years of your mortgage that the majority of each payment isn't going to interest?
Brian, how did you come to that conclusion? (I believe the point isn't isn't whether you're paying more mortgage interest during the first ten years than later, because, the same applies to a HELOC anyway - if you've borrowed the same amount up front! No, the point is: how can you pay off more of the principal early? That's where high income earners can use either method successfully, with very little difference mathematically between paying every excess dollar off your mortgage principal at the end of each pay period, vs paying every dollar to the HELOC principal at the beginning of each pay period, then progressively borrowing a lot of that back with every expense during the pay period).
Once upon a time, when interest RATES were actually high, then the math did more favor a HELOC!...
- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
Originally posted by @Daniel Weed:
Originally posted by @Brian Cardwell:
Originally posted by @Daniel Weed:
Originally posted by @Enrique Reyes:
@Daniel Weed Thanks for the calculator. Using your calculator I see that you assume that a HELOC and a regular mortgage would charge the same interest. Is it your experience this is the case or are you using it for calculation purpose? I would assume that a HELOC interest rate would be higher and is adjustable. Also, it seems that the HELOC in your spreadsheet is interest only HELOC, is the strategy more powerful when it is an interest only HELOC? @Victor S. when you plug in the numbers i'm sure that extra payment can beat the HELOC but maybe your too focus on one scenario. Using a HELOC the extra payment can be used to seize other opportunities if they present themselves such as buying a new property below market while the extra payment once you use it in the traditional way, you can't take it back. If you keep that extra payment in savings you won't be saving in interest payment. It really depends on your strategy it seems.
You can change the values at the top to whatever you want. I just simply kept the HELOC and mortgage the same rates when I uploaded it because some people seem to think HELOCs have magical simple interest and mortgages use "amortized interest" that makes a mortgage frontloaded with interest.
You can plug whatever values into it the top portion you want and it will change the bottom calculations. The only thing it can't do is calculate for a variable rate or an introductory rate. I haven't figured that part out yet.
Also, the heloc on my spreadsheet isn't interest only. It doesn't show any minimum payment because you're making your payment each month by the paycheck parking, so no matter what, your payment is covered. At this point it can't account for all assumptions, but I'll keep trying to play with it when I have time to factor in things like intro rates and different draw dates from the LOC.
As for using your HELOC to buy other property later. You can just simply open up a HELOC once you have more equity for that. Or you can open a HELOC right away, use it for the velocity method during its low intro rate if it's lower than your mortgage rate, and then keep it open in case of emergencies until you have the equity to buy another property.
So can I get some clarification here? Are you saying that with a standard 30 year amortized mortgage, in the first 10 years of your mortgage that the majority of each payment isn't going to interest?
That isn't what I'm saying at all. The common misconception is that people think they are paying more than the stated interest rate during the first few years because the majority of the payment is going towards interest. I've heard people claim things like 70+% APR because so much of their payment is interest.
A lot of people don't understand that interest is ALWAYS calculated as outstanding principal multiplied by interest rate.
Sorry for any confusion.
Ok cool 馃憤 ... I am glad
so what's the verdict, folks? i did my math that showed extra pmts saved a couple hundred over using Heloc. Heloc's int rate is higher than my current mortgage rate (which I'd believe is the case for most folks, unless you never refied from the 80s...).
- 7yBrian CardwellPro MemberInvestor 路 Odenton, MD 路 Member since 2017 路 204 posts 路 144 votes
What is the question? There is no verdict until a question is defined.
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