All Forum Posts by: Joshua S.

Yes, Kyle has it right, but if you're trying to eliminate interest you can get a HELOC and put a 10-20K chunk of your mortgage balance on it. That allows you to put all of your income toward your mortgage each month, but still be able to pay your bills. The idea is to lower the average daily balance on your mortgage throughout the entire month rather than make normal payments and have your ADB stay the same all month. You can also just put extra principal toward your mortgage every month, but this doesn't have the same aforementioned benefit.

I'm using this strategy and my rate so far has me paying off my 2 year old 30 year mortgage in around 7 years. Good luck either way - interest is a killer. :)

I use this strategy and I'm very happy with it, but I use a second position HELOC because they are easier to find / get and this way I don't expose my whole mortgage to a variable rate. Plus, there are less issues in case it's frozen or called. Basically, you get a HELOC and take 10-20k and put it on your mortgage and then treat the HELOC as a checking account - income in, bills out - until the balance is whittled down and then you repeat the process.

People will tell you that you can just put extra money toward your principal every month or that you can get a HELOC as backup (but not use it) and then put ALL of your income toward your mortgage and both of these things can help, but I'm a big fan of knocking out a huge chunk of the mortgage all at once. On an average loan it takes about 2 years and 20k in interest to pay down 10k in principal when you pay on their schedule. When I put that same 10k on the HELOC and attack it with all of my income it takes 6-10 months and less than $1000 in interest depending on other expenses and stuff. Again, you can just throw all of your extra income toward the mortgage every month and accomplish *almost* the same thing, but then you have to worry that your account is tapped out until you get paid again.

The thing that always floors me is that if some major bank came out with this same product where you could put all of your money toward your mortgage and save on interest but still pay bills when they come due, people would go ape over it, because it makes total sense. But when you sort of jimmy rig it together with a HELOC and a separate mortgage you're a moron who can't count. Crazy stuff. Anyway, good luck and I hope you go through with it.

Hi Frank, this is a controversial idea that many people will tell you to stay away from, but I've been very happy with it. However, I do it with a HELOC in the second position, which allows you to put a "chunk" of your mortgage on it, but keep your lower fixed rate mortgage in place. Then you can use the HELOC like a checking account as you describe, but not have your whole mortgage exposed to a variable rate. Plus, it's easier to find second position HELOCs - I've had good luck with PenFed and PNC although I can't speak to the average credit score thing because mine is cherry.

Good luck, I hope you follow through with this, it allows you to put all of your income against your mortgage pretty easily but still have access to it to pay bills. Of course, you can just pay extra principal like other people will tell you, but I don't think that approach gives you all the benefits that this one does. Have a good one.

That's fair, if the P&I ratio is better because I'm paying it off in 1-2 years or because the balance is lower or because Cher came on the radio when I was signing the closing docs and it was magic, whatever explanation you want to put on it is fine with me. The bottom line is that it easily allows me to put more of my money toward principal, which means that IT IS a good way to accelerate your mortgage payoff - case closed. 

Now, playing devil's advocate, AGAIN, if you have the extra money lying around and want to just put $1000 extra toward your mortgage every month then that would be roughly equivalent, but here's something to think about. One of the main objections to the strategy is that you are paying a little more interest to the HELOC to make this an automatic / seamless process, but remember - the $50/month HELOC interest you are paying is basically cancelled out by the fact that your normal monthly payment is also $35 lower once you've removed the $10,000 chunk - so it pays for itself within a few dollars.

And you're right, it's great that they give you the 30 years and all that - again, fine. BUT THE FACT REMAINS that because you are paying it in that way, you end up with payment terms that are heavily front-loaded with interest. I'm glad we can all finally admit that, what a relief. It's not an evil plot or wrong, I'm just saying that if you pay over 30 years then you are paying far more interest up front and I'm trying to avoid that. Using a HELOC as a checking account allows me to do that easily without having to determine how much extra I can afford to put toward it each month and it pays for itself so there's no reason not to do it.

"This is 100% false if you are paying the same amount toward your loan debt each month. Your examples always involve more total money being paid toward the debt each month, a detail you consistently gloss over."

No, I'm not glossing over it, that's the whole point of doing it. No one said let's use a HELOC to pay exactly the same amount toward your debt every month - that's a stipulation you guys are consistently trying to interject. The point of the strategy is that it's an easy way to make sure all of your income is going toward your mortgage (some temporarily, some permanently) so that you can pay it off faster than if you were just paying X amount every month. That's what we've been doing this whole time - COMPARING this strategy where you are able to put all of your income toward your mortgage vs one where you make your regular payments. So, I don't see how I could be glossing over something that I've been saying all along is the major reason to do it.

Yes, philosophically, we just disagree. I think the vast majority of people just go and get a mortgage because "that's what you do" without any thought whatsoever to how much it's costing them in interest. I could be wrong, but I've never had anyone bring it up to me or anything. The majority of people say, "Oh, man, I just got such a great 4% loan....." without considering that it's costing them $200,000 or whatever and they are hardly able to pay down their principal because so much of it is due early on in the loan. Think about it, the only time you ever hear any discussion about mortgage interest is when someone is talking about getting a good rate or waiting for rates to come down or something. I literally don't think I've ever heard anyone talk about the total amount of interest they are paying and I'll bet you haven't either, so I think it's the far bigger issue that people need to be more aware of. You're saying that there's a good reason for it - yes, people can pay for a house over 30 years, which enables them to afford it - but looking at the positives without looking at or trying to mitigate the negatives is foolish, in my opinion. It's like saying that a chainsaw is a great way to cut down a tree, so there's no reason to be careful with it - it's really great at what it was designed to do. A mortgage enables you to afford a house, but it also charges you 67% interest and keeps you in debt for 30 years if you follow the path set out by the bank. If you can't understand how that's a negative, think about it like this: A credit card enables you to afford __________ , but it also charges you 18% interest and keeps you in debt indefinitely if you follow the path set out by the bank. There are more similarities than differences between these two things yet one is "irresponsible" and the other one is the foundation of society. To the huge majority of people a mortgage is just a special credit card you use for your house and you'll always be in debt so who cares blah blah blah. My point is that if people knew that they could use this strategy (or another) to pay off early, people would be in much better financial shape than if they were strapped with debt for their entire lives.

So, yes, we have philosophical differences and that's fine. It was a good talk and I'm glad (hope) we came to a good conclusion that everyone can agree on. Have a good one.

Sorry, Jeremy, I missed this question before. I don't know much about auto loans because we typically pay cash or finance and then pay off early, but let's compare HELOCs with 30 year mortgages. First of all, I love you right now, because you might be Johnny on the spot with this question. I think you might have just solved this whole thing in a way that I never thought of. No, I don't think that HELOCs are front-loaded like 30 year mortgages are and here are some results from a HELOC payoff calculator that explain why.

Obviously, a mortgage is usually a much higher balance, so to be fair I started with $10,000 on the HELOC per all the other examples used, but then moved it up to $35,000, which is what I figured would be a reasonable ceiling for this type of scenario. I used a rate of 6.5%, btw, and you'll notice that in both cases that with $1000 payments the vast majority (80-95%) of your money goes to PRINCIPAL each month. In the case of a 30 year mortgage obviously the opposite is true and upwards of 70% is going to interest as we have all discussed.

To be fair, it seems like this is really only be a function of the balance being lower on the HELOC, because when I move the balance up to $165,000 and 360 payments of $1000 it reverts back to about 90% of your money going to interest. But it doesn't matter what is causing the advantage - the fact remains that if you take a chunk of your mortgage and put it on the HELOC, then every month a greater portion of your money is going toward principal than if you left that chunk on the mortgage. And that's true in two senses. The first way being what I just explained and show in the tables below - on the HELOC the vast majority of your money is going toward principal - and the second is that because you've removed this chunk of $10,000 (or $35,000, etc.) from the mortgage, a greater portion of your REGULAR PAYMENT is also going toward principal.

So, the bottom line is that I absolutely disagree that HELOCs are front-loaded (at least as it pertains to this strategy), because much more of your money every month is going to principal than to interest and a mortgage works in the exact opposite way - the majority of your money goes to interest early on. I think maybe that's the crux of this whole thing that everyone had been missing. Everyone has been fixated on the rates that they never stopped to consider where the money is actually going when you pay it, which is of far greater importance and probably the key to the whole strategy. Bravo, Jeremy.

I'm not saying that rentals are completely separate or not worth paying off, just that I'm not going to live there, so they are a lower priority. Basically, you're using the higher rate loans to label them as a higher priority and I'm using where I'm going to live to label that as a higher priority. Obviously, rentals are going to my bottom line, but my priority is to pay off where I'm actually going to live, that's all. Have a good one.

No, Brent, when you pay an extra $10,000 on your mortgage, your interest obligation drops by $26,500 and your loan is paid off sooner, it's that simple. The lender is not imagining that you will be paying for 29 more years or anything like what you are describing. They realize that you took the balance down by $10,000 all at once and that you'll be paid of 3.5 years sooner and your payments continue from the $155,000 balance like normal. I've posted this screenshot in the past where Quicken shows in my actual account that my prepayments have saved me on interest and moved my maturity date up. Originally it was 2046. They aren't using some 'as if' scenario and keeping your loan as 30 years 'hypothetically' or any of your other statements. They are literally saying - "Okay, you've paid off this much extra, so if you continue with your normal payments and nothing else changes, here's how much you've saved and the new date you'll be paid off by." I mean, think about it - you think they're guessing at how much extra I'm going to pay going forward or something? I paid X amount this year so they're sure I'll do that same amount of extra payments every year and they recalculate my loan based on that? It makes no sense. I paid X amount and this is how much I've saved and my new date, end of story. You're taking something very simple and over-complicating it.

And btw, I specified in the calculator example that the payments were from March 2019 (start of the loan) to March 2020 - exactly one year - so there's no "continued acceleration" going on. In this example you paid an extra $10,000 in the first year and netted an interest savings of $26,500, there's no "continued" anything happening. The HELOC has nothing to do with it and there's no continued acceleration going on. You're imagining something continued happening as a way to explain the savings that you can't understand instead of accepting that you don't understand it and learning what's really happening. I mean, think about this for a second. I'm showing you calculators and screenshots of my mortgage account and you can look up any financial guru who will tell you that paying extra principal will save you a ton on interest and shorten your loan and you're using 'as ifs' about the how the bank is 'hypothetically' keeping you at 29 more years and saying the savings are minimal, but you think I'm the one who's off base. It's incredible.

Brent, now I honestly just don't know what you're talking about. Do it yourself on a calculator like bankrate or mortgage-x and it'll come out just like this picture I made you. I divided up the $10,000 into prepayments of $833/month and if you do that over the first year of your new $165,000 / 4.5% / 30 year you absolutely get a savings of $26,500 and your loan is over 3 and a half years shorter (notice the last date in the table is June 2045 and should be 2049). It says "not guaranteed to be accurate", not "made up by circus clowns to trick you", so what are you talking about? You didn't realize that your loan is shorter when you pay it off early???? What did you think, that when your balance was $0 they were going to have you continue paying for old times' sake??? LOL

Nope, I have rentals and other investments and savings. I'm just doing this strategy with the money that was lying around in my checking account. A point I've made over and over, but must still be lost on you. Have a good one.

I think it's a matter of perspective, Steve. Yes, I've got higher rate loans to go after, but it's other peoples' income paying them down, so I'm not as worried about them. A lot of people here are so focused on the investment aspect and numbers that they're ignoring the point of doing it. You don't buy a house as an investment, you buy it because you need to live somewhere and want a yard for your kids (in general). But when you have it paid off you have a bunch of freedom you didn't have before. Everyone is intent on looking at paying your mortgage down early as an investment strategy and I'm happy to play that game, because I think it's a decent one (my mortgage came with $210,000 / 67% total interest), but it's really not. It's a strategy to get you out of mortgage debt early and have a "free" place to live. Of course, in doing so you can now invest with a greater percentage of your income for the rest of your life.

To me, it's like I brought up that I like Hondas because they get you from A to B faster than walking and everyone wants to insist that a Ferrari or Lamborghini would be better. Yes, there may be better pure "investments" out there than paying down your mortgage early, but there's a whole universe of investments that range from becoming a millionaire to losing everything and most people are never satisfied with their choices and always jockeying to make more. Saving on mortgage interest is right under your nose and you don't even need a brokerage account and stock commissions let alone a realtor and a rental manager. There's no risk and a guaranteed return. And I've explained that because the money is going there eventually anyway the returns are actually free money, which is unique, and a huge benefit. So, I'm fine with people saying they prefer Ferrari, but they are also saying that a Honda isn't better than walking and that's my only frustration. I'm using a HELOC to help channel all of my money into my mortgage and get me out of debt early. Will it do as well as your stocks or rentals? Maybe not, but will it get me out of debt early? Absolutely. Would rubbing my money on a picture of Scarlett Johansson and then paying it to my mortgage work? Yes, but I prefer the HELOC strategy. That's why this discussion has gone on and on and there's no resolution - because people can't accept that something can have clear, positive benefits and not be the perfect almighty solution or investment strategy.