All Forum Posts by: Nick Moriwaki

Sure, I'll take whatever info you have for HELOCs in Hawaii. But I've never had an issue with low appraisals. Not sure what an AMC appraisal is, but all my appraisals came out at or above the property value.

If the interest rates are the same I don't see how you can advocate for the first scenario. It just doesn't make sense to live paycheck to paycheck when you can have a first position HELOC and realize the same amount of interest savings. Seems like you're arguing against the concept based solely on interest rates rather than focusing on the math within the strategy. Yes, if you tell me you have a 3.5% mortgage and I can only get a 6% HELOC then I would agree, keep the mortgage. But let other people apply their interest rates to their individual scenarios. I've skimmed other threads where people have low interest rate HELOCs. Doesn't seem like it's impossible.

And I don't advocate for taking out a lower HELOC than the mortgage... in fact it's just the opposite. I don't get where you keep getting that from. Look at the example I gave to David. I explained that if he got a first position HELOC he could pull a 270K line of credit which is much larger than any second position HELOC he could get. How is that's smaller than the mortgage?

And the last part of what you said is really baffling. You're saying it makes sense for people to take out a first position HELOC if they've paid off their home, but not to convert their existing mortgage into a HELOC? It's the same thing!

There are so many issues with what you just said.

First off, when you say "spent" all your emergency funds you do realize you can take it back out with the HELOC strategy right? Unlike when you dump it into the mortgage. You even said it yourself. If not using the HELOC, you would use personal loans or CC as excess credit. More financing or 18%+ APR if for some reason life happens and you overspent for the month. Again, still not seeing why that's what you're advocating for.

Second, I never said you take out the HELOC after applying all of your income. You can apply for a HELOC and pay off your mortgage simultaneously. Hence why in David's case I said he could get a HELOC in first position of 80-90% of his current value of 300K with his current mortgage as the balance. As I've mentioned before, this is a much higher amount than you could ever get by using your "equivalent" method of pulling a second position HELOC and dumping your savings in. You benefit by having what I call "instant refinancing" by having access to essentially as much equity as you could ever have without selling. And you never have to go to the bank to request it after you open up your HELOC.

Third, why are you now throwing out higher interest rates for the HELOC than the mortgage? The discussion has always been about using interest rates that are equivalent. Hence why you folks always say "the math doesn't lie, it comes out the same." Is this the only way you can advocate against the strategy? Who's to say someone doesn't have their personal residence paid off and takes out a first position HELOC to pay off a rental property?

You are right however when you keep saying the math doesn’t lie.  The strategy relies simply on cash flow.  Having a “much” higher income than expenses doesn’t make it work like you’re implying, it just accelerates it.

And as I've reminded you in this thread and the others as well - nothing in the strategy says you can't use your equity. Nor have I argued that moving your balance to a HELOC will magically save you interest. Your main focus is on proving that there's nothing different in the math with mortgages and HELOCs. I'd challenge you to find a single post where I've refuted that claim. You then use that logic to say that swapping a mortgage for a HELOC in first position is not a valid strategy because the numbers can be replicated by keeping the mortgage. But you still haven't answered the question I keep asking:

What sane person would drain whatever liquid money they have currently and then dump everything going forward into the mortgage?  

This is the scenario where the numbers match.  I completely agree with you there.  But I’d take my scenario over yours any day because I’m not one car problem or home repair from needing to refi my mortgage.  That is insanely risky.  But should people just ignore that too just because the numbers match?  So I’ll try again (for like the 5th time) - how is what you’re suggesting better? 

Really? Curious what banks you are referring to. Banks here give great promo interest rates and most offer at least 80% LTV and I know a couple as high as 89.99% LTV.

Also, I would argue that this HELOC strategy is an excellent way put your equity to work and maintain passive income.

So.... no answer?  

And for the record, banks handling HELOCs differently in different places doesn’t disprove the concept. Maybe you should take your own advice and “focus on the numbers”?

And again I ask, what sane person would drain whatever liquid money they have currently and then dump everything going forward into the mortgage?  That is what you are suggesting.  All in order to match the savings from the first lien HELOC strategy. I agree, that is an alternative that will yield similar results, but I see no supporting evidence that it is better and/or cheaper.

@Brent Coombs

This perfectly highlights the difference in the strategies. He's only considering doing that in order to end up with a first position HELOC that would give him back access to the funds he put in. No sane person would do that and leave their bank account critically low for an extended period of time and keep the mortgage.

As has been said countless times throughout all these forums, putting more money towards the balance will effectively reduce the amount of interest paid.  The "extra principal-only payments" that you are suggesting will lag behind in terms of interest saved relative to the lump sum payment to get to 80% equity.  I've shown this spreadsheet to you many times and all you do is nitpick the numbers I used. However, it is clear that the "solution" you propose will never be as effective as putting it all in at once. No matter if you "easily" put an extra $100/mo, $200/mo, or $1000/mo, the bottom line is if you don't put 100% of your excess money towards your mortgage, you will not save as much as the first lien HELOC strategy. So please explain how this is better (I'm assuming since you're suggesting it you think it is better) from the numbers perspective you keep insisting on focusing on.

Who is saying you can't invest by using the first Lien HELOC strategy? I think (hope) anyone out there using the strategy will tell you that if someone were to offer them a significant ROI for their money they would pull out of their HELOC in a heart beat. I (sort of) understand your insistence on deflecting conversations of alternative investments in the other forums since 95% of the debate is about taking a second position HELOC to move the debt to a different vehicle and accelerating the pay down. However, this forum is titled First Lien HELOC Strategy so there shouldn't be any strung out arguments relating to the distributive property of multiplication.  I'll admit that I didn't read every post relating to this strategy, but I hope no one promoting the strategy  has implied that "at no point should you draw from your available balance if an investment opportunity presents itself". 

I see.  I’m starting to learn that HELOCs are a much different product on the mainland than they are here.  

I'll use the LTV numbers that are common here for the example. The example I eluded to in my previous post was from a bank that approved up to 90% LTV for first position and 65% LTV for second position.

What this means for you is - if you take the HELOC out in first position you should be able to pull a HELOC for ~270K (assuming you qualify). If you kept your mortgage and paid off 80% down to 47K you could only be approved for ~148K (300K x 0.65 - 47K). This would still leave you a good chunk of money to use but not as much as the first example.

Additionally it would be more difficult to get approved for the the full second position HELOC since you would need to factor in the HELOC and mortgage payment into the DTI even though you would only owe 47K on the mortgage.

David - did the bank say why they wouldn't allow a first position HELOC? Is the LTV lower than the amount you still owe? Perhaps they may not understand what you were asking them to do. I only say this because HELOCs are very common here in Hawaii but mostly from second position and I've heard many times where the bank told people they couldn't pull a first position HELOC when I know they have enough equity. I recently found out that one of the banks here approves a lower LTV for secod position rather than first so perhaps this is the mixup? Hope this helps.

As far as your proposed solution seems like it should work in terms of getting you a "first position" HELOC. But if the LTV is lower on the second position HELOC then the HELOC you pull, even after paying off 80% equity, will be rather small.