HELOC payoff strategy
Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
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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’t pay, I sue.
329 Replies
Originally posted by @JD Martin:
Oy vey...I can't believe these threads are still here & still going.
I don't have anything against anyone using a HELOC the way they suggest - hey, more power to everyone! - but it needs to be shown for exactly what it is - a psychological tool at best, if you are the type of person doesn't have the discipline to just make the extra payment to the mortgage. Interest rates being the same, there's no difference in the total amount of money you pay or save (maybe a couple of dollars one way or the other related to fees and timing).
I'd love to know how many people running this racket instead slip up and DON'T pay the HELOC, and instead go to Cabo or buy a Jet ski and then have to deal with double interest. This game presupposes you'll always have enough income coming in to make that super-big mortgage payment, then you pay back the HELOC by direct deposit into the account. But what happens the time the car breaks down or you need extra money for something else? What happens if you lose your job before you re-accumulate enough money to pay off the HELOC?
My point: if you're disciplined enough to have an emergency fund, and pay a substantial extra towards your mortgage every month, why would you need this psychological tool to get you to do it?
Those are good questions, but there are pretty easy answers to all of them. What happens when something goes wrong if your car breaks down or you lose your job? The same thing that happens if you just had a mortgage. You deal with it. When you pay a chunk from the HELOC to the mortgage you have the same debt you had yesterday, you just have the ability to use your income to hold the balance down for part of the debt and still use it for bills. You gained flexibility in return for a little extra interest on the HELOC. If you lost your job would you denounce the fact that you bought a bus pass in case your car breaks down? People pay for flexibility and convenience all the time. You do it every time you use the gas station on the way to work instead of finding the cheapest place in town. The HELOC isn't an additional liability, it's $190,000+$10,000 instead of $200,000 and the ability to have all of your income working for you all the time instead of sitting in a checking account.
And to answer your last question, you don't necessarily NEED this psychological tool to pay extra to your mortgage, but it's not ALL about forcing yourself to have discipline. When you have $190,000+$10,000 and you get a check it becomes $190,000+$7000 and then you get another check and it's $190,000+$4000 and you pay some bills and it's $190,000+$5000 and so on. Your money is actively holding down a portion of your mortgage balance all month, not just when you make your normal payment. Do these "interest savings" wash with the additional rate you pay to the HELOC? Maybe, but maybe not. At least you're trying to keep your mortgage balance down as much as possible and save a little while getting the "psychological" benefits.
Originally posted by @Brian Cardwell:
@JD Martin
This "RACKET" is not for the financially irresponsible. How would you handle your car breaking down now? What would you do if you lost your job now? Those are irrelevant questions. Nothing is different in your daily life except how you move your money. It is more than psychological benefit. This method is far from a "racket".
With all due respect, Mr. Martin I wouldn't expect a moderator here to sling mud at a technique he doesn't agree with.
@Victor S.
With a credit card, there is inherently more risk. The money used to pay the mortgage would be a cash advance which likely wouldn't fall in to the zero percent rate. The banks are more likely to freeze the balance or even change the terms mid cycle. I am sure there maybe other reasons but this is what I can think of at the moment.
So before you say the banks can do that with a heloc, I will address that to. The bank is less likely to do any of the above because the HELOC is secured by the home. Your terms will not change in the middle of the contract with a heloc.
Brian, you could be right on this, as I haven't checked the limitation of reasons CC funds could be used for. However, give that interest rates are on the rise, it becomes even more expensive to use helocs. Let's say your var rate is 6%, that means your interest-only portion per month is going to be about $50 on $10k borrowed, or $600/yr. I bet most people got into their homes for much less (I did at 4.375%), so it makes no sense to not just add as much as you can to your principal monthly, without having to use a more expensive heloc option.
@ Joshua Smith the math doesn't support this heloc idea. you can read a few pages back where someone did an actual calculation (including my own example).
- 7yAlexander FelicePro MemberGuy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
since @Brian Cardwell tagged moderators, I would like to come in and simultaneously also sling mud at this "velocity banking" strategy, cuz it's silly and WAY overrated.
talk about chasing the most inefficient method of saving money of all time. On par with spending the weekends cutting out coupons.
Also, being a moderator doesn't include some high level of self censorship. We are people too, we can have opinions sometimes. If anything I would hope the mod team would encourage us to shed sunlight on lousy ideas, not support them, this one is around the pinnacle of mediocrity.
I would like to officially state that I take no enjoyment in defending @JD Martin
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brie Schmidt:
Twice recently people have told me of this new strategy to use a HELOC to pay off your mortgage faster. You essentially take out a HELOC to pay off your first lien, and then use that account to direct deposit your paycheck and make it your primary banking account.
From what they are telling me, it seems you can accomplish the same thing by making extra payments on your loan.
The difference is your mortgage is fixed for 30 years and the HELOC is variable with an annual fee
This sounds stupid. What am I missing?
Noooooo. BP needs to do something to reign this in.
There are two other threads on this topic with 20+ pages of comments each debunking every version of this strategy.
Even in a best case scenario, where the rate on the HELOC is the same as the mortgage, you save something like $70 over the course of a 200k loan.
The people who promote this "strategy" fall into one of two categories: 1) they're selling something... either loans or financial advice, or 2) have a tenuous grasp of financial math.
Nooooo, you're missing the third category, brother! People who can see the endless cycle of homeowners wasting away under their debt because they don't understand how much they are paying to mortgage interest and promote the idea as an easy way to keep their extra income going toward getting them out of debt / saving money. Yeah, you can just put all of your income toward your mortgage, but you admitted last time that you have money sitting around in your checking account while you pay maximum mortgage interest, so let's compare doing nothing and staying in debt as long as possible to my flawed solution. I win.
My daughter is having a food drive at school and we were planning on taking canned goods, but maybe we shouldn't since that's not a perfect solution for getting every last homeless person off the streets. Thanks, is there a special bible for cynics or were you just raised that if you can't work it out using math it doesn't exist? :)
Josh, you might have already given these numbers somewhere, but can you answer the following for me? You said you're currently using the HELOC-as-a-checking-account method, and I'm curious what your real world numbers are.
- How big are your "chunks"? In other words, what dollar amount are you moving from your mortgage to your HELOC? (and bonus question: how often?)
- What dollar amount of cash are you putting against your HELOC every month?
- What is your average spending amount every month against the HELOC? In other words, how many bills are you paying with your HELOC.
Originally posted by @Alexander Felice:
since @Brian Cardwell tagged moderators, I would like to come in and simultaneously also sling mud at this "velocity banking" strategy, cuz it's silly and WAY overrated.
talk about chasing the most inefficient method of saving money of all time. On par with spending the weekends cutting out coupons.
Also, being a moderator doesn't include some high level of self censorship. We are people too, we can have opinions sometimes. If anything I would hope the mod team would encourage us to shed sunlight on lousy ideas, not support them, this one is around the pinnacle of mediocrity.
I would like to officially state that I take no enjoyment in defending @JD Martin
LOL. Love that. "Chasing the most inefficient method of saving money of all time"
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes7y
Originally posted by @Brian Cardwell:
@JD Martin
This "RACKET" is not for the financially irresponsible. How would you handle your car breaking down now? What would you do if you lost your job now? Those are irrelevant questions. Nothing is different in your daily life except how you move your money. It is more than psychological benefit. This method is far from a "racket".
With all due respect, Mr. Martin I wouldn't expect a moderator here to sling mud at a technique he doesn't agree with.
@Victor S.
With a credit card, there is inherently more risk. The money used to pay the mortgage would be a cash advance which likely wouldn't fall in to the zero percent rate. The banks are more likely to freeze the balance or even change the terms mid cycle. I am sure there maybe other reasons but this is what I can think of at the moment.
So before you say the banks can do that with a heloc, I will address that to. The bank is less likely to do any of the above because the HELOC is secured by the home. Your terms will not change in the middle of the contract with a heloc.
Holy cow. Yes it is different. In your scenario, you essentially "pay forward" a big chunk of mortgage, then catch up by putting your paychecks into the HELOC all month long. You are borrowing money to pay back borrowed money, until you get paid, and trying to demonstrate that you're paying less interest, which is impossible without either a grace period (i.e. a period of time you get to use the HELOC for free), by paying less interest via a lower rate on the HELOC than on the primary mortgage, or by paying less interest through the way the interest is calculated. On the first point, I'm not aware of any HELOC that does that. On the second point, it may be possible to have a marginally cheaper interest rate on the HELOC depending on when the primary mortgage was taken out, but we are splitting hairs here because if there's that big of a spread you'd be better served just refinancing out of the expensive money. One the third point, there's no difference.
You would actually be more effective with this method if you used a traditional credit card to make the payment, assuming you could do it with credit card checks with a no/low-interest transaction fee, because you get a grace period on the credit card money that could (in theory) eliminate 24-30 days worth of interest, assuming you paid the CC in full. But you'd be unlikely to find a card that you could keep doing this every month, and your mortgage interest would have to be super high to absorb the transaction fee extrapolated annually. A 3% transaction fee on interest-free money for 30 days would factor to over 30% annually.
Finally, I don't agree with it the same reason I don't agree with the tooth fairy or Santy Claus - it's magical thinking. One of the nice things about math is it doesn't have to bend to any particular persuasion - liberal or conservative, religious or not, male or female, any dichotomy you want to come up with, math stays the same.
Skyline Properties - 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
You weren't leveraging anybody's money except your own. Saving money on your interest had nothing to do with the HELOC. It had to do with you putting cash against your outstanding loan balance. There have been many many threads on this topic over the last several years, and this theory has been debunked more times than I can count.
Good job paying off your mortgage early, but the HELOC didn't facilitate it at all.
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
What was your mortgage interest rate vs variable heloc one thruout this period of time? The only way this could work to your benefit is when it's cheaper to borrow from your heloc (mortgage from the 80s, for example). Also, you say that you had access to money quicker, but really, did saving a bit of time saved you from paying that extra interest instead of just waiting to save that money from your paycheck for "free"? Need some definitive data from your actual example to see what's really cooking.
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
I didn't have the 10k to put on my mortgage when I started. So where did it come from? It came from the bank who use my home to collateralize it. Call it my money or the banks money, it is still my heloc. The HELOC didn't facilitate it. I agree. What it did, was allow me to still have access to my access money while allowing me to pay chunks down on my mortgage.
There is no magic to it. It is still paying the principle down early. I just used the HELOC to give me access to the extra money I was paying to the bank
Originally posted by @Chris May:
Originally posted by @Joshua S.:
Originally posted by @Chris May:
Originally posted by @Brie Schmidt:
Twice recently people have told me of this new strategy to use a HELOC to pay off your mortgage faster. You essentially take out a HELOC to pay off your first lien, and then use that account to direct deposit your paycheck and make it your primary banking account.
From what they are telling me, it seems you can accomplish the same thing by making extra payments on your loan.
The difference is your mortgage is fixed for 30 years and the HELOC is variable with an annual fee
This sounds stupid. What am I missing?
Noooooo. BP needs to do something to reign this in.
There are two other threads on this topic with 20+ pages of comments each debunking every version of this strategy.
Even in a best case scenario, where the rate on the HELOC is the same as the mortgage, you save something like $70 over the course of a 200k loan.
The people who promote this "strategy" fall into one of two categories: 1) they're selling something... either loans or financial advice, or 2) have a tenuous grasp of financial math.
Nooooo, you're missing the third category, brother! People who can see the endless cycle of homeowners wasting away under their debt because they don't understand how much they are paying to mortgage interest and promote the idea as an easy way to keep their extra income going toward getting them out of debt / saving money. Yeah, you can just put all of your income toward your mortgage, but you admitted last time that you have money sitting around in your checking account while you pay maximum mortgage interest, so let's compare doing nothing and staying in debt as long as possible to my flawed solution. I win.
My daughter is having a food drive at school and we were planning on taking canned goods, but maybe we shouldn't since that's not a perfect solution for getting every last homeless person off the streets. Thanks, is there a special bible for cynics or were you just raised that if you can't work it out using math it doesn't exist? :)
Josh, you might have already given these numbers somewhere, but can you answer the following for me? You said you're currently using the HELOC-as-a-checking-account method, and I'm curious what your real world numbers are.
- How big are your "chunks"? In other words, what dollar amount are you moving from your mortgage to your HELOC? (and bonus question: how often?)
- What dollar amount of cash are you putting against your HELOC every month?
- What is your average spending amount every month against the HELOC? In other words, how many bills are you paying with your HELOC.
I'll answer this generally, but I'm not going to give out the amounts of my bills and income for obvious reasons. That's part of the reason we've been talking about hypothetical scenarios.
- $10,000 every ten months or so.
- X (US Census Bureau says the median household income in 2016 was $59,000, so you can use that or some other round number)
- X, around 10 bills. House, rental property mortgages, son's daycare, heat / electric, credit cards (paid off each month, used to get cash back), etc.
I'm not sure why you would need my personal numbers, but for any calculations at $10,000 every 10-12 months or so you can gather that we have $850-$1000 left over each month. Some months more, some less, but It's not really about my personal situation. I may have a higher income than you, but have less left over at the end of the month than you do or I may have a lower income income than you, but have more left over than you. The bottom line is for the process to work you have to have money left over at the end of the month, so you can work off of that assumption. Why don't you plug your own personal numbers into the process and show us how it works out?
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @Victor S.:
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
What was your mortgage interest rate vs variable heloc one thruout this period of time? The only way this could work to your benefit is when it's cheaper to borrow from your heloc (mortgage from the 80s, for example). Also, you say that you had access to money quicker, but really, did saving a bit of time saved you from paying that extra interest instead of just waiting to save that money from your paycheck for "free"? Need some definitive data from your actual example to see what's really cooking.
My heloc was prime -.50. My mortgage was 5%.
Originally posted by @Brian Cardwell:
I didn't have the 10k to put on my mortgage when I started. So where did it come from? It came from the bank who use my home to collateralize it. Call it my money or the banks money, it is still my heloc. The HELOC didn't facilitate it. I agree. What it did, was allow me to still have access to my access money while allowing me to pay chunks down on my mortgage.
There is no magic to it. It is still paying the principle down early. I just used the HELOC to give me access to the extra money I was paying to the bank
$10,000 on your mortgage, or $10,000 on a HELOC, at the same interest rate, will accrue the same amount of interest every month. If your HELOC rate is higher then you're incurring MORE interest expense each month.
All you did was change which bank was charging you interest. You didn't save any money whatsoever. Any interest savings came from using CASH to pay your HELOC and/or mortgage.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 17k+ votes7y
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
Sorry, but moderators don't take vows of silence. This is not George Orwell's "1984" where we stand by and watch people say "1+1=3". It doesn't matter to me if you think it's a good plan or not. Actually it doesn't matter to me if *anyone* thinks it's a good plan or not. The way the balance is paid off is through math. Lots of people on here, besides me, have demonstrated that the math is the math, and no amount of any member saying "Yes but it works because it's special" changes the fact that all you are doing is borrowing one set of money to pay against another set, and if there is any advantage it's only in one of the points that I mentioned above.
If you think calling a spade a spade is slinging mud, then I'm sorry for you. Slinging mud would be something akin to saying that everyone who was implementing this method were fools or doofi. I say nothing of the sort; all I say is that it doesn't work the way you think it works, no matter how many times you say it does. The same way I would say that the Tooth Fairy didn't leave you a new rental property under your pillow if you woke up and found a Deed of Trust there.
Skyline Properties - 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Originally posted by @JD Martin:
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
Sorry, but moderators don't take vows of silence. This is not George Orwell's "1984" where we stand by and watch people say "1+1=3". It doesn't matter to me if you think it's a good plan or not. Actually it doesn't matter to me if *anyone* thinks it's a good plan or not. The way the balance is paid off is through math. Lots of people on here, besides me, have demonstrated that the math is the math, and no amount of any member saying "Yes but it works because it's special" changes the fact that all you are doing is borrowing one set of money to pay against another set, and if there is any advantage it's only in one of the points that I mentioned above.
If you think calling a spade a spade is slinging mud, then I'm sorry for you. Slinging mud would be something akin to saying that everyone who was implementing this method were fools or doofi. I say nothing of the sort; all I say is that it doesn't work the way you think it works, no matter how many times you say it does. The same way I would say that the Tooth Fairy didn't leave you a new rental property under your pillow if you woke up and found a Deed of Trust there.
I would not expect you to think your comments were slinging mud. Being in the lands of tooth fairys would explain why you feel like that. (See what I am doing here ... slinging mud) passive aggressive.
It's ok if you think it's appropriate. Now I know and will follow your example.
Love ya bro.
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Here is almost what I did. It worked. Call it what ever you want.
Basic facts :
Primary mortgage. Equals 200k
Salary equals 5k.
Total monthly expenses equals 3k
HELOC equals 20k in second position
So lets start this off.
First let's pull 10k out of the HELOC and put it on the principle of the 1st mortgage.
First mortgage = 190k
Heloc= 10k balance
Month 1
Then let's put your entire paycheck in the HELOC acct. This accomplishes paying the minimum payment on the HELOC.
HELOC= 5k balance
Now let's pay your expenses from your HELOC.
HELOC = 8k balance 5k(balance)+3k(expenses)
Month 1 balance
Primary mortgage 190k owed
HELOC 8k owed
Total debt 198k owed
Month 2
Put the entire paycheck in the HELOC
HELOC balance 3k owed (8k-5k)
Pay expenses of 3k
Mortgage Balance 190k
HELOC balance of 6k owed (3k+3k)
Total debt is 196k
Month 3
Pay expenses 3k
HELOC =9k
Put entire check in the HELOC
HELOC = 4k
Mortgage Balance owed 190k
HELOC = 4k
Total owed 194k
Rinse and repeat......
In month 5 your heloc balance owed will be 0.
Month 6
Originally posted by @Brian Cardwell:
I would hope that BP would have moderators who would have enough self censorship than to criticize something they disagree with without slinging mud. I would hope that is community could have a conversation and disagree with one another without slinging mud. Maybe I am wrong.
So Mr. Felice, I walked the walk for almost 7 years. My mortgage was paid off by making large payments to my priciple. The difference is I still had easy access to the chunk money I was paying out, by using the HELOC. If I had paid straight out of my checking acct. I would not have had easy access to that extra money. Why is that so hard to understand? Why is that bad? I just moved money around in a different way than most.
At the end of the day I saved 10s of thousands of dollars over paying my mortgage out for the 30 years. I have no mortgage and I was comfortable while levering the banks money to pay my mortgage.
I am not saying this is the only way or the best way. But it is a good way that nets results. I did it. If I hadn't done it I wouldn't be discussing it with you. I am discussing facts not theory.
This is very well said. The thing I don't get is the nitpicking because it's not "perfect" or because we are describing it incorrectly. If I have cancer and go in for chemotherapy, it's basically poison that also kills healthy cells, but it's still better than cancer. In my opinion, if you are paying maximum mortgage interest and have money sitting in your checking account it's akin to having cancer and not wanting treatment because it's not a "cure". The HELOC thing is a way of "treating" the "cancer" / mortgage interest, but it has some drawbacks / flaws. At least we're doing something about what we think is a problem. They see the problem and are investing in other things hoping that they come out ahead. Fair enough, but there's more than one way to skin a cat.
We're saying over and over that the HELOC isn't magic, it's just a tool to focus your money on paying off your mortgage, it's the fact that you're paying off your mortgage early that's saving you money, etc. etc. but it's not good enough. I guess we just can't conform enough no matter what we say.
Maybe it's because these guys have all resigned themselves to being in debt for 30 years and hoping that their investment returns outpace what they are paying toward housing and they can't stand that we might be out of debt AND THEN investing. The world wants sheep, I guess. Crazy stuff.
- Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes7y
Geeze, this just goes on and on and on......
Even the most dtaunch supporter finally admitted there is no “money saving advantage” over simply just paying extra toward your mtg verses using the heloc then paying that Same amount to pay your heloc back down.
As @JD Martin mentioned, the heloc is psychological, not mathematical magic. If you are concerned about the “emergency funds/liquidity” the heloc affords then it is simple......make extra payments on your mtg, get the heloc anyway, don’t use it unless you have some immediate unexpected need, then pull from the heloc.....same result.
Originally posted by @Brian Cardwell:
Here is almost what I did. It worked. Call it what ever you want.
Basic facts :
Primary mortgage. Equals 200k
Salary equals 5k.
Total monthly expenses equals 3k
HELOC equals 20k in second position
So lets start this off.
First let's pull 10k out of the HELOC and put it on the principle of the 1st mortgage.
First mortgage = 190k
Heloc= 10k balance
Month 1
Then let's put your entire paycheck in the HELOC acct. This accomplishes paying the minimum payment on the HELOC.
HELOC= 5k balance
Now let's pay your expenses from your HELOC.
HELOC = 8k balance 5k(balance)+3k(expenses)
Month 1 balance
Primary mortgage 190k owed
HELOC 8k owed
Total debt 198k owed
Month 2
Put the entire paycheck in the HELOC
HELOC balance 3k owed (8k-5k)
Pay expenses of 3k
Mortgage Balance 190k
HELOC balance of 6k owed (3k+3k)
Total debt is 196k
Month 3
Pay expenses 3k
HELOC =9k
Put entire check in the HELOC
HELOC = 4k
Mortgage Balance owed 190k
HELOC = 4k
Total owed 194k
Rinse and repeat......
In month 5 your heloc balance owed will be 0.
Month 6
So essentially you're paying down your HELOC $1,000 every month? Are you saying the result of what you did is different than paying an extra $1,000 towards your mortgage every month?
PS For the sake of conversation, let's assume your mortgage and HELOC have the same interest rate.
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
You would and you may in fact pay your mortgage off sooner.
Originally posted by @Brian Cardwell:
You would and you may in fact pay your mortgage off sooner.
Next question: then what is the point of this whole debate
- 7yBrian CardwellPro MemberInvestor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
Ask those who say it is magic or scam or fairy dust. I never said it was the best way or the only way. I said it was a tool. I just explained it the way I did it.
One question for you. Does this method accomplish the goal of paying off ones mortgage?
Originally posted by @Chris May:
Originally posted by @Brian Cardwell:
Nope not saying that at all. The results would be very similar. What I am saying is that I still have easy access to my extra money if I need it for something.
Next question: if you put the $1000 towards your mortgage instead of your HELOC, and kept a zero balance on your HELOC, would you not have access to the same amount of money?
Chris, everyone has acknowledged that that's true, but you're the math guy, so answer this for us. I see other benefits, as I've said, but I'm legitimately curious how it works out mathematically, too, and I'm always wrong like you have said.
In the example Brian gave where throughout each month his balance fluctuated on HELOC and he was paying (5%, I think) on say a $4000 average daily balance, what was he paying on HELOC interest vs 4% on $10,000 if he left it on the mortgage? I get like $16 on the $4000 and $33 on the $10,000, but I'm sure you'll say I'm not allowing for the spacetime continuum or whatever, so how does it work out?
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