HELOC payoff strategy
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
Second City Real Estate4.821 Reviews
HELOC payoff strategy
Most Popular Reply
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’t pay, I sue.
329 Replies
- 8yNicole A.Pro MemberRental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
I saw some YouTube videos about it in my suggested watch list and found it confusing too. I don't see why go through all the trouble of this method when I could just pay my principle down via extra payments to my existing mortgage.
Typically, when something is unnecessarily convoluted, it's not the best method. That's my opinion, at least.
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
- Downingtown, PA · Member since 2018 · 2 posts · 3 votes8y
Rather new to the whole side of Real Estate Investing, and I did see some videos on youtube about Velocity Banking, which was intriguing. I, perhaps incorrectly saw it as a tool to pay down the principal on your primary residence, although I am sure you could use the same strategy for investment properties.
I gathered from the videos and information I read on it that the use of the HELOC was in place for reciprocal use of funds with your monthly income going to paying down the balance over time. You would then leverage debt by making a large principal payment out of your HELOC again and start the pay down process once more.
Is that not how people here in the forums interpret the methodology?
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes8y
There's really no point to it at all, unless you are saving some interest as @Steve Vaughan mentions on higher-interest loans - but that's really just with any loan, if you can eliminate higher interest for lower interest, safely, it usually make sense. I suspect the people that buy on to such a thing are people that have absolutely no savings, and thus having access to the HELOC makes them feel like they have an emergency fund, while they put the actual excess cash towards debt. In reality, all they have access to is a line of credit in case things go south, not any different than having a credit card. In fact, it might be worse than a credit card because it's secured against your house, whereas a person in real dire straits can walk on unsecured credit.
One thing that's worthwhile about @Brie Schmidt bringing this topic up again is that I really feel that it's incumbent upon good, reasonable people to call out BS when they see it. There are a lot of people who really struggle with finances - hey, not everyone is good with math or money - and it's easy to suck up people on the periphery with this kind of nonsense. I don't think I'd ever even heard of this until Brie brought it up, and then got to reading some of the past threads on it, it appears that it keeps coming back like a bad penny!
Skyline Properties - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
Don't put the $2k savings into a savings account...use it to pay down the first mortgage. Take your $5k salary, put $3k into the bank to cover your expenses (or stick the $3k in a HELOC if you want), and take the extra $2k and pay down the first mortgage. Forget about the HELOC...it's not needed.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes8y
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
No you won't. Your math is faulty. You only 'think' you're paying more interest. If a bundle of money somehow landed in your lap, enough to pay off the mortgage in your 5-month period, you'd find that you paid the exact same amount of interest on the HELOC as you did on the mortgage. Your mortgage 'appears' to be front-loaded on interest, and that is because the bank has taken the total amount of interest you will owe on having borrowed money and then paying it back over 30 years, divided it up into something that's reasonably close to what you would have owed up to that point, and created a payment schedule that gives you the same payment every month. Simple interest loans are always: interest rate x principal amount owed. The amortization schedule keeps you from having something that looks like the same amounts of interest & principal owed, every month, for 30 years, because that's not reality.
Skyline Properties - 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Steve Vaughan:
So I paid off 19 rentals last year and none of it was caused by taking out a new revolving, variable credit line. Certainly not one with fees and 'membership costs'!
A major beef I have with this is going after your primary mortgage. As @Brie Schmidt mentions, hers is at like 3.875% fixed. Mine is even less at 3.375%.
The ones I paid off were all above 6% (one was 7.99%) and higher risk, adjustable, callable, seller-financed, commercial that was bothering me, etc. At least apply principal acceleration against a loan that sucks!
The way I did it - the secret- was massive principal reduction payments against one mortgage at a time. Laser-focused intensity. Take the payments you are not making on a car because you are driving an old reliable beater, the fill-fees you are not paying because you self-manage, the going out to lunch costs your are not paying because you brown bag, the side hustle of buying stuff at garage sales for 10% and selling at 50 - and punch your highest cost/risk/hassle mortgage in the face once a month.
Ta-da. No need to change your paycheck auto-deposits or pay a crook (have you seen what he's doing to Indy investors?) and fool with a bunch of borrowing from Peter to pay Paul twice a month, with fees. What a hassle.
If you want to accelerate a mortgage down, great. I recommend it highly. Just make it a mortgage worth paying down, especially if you are going to go through all this garbage.
So the difference is I didn't have to increase my inflow of money. I did it using OPM. I accelerated my mortgage without having to make more money or spend more money than I was already spending.
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
- Real Estate Agent · Hamilton, NJ · Member since 2013 · 464 posts · 311 votes8y
Congrats on paying off 19 rentals.. I'm sure that's a huge weight off your shoulders. In your situation that you talk about above, did you pay a certain small extra payment every month or did you just save up enough to put a large lump sum at once and then repeat periodically?
Maybe I'm confused (or just straight ignorant lol) but I thought by making large lump sum payments it actually impacts the amount you pay in interest more then smaller monthly payments. I'm only asking to better my knowledge and not to challenge what you say.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes8y
Originally posted by @Brian Cardwell:
Originally posted by @Steve Vaughan:
So I paid off 19 rentals last year and none of it was caused by taking out a new revolving, variable credit line. Certainly not one with fees and 'membership costs'!
A major beef I have with this is going after your primary mortgage. As @Brie Schmidt mentions, hers is at like 3.875% fixed. Mine is even less at 3.375%.
The ones I paid off were all above 6% (one was 7.99%) and higher risk, adjustable, callable, seller-financed, commercial that was bothering me, etc. At least apply principal acceleration against a loan that sucks!
The way I did it - the secret- was massive principal reduction payments against one mortgage at a time. Laser-focused intensity. Take the payments you are not making on a car because you are driving an old reliable beater, the fill-fees you are not paying because you self-manage, the going out to lunch costs your are not paying because you brown bag, the side hustle of buying stuff at garage sales for 10% and selling at 50 - and punch your highest cost/risk/hassle mortgage in the face once a month.
Ta-da. No need to change your paycheck auto-deposits or pay a crook (have you seen what he's doing to Indy investors?) and fool with a bunch of borrowing from Peter to pay Paul twice a month, with fees. What a hassle.
If you want to accelerate a mortgage down, great. I recommend it highly. Just make it a mortgage worth paying down, especially if you are going to go through all this garbage.
So the difference is I didn't have to increase my inflow of money. I did it using OPM. I accelerated my mortgage without having to make more money or spend more money than I was already spending.
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
The resistance is the idea that you need a HELOC to pay off your mortgage principal faster. In your example, all you are doing is taking the $2k extra money you have each month - the difference between the $5k you make and the $3k you spend - and putting it towards the mortgage principal. If you use the HELOC to do it first, and then pay back the HELOC, it makes no difference. You could do the same thing with a no-interest balance transfer fee with a credit card (actually, this would probably be better because it's no interest), or a loan from your brother. What makes you think that you are paying the principal of your mortgage off faster, and spending less money to do so, than if you had just taken the extra $2k and put it directly towards the principal?
Skyline Properties - Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
I was sent this HELOC payoff calculator so I did a comparison. Assuming a $500k loan that I can afford $4000 a month in payments.
Fixed 30 years loan at 4% with extra principle ($4k minus the P&I) gives me 162 payments till the balance is paid off and total interest paid of $148k
Adjustable rate HELOC at 5.5% that increases .5% a year making $5k a month with $1k in expenses gives me 312 payments till the balance is paid off and total interest paid of $750k
Second City Real Estate4.821 Reviews - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Originally posted by @Brian Cardwell:
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
Brian, it does work to accelerate your mortgage. We are trying to help you understand that it works but not for the reason that you think it works. The HELOC is unnecessary...that's the scam.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
I get that a HELOC rate is based on daily interest, a mortgage monthly. I think that's the whole premise of this argument. Each paycheck coming into the HELOC reduces it's balance immediately.
But... you are using the heloc to eat and pay basics, so only $2000 stays against it every 2 weeks. You are only depositing half a month's worth of the new debt you just created every two weeks. I'd guess - for all the fees and hassles, you are netting $8/mo. Brew your own coffee more instead.
The HELOC was not designed to be your checking acct. I'd bet they will put the hammer down on your paying $100 weekly grocery and $80 utility bill payments from it every month eventually. Over-distribution fees or something. The small print of a HELOC is vast and final. They can up and decide to CALL IT ANYTIME and probably will if you abuse it.
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @JD Martin:
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
No you won't. Your math is faulty. You only 'think' you're paying more interest. If a bundle of money somehow landed in your lap, enough to pay off the mortgage in your 5-month period, you'd find that you paid the exact same amount of interest on the HELOC as you did on the mortgage. Your mortgage 'appears' to be front-loaded on interest, and that is because the bank has taken the total amount of interest you will owe on having borrowed money and then paying it back over 30 years, divided it up into something that's reasonably close to what you would have owed up to that point, and created a payment schedule that gives you the same payment every month. Simple interest loans are always: interest rate x principal amount owed. The amortization schedule keeps you from having something that looks like the same amounts of interest & principal owed, every month, for 30 years, because that's not reality.
So my question to you is how is my math faulty.
A 10k HELOC at 10%= $ 83 month
200k mortgage @4.25% 30yrs monthly payment is $970 of which $697 is interest.
This isn't my math. It is the banks math. I am just using it to my advantage.
- 8yDon SpaffordPro MemberInvestor · Idaho Falls, ID · Member since 2016 · 935 posts · 629 votes
@Brie Schmidt I started a very similar discussion several months ago, but was focused on a personal or business line of credit but HELOC is also thrown in there. Had a lot of great responses. Here is a link if it works:
https://www.biggerpockets.com/forums/519/topics/45...
or just search for the topic Velocity Banking Strategy. Kind of surprising the number of responses and the wide variety of feelings on this subject. In the end it is a matter of what you want to do and what is a priority to you.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
@Brian Cardwell - why are you comparing a $10k vs $200k loan like they are the same?
Second City Real Estate4.821 Reviews - 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Steve Vaughan:
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
I get that a HELOC rate is based on daily interest, a mortgage monthly. I think that's the whole premise of this argument. Each paycheck coming into the HELOC reduces it's balance immediately.
But... you are using the heloc to eat and pay basics, so only $2000 stays against it every 2 weeks. You are only depositing half a month's worth of the new debt you just created every two weeks. I'd guess - for all the fees and hassles, you are netting $8/mo. Brew your own coffee more instead.
The HELOC was not designed to be your checking acct. I'd bet they will put the hammer down on your paying $100 weekly grocery and $80 utility bill payments from it every month eventually. Over-distribution fees or something. The small print of a HELOC is vast and final. They can up and decide to CALL IT ANYTIME and probably will if you abuse it.
I didn't do that . I paid all my bills through my checking account. Then I made one transfer to my checking account from my HELOC. When my paychecks came in they went to my checking. I immediately transferred them to the HELOC. It just a different way of thinking and moving the money.
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Brie Schmidt:
@Brian Cardwell - why are you comparing a $10k vs $200k loan like they are the same?
Great question. I used 10k of the HELOC to put a lump sum on my mortgage. I was comparing the monthly interest of the 10k HELOC to the monthly interest of the 200k mortgage.
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Mike Dymski:
Originally posted by @Brian Cardwell:
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
Brian, it does work to accelerate your mortgage. We are trying to help you understand that it works but not for the reason that you think it works. The HELOC is unnecessary...that's the scam.
The HELOC isn't that scam. I would rather use the leverage of the HELOC. I could take my money that I save up and apply it. I would rather not use my savings to do that. By using the heloc I still have access to my savings and to whatever line of credit is there if I need.
For the record I used this method for my primary and will continue to use it on my rentals. It works there is no scam here at all.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes8y
Originally posted by @Brian Cardwell:
Originally posted by @JD Martin:
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
No you won't. Your math is faulty. You only 'think' you're paying more interest. If a bundle of money somehow landed in your lap, enough to pay off the mortgage in your 5-month period, you'd find that you paid the exact same amount of interest on the HELOC as you did on the mortgage. Your mortgage 'appears' to be front-loaded on interest, and that is because the bank has taken the total amount of interest you will owe on having borrowed money and then paying it back over 30 years, divided it up into something that's reasonably close to what you would have owed up to that point, and created a payment schedule that gives you the same payment every month. Simple interest loans are always: interest rate x principal amount owed. The amortization schedule keeps you from having something that looks like the same amounts of interest & principal owed, every month, for 30 years, because that's not reality.
So my question to you is how is my math faulty.
A 10k HELOC at 10%= $ 83 month
200k mortgage @4.25% 30yrs monthly payment is $970 of which $697 is interest.
This isn't my math. It is the banks math. I am just using it to my advantage.
Wow. If you can't see how paying 10% is worse than just paying 4.25%, I'm not sure I'm the right person to explain it otherwise.
You owe interest based on the length of time that you hold the loan, the interest rate you're charged, and the outstanding loan principal at any one time. Using your numbers, let's just look at one month:
200k @4.25% = $708 owed in interest for the first month ($200,000 x [.0425/12]) = $708 total interest paid
VS.
10k @10% = $83 owed in interest for the first month AND
190k @4.25% = $673 owed in interest for the first month = $756 total interest paid
Now you take your $5k and put it in the HELOC, and use $3k of that up. You do that for 5 months, until the HELOC balance is zero. In 5 months time, you will have paid more in interest than if you had just taken the $2k and put it straight towards the primary mortgage.
Skyline Properties - Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes8y
Originally posted by @Christopher Giannino:
Congrats on paying off 19 rentals.. I'm sure that's a huge weight off your shoulders. In your situation that you talk about above, did you pay a certain small extra payment every month or did you just save up enough to put a large lump sum at once and then repeat periodically?
Maybe I'm confused (or just straight ignorant lol) but I thought by making large lump sum payments it actually impacts the amount you pay in interest more then smaller monthly payments. I'm only asking to better my knowledge and not to challenge what you say.
Thanks for the congrats, Christopher.
Yes, the large payments against my mortgage did 'impact' the amount I paid in interest. It reduced it drastically. Are you speaking to the 'tax benefits' of paying mortgage interest? The return there is -70%. For every $10,000 in interest paid you only get $3000 back. See?
For the first 8 years on my 7.99% mortgage I was making an extra $200 auto payment, then $400 for 4 years. Last year I started making $9900 extra monthly payments to stay just below the $10k tell the IRS amount. The mortgage co called me when my balance got down to $2583 and I made the last payment over the phone so it came out right.
To this day, because I already have an opportunity and emergency fund on the side I still make extra principal payments of $11k/mo on two larger seller-financed apt bld loans at 6% and 6.5%. Considering upping it actually. Next $2200 pmt falls off in a few years. Will apply that to the other $1898 pmt, and so on.
Once the snowball of debt removal gets going, it just gets bigger and bigger. Works wonderfully with my nap schedule. No HELOCs with their PITAs, fees and fine print.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes8y
Originally posted by @Brian Cardwell:
Originally posted by @Mike Dymski:
Originally posted by @Brian Cardwell:
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
Brian, it does work to accelerate your mortgage. We are trying to help you understand that it works but not for the reason that you think it works. The HELOC is unnecessary...that's the scam.
The HELOC isn't that scam. I would rather use the leverage of the HELOC. I could take my money that I save up and apply it. I would rather not use my savings to do that. By using the heloc I still have access to my savings and to whatever line of credit is there if I need.
You have no savings, in the example you are posting. You are using all of your money to pay bills. All you have is access to the HELOC. You're just borrowing the money from the HELOC and paying it back $2k at a time, at a higher interest rate. If you want to borrow money to pay off another loan, instead of using a 10% HELOC, why not do a 0-1-2% balance transfer to a credit card? It accomplishes the same thing, at a much lower interest rate.
At any rate, the only acceleration towards paying off your mortgage is that you are using the extra $2k you don't spend on bills to pay off the mortgage. It doesn't matter if you borrow from the HELOC first and pay that back, or you pay it directly. It's the same money.
Skyline Properties - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
Originally posted by @Brian Cardwell:
Originally posted by @Mike Dymski:
Originally posted by @Brian Cardwell:
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
Brian, it does work to accelerate your mortgage. We are trying to help you understand that it works but not for the reason that you think it works. The HELOC is unnecessary...that's the scam.
The HELOC isn't that scam. I would rather use the leverage of the HELOC. I could take my money that I save up and apply it. I would rather not use my savings to do that. By using the heloc I still have access to my savings and to whatever line of credit is there if I need.
For the record I used this method for my primary and will continue to use it on my rentals. It works there is no scam here at all.
You can get a HELOC to have access to your equity (i.e. "savings"). That is independent of passing your first mortgage payment through the HELOC (which is unnecessary).
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @JD Martin:
Originally posted by @Brian Cardwell:
Originally posted by @JD Martin:
Originally posted by @Brian Cardwell:
Yes and no. Instead of your leftover money sitting in your savings acct doing nothing, it is being used to pay down the HELOC.
I always hear people talk about interest rate. Interest rate is important but it isn't the end all be all. What is really important is how much real money is spent.
So on a 10k HELOC at 10%= 1000÷12=$83 a month Max interest
200k mortgage @4.25% equals $679 a month interest
So using the method outlined above, you will spend ~$3200 less in a five month period.
Month one interest on HELOC $83 max
Month one interest on 200k mortgage $679 max
I would much rather pay $83 than $679
No you won't. Your math is faulty. You only 'think' you're paying more interest. If a bundle of money somehow landed in your lap, enough to pay off the mortgage in your 5-month period, you'd find that you paid the exact same amount of interest on the HELOC as you did on the mortgage. Your mortgage 'appears' to be front-loaded on interest, and that is because the bank has taken the total amount of interest you will owe on having borrowed money and then paying it back over 30 years, divided it up into something that's reasonably close to what you would have owed up to that point, and created a payment schedule that gives you the same payment every month. Simple interest loans are always: interest rate x principal amount owed. The amortization schedule keeps you from having something that looks like the same amounts of interest & principal owed, every month, for 30 years, because that's not reality.
So my question to you is how is my math faulty.
A 10k HELOC at 10%= $ 83 month
200k mortgage @4.25% 30yrs monthly payment is $970 of which $697 is interest.
This isn't my math. It is the banks math. I am just using it to my advantage.
Wow. If you can't see how paying 10% is worse than just paying 4.25%, I'm not sure I'm the right person to explain it otherwise.
You owe interest based on the length of time that you hold the loan, the interest rate you're charged, and the outstanding loan principal at any one time. Using your numbers, let's just look at one month:
200k @4.25% = $708 owed in interest for the first month ($200,000 x [.0425/12]) = $708 total interest paid
VS.
10k @10% = $83 owed in interest for the first month AND
190k @4.25% = $673 owed in interest for the first month = $756 total interest paid
Now you take your $5k and put it in the HELOC, and use $3k of that up. You do that for 5 months, until the HELOC balance is zero. In 5 months time, you will have paid more in interest than if you had just taken the $2k and put it straight towards the primary mortgage.
Total interest is $250 paid over the 5months on HELOC.
Over the same period you would have paid $3470 had you not put the $10k on the principle from the HELOC.
So you saved $3200 in interest payments.
.
- 8yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Mike Dymski:
Originally posted by @Brian Cardwell:
Originally posted by @Mike Dymski:
Originally posted by @Brian Cardwell:
Why are folks so resistant to something that works ? I am not selling anything. I have nothing to gain from it other than knowing I helped someone get their mortgage paid off. I know how truly empowering that can be.
Brian, it does work to accelerate your mortgage. We are trying to help you understand that it works but not for the reason that you think it works. The HELOC is unnecessary...that's the scam.
The HELOC isn't that scam. I would rather use the leverage of the HELOC. I could take my money that I save up and apply it. I would rather not use my savings to do that. By using the heloc I still have access to my savings and to whatever line of credit is there if I need.
For the record I used this method for my primary and will continue to use it on my rentals. It works there is no scam here at all.
You can get a HELOC to have access to your equity (i.e. "savings"). That is independent of passing your first mortgage payment through the HELOC (which is unnecessary).
Your not passing your mortgage payment through the HELOC at all. You just use the heloc to pay down the principle.
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