All Forum Posts by: Brian Cardwell

I'm not an experienced investor especially with this HELOC payoff strategy so take what I say as me just speaking complete nonsense but from the little bit of research I've done, it only works well if you're very disciplined and have extra income. Although yes, you can make extra payments on the regular loan with a fixed amount.. will making the monthly extra payment make a significant difference opposed to a large lump sum at once? Even if rates on your HELOC go up, is the interest accruing on a $200,000 mortgage the same as a $10,000 HELOC?

I get your point where in an environment where interest rates are currently rising (especially if they continue to shoot up like how they have been) does it ACTUALLY make complete sense?  Do you actually save money?  Maybe, but then again maybe not.  

Additionally you have to ask yourself, if your paying off your mortgage faster than expected are you really leveraging yourself to your utmost advantage?  A lot of investors on BP love to leverage their investments so therefore this strategy doesn't fit their investing criteria.

I love BP debate days.  I don't get any work done, but it is always a good time.

I have spent the entire morning running scenarios in these "velocity banking calculators" and then running the same scenario with the same additional payments in a regular loan calculator with extra payments. The HELOC costs you more money plain and simple.

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!

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).

 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.

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.

@Brian Cardwell - why are you comparing a $10k vs $200k loan like they are the same?

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.

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 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.