All Forum Posts by: Chris May

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?

You would and you may in fact pay your mortgage off sooner. 

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.

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

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

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.

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 

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? :)

New to the forum and like the open discourse. I am in the process of getting a Heloc in 2nd position to chunk my mortgage. I am a skeptic but not a cynic, hence I need to see the proof. My issue is that when we use calculators and math, the heloc compared to making extra principle payments does not end up any better. Think about this one thing I noticed from all the Heloc proponent guru websites ....they have a calculator which is never explained but used exclusively to sell you on the idea. Granted the heloc method works better than paying a 30 year mortgage in typical fashion but if your getting a Heloc go in with your eyes wide open. Also I do understand the value of direct depositing your income into the heloc every 2 weeks and it's affect on daily average balance. Problem is can we or do we have a calculator that shows the true benefits of the affects of the heloc with income deposits and chunking and does it match up with what some of these websites show. Interest earned is the same as interest saved. 

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?