Should You Pay Off Your Mortgage Early with a HELOC?

You can use the equity in your home to get a home equity line of credit. Subsequently, you can use the funds to pay off your mortgage early while then using the HELOC as a checking account. This arrangement will allow all funds that you have to not sit in an account to learn low or no amount of interest. Of course, doing so has some down sides. Watch to video to see what they are.
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[@BeatTheBush]

WARNING: This video is meant as a review of a financial tactic that is often talked about. I do not say at any point that everyone should do this and I do not even do this myself. This is more about learning of different methods be it good or bad.

[@silviag3798]

BeatTheBush I think you need to add this warning to your video as a caption somewhere

[@BeatTheBush]

I think KZbin took out that ability to add that a while back.

[@silviag3798]

BeatTheBush ah ok

[@jimlee5835]

BeatTheBush Please do a video on how to tell people no. I am doing well financially, but everyone around me needs help. Is it okay to help, and if so how much help? I feel my friends and family are setting me backwards but I feel bad seeing others doing bad.

[@daveh4864]

Jim Lee love is blinding. Unfortunately, I'm not beatthebush but I am over 25k dollars in the hole because I help other people who were "good for it!" Don't be that guy. #CaptainSafeNotBroke

[@Li-bg7im]

I was so confused about this matter, I had previously watched 4 videos on the subject but when I got to your video I just began to understand it & it started to make sense to me. You just explained it well, thank you.

[@mac1bc]

You don't even have to use all of the HELOC that is available to you. Just use as much as you are comfortable using at a time. For me I never used more than $6k at a time before I paid it off and did it again. Still worked for me lowering my mortgage interest.

[@johncharles5980]

Thanks for the video. I am currently in underwriting for a HELOC to replace my FHA loan. One immediate benefit is that I save around $120/mo in PMI. You’re right about the interest rate increase (going from 4.25 to 5.25). We are going to use the HELOC as a checking account, pay debts on the due date(not early), and keep to a tight budget to drive the principal balance down as low as possible. I agree with your comment about the biggest risk being self control with having that much money available at your fingertips. We are already bouncing off ideas about putting up a fence or converting the garage and occasionally I have to remind myself of why we are doing this-to be mortgage free.

[@BeatTheBush]

Sounds like the temptation is setting in. But then this method is a bit risky for a small benefit.

[@claudiacoss45]

Thanks for pointing out that you keep reminding yourself the reason you have the HELOC is NOT having cash at your disposal to spend on ever whim but to have financial freedom down the line. This is crucial part of the lesson here.

[@leonardosalazar4912]

I just apply and planing to do the same thanks for the extra info on what to spect and the bad things about trying to do this to pay my mortgage sooner.

[@michaelc4866]

@@leonardosalazar4912 have you started?

[@michaelc4866]

@john How's it coming since it's been 3 years for you

[@ChiNguyen-zh2tf]

Wow, this was a GREAT explanation of a concept that I've heard others try to explain in more convoluted terms. GREAT job! And thanks for your work.

[@BeatTheBush]

Thank you!

[@jammdown4]

Damn, I needed this information several years ago! Thanks for the info I can pass it on to my kids.

[@jonsimmons1284]

You forgot to mention the major advantages of replacing your mortgage with a HELOC in first lien position. 1. You have access to every extra dollar you pay into your HELOC if you need it, vs. if you pay extra into a mortgage it is gone you can't use it again. 2. The interest on the HELOC is calculated as simple interest so (interest %s being equal) the interest cost will always be lower for a HELOC than a mortgage which is compounding interest.

[@BeatTheBush]

That sounds reasonable enough.

[@VinayKumar-ho8ju]

Great job explaining HELOC. simple and short but clear and descriptive

[@calvinlee8089]

Nice video. This was easier to understand than other vids I saw about this topic. Also you explain some of the risk about doing a HELOC which a lot of videos ignore. Keep up the good work.

[@BeatTheBush]

Geez, thanks for that. First one to enjoy the explanation. The point of this being a learning video not me saying DO THIS is passed over by most it seems.

[@abovethewaves452]

I appreciate you using actual numbers and a scenario to explain this. Something that others aren’t doing. I like to see the numbers.

[@tomjohannesmeyer9169]

Excellent quick summary of the concept and how it compare to traditional mortgages. Thank you!

[@kryz9875]

I've experimented with this in a different way. I took the HELOC money, paid the monthly coupons in a compressed time(12 months into 12 days). Pre-pay the year's worth of mortgage within the month. HELOC is not amortized like the mortgage, so you save more on interest vs the mortgage. Pay the HELOC monthly with money that would have gone to the mortgage. This way you are paying the same amount of money but more goes into principal. If someone can't understand that concept then don't play with HELOCs.

[@mac1bc]

Correct. The point is to pay down that mortgage principal as fast as possible to save you thousands in interest. I've done this and the little bit of HELOC interest paid was worth the thousands I saved. My home should be paid off next year!

[@TMHYAH]

Do you no longer have a mortgage payment cause you paid the entire year?

[@mac1bc]

@@TMHYAH you still have to pay the monthly mortgage

[@3rdJose]

Is the HELOC available to owners whom have equity in their home but not so good credit?

[@chrisbecker3629]

I love your videos, man. Honest and unbiased.

[@BeatTheBush]

Thanks! People assume I advocate doing this when I'm just discussing it. It's important to go over even bad ideas to know why they are good or bad.

[@graceayams2089]

Thank you! I in it and I'm enjoying it!!

[@metadayana]

Does your example take into account the interest paid in your mortgage amortization schedule vs. The HELOC's simple interest calculation?

[@ahumm8280]

Adjustable rate and the call are enough for me to just make extra payments to my mortgage! Its much more foolproof!

[@Josh-py9rq]

Exactly lol I prefer the safer approach

[@TheRealLastAirBender]

I came here to say that, just put it towards your mortgage, don't scratch your left ear with your right hand

[@dennyinirio1786]

Thanks for sharing your perspective. HELOCS are a great product when used WISELY!

[@lorenacarlson7706]

I would like to pay my home in 10 years, but I don't know how to calculate the payments, I hope you make a video about it.

[@Lisasims5950]

Hi im looking to take my equity and put it down on my principle. So...i will have two notes or should i refi?

[@Khmerkid707]

I still don't understand how it work. If I have 100k in a HELOCS payment and my mortgage and also my every day Bill's. How does that work? Please explain.

[@GilCeriola]

is this applicable in every country like Philipines? Is this offered in bank? how do we get this?

[@marwin4038]

Would this strategy work for high balance credit card? Any issue with using this strategy first on credit card and then working the mortgage?

[@krillansavillan]

Guys the advantage he is trying to explain is as follows: - Open HELOC and get line of credit - Pay large chunk of your mortgage off (say about 1 years worth of savings after bills) - Have your paycheck direct deposit into the HELOC balance - Pay all of your bills and mortgage at the end of the month out of your HELOC account - The money you were going to use to pay the bills and mortgage anyway will be used to reduce the principal of your mortgage and lower interest on your home loan while it is just sitting there waiting to be spent (vice a low yield checking account)

[@punkkimiko]

OHHH I was so confused by this

[@favored4life]

krillansavillan I've been looking to do this for so time but wonder what happens when the market crashes. All your equity is gone???

[@BeatTheBush]

A HELOC is not without downsides. The prime rate could increase slowly over the next few years. You could be tempted to use the easy access money in the HELOC. You could get a short term fixed rate HELOC as well. The whole idea is to make the money in your checking or savings work for you by putting it into your mortgage. You have zero checking or savings afterwards and you take money out of a HELOC to pay for things. This is where the draw period matters because if the draw period ends and you have no money, then you will be stuck with very little savings and a paid down mortgage.

[@favored4life]

BeatTheBush but what happens when the housing market crashes. I have $150k in equity and thought it made more sense to refinance the mortgage to pull out the equity now. If I decide to do a HELOC instead, what happens to all the equity when the market goes down?

[@tubro007]

Favored4Life If you want the cash you should refinance. If you want to payoff your mortgage than you should use a HELOC. The equity will evaporate with a HELOC in a down scenario just as if you had refinanced or taken no action, but you will have access to that equity via the HELOC if you had one. Last crash the banks cut the HELOC's down to the level people were using them, people found their lines dropping from $100k to $20k, so that they wouldn't max out the HELOC, take the cash and walk away from the house. A refinance or fully tapping your HELOC for cash would allow you to walk away with the built up equity if another crash happens.

[@MrSmvann828]

Since it the interest is variable on a HELOC, the bank only charges interest for the amount that you use. Versus traditional mortgage interest rate has a fix interest rate on the loan.

[@BeatTheBush]

Yup. This is getting a bit too close to the edge to me. They might take away the credit line and you wont have that life line by force.

[@MrDavidtkaplan]

Guys you have A LOT more to learn about this. What you're outlining is pretty far off. If you want the real info go to Replace your Mortgage. No I don't work for them. I paid to join and I just got a smoking deal.

[@---dg7kl]

Thank you! I remember asking you about this topic a while ago. I found that one of the biggest risks is that the bank can reduce the unused portion of HELOC at any time. This means that you can lose access to your supposedly "emergency" fund. After some consideration, I also decided against it.

[@BeatTheBush]

They can and I have seen this. I have heard people take the money out to use it to pay for certain things before they take the credit away, ha ha. Thanks for looking at this video the way I intended. As educational and not as an endorsement to use a HELOC. Some have jumped to conclusions.

[@danielapetrucci1189]

Very informational and very well explained.

[@BeatTheBush]

Thank you!

[@jtroy7890]

Do you know of anyone personally that has done this and it worked like it does on paper?

[@christianloserkid]

Thank you! This helps

[@eepkt]

Very informative, learnt a lesson.

[@strykeback1]

Would a heloc be an option if you lived in your investment property and 50 percent of the 300k house paid off after 2 years and it was time to turn it into a rental and go shopping for a new larger home?

[@lifetakesflight]

Taking out the maximum the bank allows on a heloc but not using it will increase your available credit and help your credit score right?

[@chookchack]

Hi, can i ask for your opinion? we just bought a house, a brand new one. The bank is willing to lend us a heloc, 90% of our down payment. Can i use my heloc to pay lumpsum on my mortgage? I will give numbers for reference. 300k mortgage; 80k dp, ~70k availavle heloc. Im planning to pay a manageable lumpsum about 15k from my heloc to the mortgage and i expect to pay it off every 6 months then cycle it again. The payoff method i want to use is what someone called paycheck parking, its like putting all my paycheck into my heloc and consolidating all my monthly expenses from it. Whats your thought on this? TIA

[@carbrock.2854]

We are in the process of getting a HELOC for a similar strategy. We won't be paying off our fixed-rate mortgage with the HELOC (we still owe like 60% of the value, and the interest rate is 3.625% which beats even the introductory first-year rate we will be getting with the HELOC), but the HELOC will act as our emergency fund/cash reserves, so instead of continuing to dump our idle money into a saving account, we will put it all into paying down the fixed-rate mortgage and all future extra cash, and only dip into the HELOC as needed. When we do dip into the HELOC, our extra cash will go into paying that back down to $0 before directing it back into the fixed-rate mortgage.

[@mikeross883]

Pretty good info overall. Like he said it is an opinion and what a lot of people miss is that EVERYTHING they see online is only an opinion. Unless you have your full financial picture in a financial model, there is no way that you can ever test any opinion on its own. Also what can work as a strategy on its own in someone's life, might not work when they enter their entire holistic details and look at their entire financial picture moving as one. Everyone is unique on their own so you could have two people with identical financial situations but what is important to one person, might not be important to the next. Someone mentioned that the HELOC plan can be called at anytime by the bank and that might be true in some cases but there are also companies that it is in the contract that the loan can never be called until the client hits the maximum then it is minimum interest payments only.

[@cerease1981]

Love it. Short and sweet.

[@krismas3880]

I don't know if im doing right but on my simple calculation. I took a apartment worth $50,000 pre-selling. And the target of turn over is 5 yrs from now. I will be paying the equity worth $15k for the next 5 yrs also, the developer told me that i will start paying the balance once the apartment will be turn over. Now my plan is i am paying fast within that time of equity so that by the time they turn over my apartment i already paid them 50%. Now it's my decision if i will forward it to in-house loan or bank loan. But one thing im sure, my interest will be low for sure and i'll have 2-3 yrs to pay for it. That's my simple explanation.😉😉

[@pjbhaumik]

This was a good explanation of pros and cons

[@egkash]

I don't get it. Why don't you just use the money on your checking account to pay your mortgage early?

[@emarin2006ftw]

Yeah, putting those $40k directly into your mortgage instead of a HELOC means you'd pay $2,400 in interest a year instead of the $3,000 ($60k @ 5% apr) with the HELOC. The only benefit i see would be that you'd have the HELOC available in case an emergency arose, but then again you should have an Emergency fund so... not so sure about this one o.O'

[@FabioTerasaka]

egkash was about to ask exactly the same thing... I don’t get the point in putting 40k towards a higher interest loan as opposed to just plopping it on the primary mortgage!

[@MiahDougie1]

HELOC is for people that don't have savings and don't know how to manage their money..eh

[@thisdjdada]

If you only take out less than you spend it can have great reduced interest cost. You have to have a positive cash flow.

[@BeatTheBush]

You would not put the money in your checking in your mortgage because you need that for emergencies. This method takes the idle money and allows you to pocket the interest you would have paid to the mortgage. Does that make sense? But doing so has it's risks.

[@timc1341]

For those of you who are mathematically inclined and don't understand, let's figure it out symbolically. Let: M = your remaining mortgage balance S = the amount you currently have in savings H = your HELOC amount Im = your mortgage monthly interest rate Ih = your HELOC monthly interest rate Currently, you are paying M x Im In interest per month. If you took out a HELOC for amount H, paid it towards your mortgage, took your savings S, and put it towards the HELOC balance, you would be paying: (M - H) x Im + (H - S) x Ih In interest per month. And you can basically treat the HELOC as your new savings account with the same available balance as your real savings account, S. So we can see that, theoretically, this HELOC scheme is beneficial when: M x Im > (M - H) x Im + (H - S) x Ih Doing a little algebra, we can see that this inequality is satisfied when: Im/Ih > (H - S)/H. So if your savings is a large fraction of your equity (meaning H - S is small relative to H) when compared to the ratio of the mortgage interest rate and the HELOC rate then this scheme will be beneficial. Lastly, why not just throw S toward the mortgage you might ask? Because then your savings, S, are not liquid like they are in a HELOC. When you do this scheme, you still have S available but if you pay it toward your mortgage the S is not available to you.

[@ron8453]

How long will it take to built a line of credit up to $ 100 000?

[@dmang0]

Thanks for this video. I'm going to do this.

[@BeatTheBush]

I still think its too much work for little gains.

[@dmang0]

The part which will benefit me is that I have a few 'checking' accounts which have funds that are not doing anything. They are 'sideline' cash which can be used to lower the interest rate on one of the mortgages. I already have a HELOC ready to go. I applied for it for a rainy day. I'll let you know how it goes.

[@Allaiya.]

Thank you for going over the risks.

[@BeatTheBush]

No prob! =D

[@billlove6493]

HELOC's can also be closed at almost any point by the bank. It happen to me in 2009. This means the bank could as you mentioned not allow you to take any more draws and then you have no savings and no way to get the money out of the HELOC. If you have lots of "cash" in the bank you could accomplish almost the same thing by just putting that money or a good portion of it on the mortgage and then using the HELOC as an emergency fund. Once again though they could lock you out but at least the money is in the mortgage and not the HELOC. Easy fix is a 15 year fixed rate mortgage and make extra principle payments early and often.

[@BeatTheBush]

You have a very valid point. Yes, I have seen banks close the credit line as well. So the money you took out already is in your bank but you can no longer access the line. I forgot if you just have the cash sitting in the same bank if they will just take that back. Hence... this method has its risks and like I said, I did do it myself as I see it being too much of a hassle and too much risk.

[@nathanielcarreon5634]

Looks like the interests saved is too small to make those complicated stuffs worthwhile.

[@mrsatire9475]

Good points! Thanks!

[@BeatTheBush]

=D Btw, don't do this. I don't recommend it.

[@jasonpearson1555]

so if understand this, during my first year of house ownership, I should pour as much money I can into principal payments to build a significant sum of equity. During the second year,I leverage my equity and get a heloc. Take that available money and make a 10k principal payment right away. while I will be paying a higher rate on the heloc money, it helps reduce the total amount owed on the house which reduces the interest burden. Then Going forward, I continue to make my mtg payments from the heloc acct, and work a lot and wait until the heloc is replenished and then make another 10k Principal payment? Question: do you recommend just making the minimum payment until the heloc is replenished or also making double payments and then using what ever surplus left over after the double mtg payment to replenish the heloc? also, am I missing any important points from this strategy?

[@samuelmckenzie5456]

where can I download the mortgage payoff sheet

[@cardten]

So true. Thanks!

[@musclerambo1]

Good video, but the real question is: how to use HELOC to pay my mortgage when they only take checking/saving account?

[@Jaytraveler2]

Good review, this is definitely not for me, however, now I understand the concept. thanks

[@tonyduart6414]

Have yet to find a video explaining HELOC without getting lost. In first 2 mins. And Im pretty smart man. Ill keep searching

[@WholesaleHungry]

Morris invest has a very comprehensive explanation of the HELOC strategy. Hope that helps you.

[@mikep9991]

My wife and I are doing this but we are not doing it in the same way. We are making $10,000 payments at a time and only using one of our incomes to repay the loan by paycheck parking. It has been working very well for us but to note I am very strict with its purpose... Any less self control could very easily get you into trouble!

[@mlambert1974]

OK, my apologies if this question has already been addressed. I really want to start a mortgage acceleration program using a HELOC. I have approx. 18% equity in my home. I called the bank and they said the minimum HELOC they can offer me is for 25K. The catch is that in order to qualify for the HELOC the sum total of my loan balance AND the HELOC must be no more than 80% of the home's market value. So, I need to shave approx. 20K off the loan to make this threshold. My question is is there an alternate way to bring my loan balance down? I can easily take the money out of my savings, but I'd rather not do that. Thank you my brilliant engineering friend and other subscribers.

[@AustinAirCo]

I think one thing you should discuss further is liquidity. That was primarily the reason for the last financial crisis. The thought that you shouldn't have any 'working' capital because the bank is paying little to nothing is quite dangerous. I agree with paying off your mortgage but don't put yourself into danger by not having adequate liquidity. If credit market tightens due to some event and all your money is tied up in an illiquid asset it's not a good position to be in.

[@BeatTheBush]

It depends on how liquid you think holding on to a line of credit is. They do reduce it sometimes during the crisis and this could get you in trouble form running out of money if an event hits and you need money.

[@AustinAirCo]

I don't think you understand what I was getting at. A line of credit isn't what I was referring to in relation to liquidity. I was referring to cash money sitting in savings or checking account drawing little to no interest. Certainly a line of credit could be used that way in normal market conditions, but as we learned from the last financial crisis if credit markets seize up and you have no liquid cash (savings) you're swimming in the deep end. If you dump all your savings and most of your checking account into revolving credit (whatever it is, credit cards or Heloc... these forms of credit can disappear in a crisis event. The bank (lender) holds all the cards.) It may never happen again... but there is risk there and ultimately that kind of risk could ruin anyone unprepared for it. That's the only flaw I see to your plan other than balloon payments that you've already mentioned. I will also tell you credit score doesn't matter, banks are ruthless in illiquid markets.

[@SuperCuttysark]

I feel like these are lessons that should be taught in high school.

[@BeatTheBush]

They should. A personal finance class? I think they have these in community colleges.

[@SuperCuttysark]

All of your videos should be mandatory. If the offer in community chances are for the people that do go to college wont take it.

[@g-wagonsg-wagon3693]

Miguel Marquez they would rather teach gay sex to 5 year olds ... school is a joke now ... it's not about education it's about liberalism & we need to find a cure before all the kids are messed up

[@sarahann530]

g Newton Damn , they taught you about gay sex at five years old. Where the fuck did you go to school ?

[@joebanks5420]

My 2 kids have checking accounts with checkbook ledgers. They have to write everything down. They aren't being taught this in school. All the school does is exploit the children to get them to hustle candy and magazines to raise money for the schools. The schools are acting like pimps and drug dealers by using the children.

[@granjmy]

@BeatTheBush, thank you. Your video explained this strategy more clearly than the last 3 videos I watched. If some viewers need you to slow down, all they have to do is adjust the video speed lower, and/or stop and rewind while they think about what you just said. To all other commentors, I REALLY appreciated your comments. You all helped me with the pros/cons of this strategy. I have a question. To pay off high interest credit cards, is it better for me to refinance my home, with principal due of $16,500 on a $25,000 loan, or should I get a HELOC instead? Thanks for all answers in advance! :)

[@BeatTheBush]

I think not enough information. How much are credit cards, what is the interest rate. And what is the heloc rate? The trouble you may have is that you pay off the cards and you end up getting more credit card debt anyway.

[@granjmy]

I only use the credit cards for business, and I pay them down as Amazon pays me. Slowly digging myself out. I just get impatient and start thinking about all that high interest that I could eliminate with a different arrangement.

[@fredericbrown8871]

[EDIT: wanted to fix some mistakes calculations (that didn't impact the conclusion), but the comment seemed to have disappeared when I tried to save the changes. Sorry for dual posting if it's the case.] Or... you get the HELOC (to mitigate liquidity risk only), DON'T put anything on it and instead payback 20k of the balance and have 80k at 4%, and then you pay back your other 20k that is just sitting around in your HISA and have 60k at 4%. Instead of paying about 3.2k in interest the first year (60k at 5% HELOC + the opportunity cost of 20k at 1.3%), you'll pay about 2.7k (60k at 4% + the opportunity cost of 20k at 1.3%). Logically, the risk is lower too (you still have the HELOC if you need to draw from your equity, still have a cheaper fixed rate).

[@imtechies6938]

does the heloc have to be with ur current mortgage provider or can I get a heloc from another insttution

[@jeanbernardchiraque8713]

no he doesnt have to be with your current mortgage provider. It actually helps if its not with them, they might realize what ur doing and put a stop to it. Remember, your mortgage provider doesnt want you to pay off your mortgage early so they can get all the interest payment fro you.

[@uneducated_immigrant]

Hello, I need your advice on my situation. 25000$ on credit cards debt, 700$ monthly minimum credit cards payment, one car loan payment, 30000 annual income, own one condo with no payment. Now, I want to take out some home equity to pay off my credit card debt but can't get approved cuz DTI is high. Should I declare a bankruptcy? Thanks.

[@BeatTheBush]

No because you can pay off the 25k if you hustle. Use the debt snowball method on it. Pay the smallest loan first.

[@dianneroy3208]

Can you explain something to me. If you have some money in your savings and dump this all in the LOC and then take some out, aren't you having to pay this back? Where as if you withdrew from your savings you don't pay back. I am very confused how to do this.

[@BeatTheBush]

It depends on the total balance after you do this. You cannot dump money into a HELOC if you do not have a negative balance (i.e. owe them).

[@michaelpurcelldo]

Do you recommend the SAME bank as holds the mortgage or a different bank?

[@Officialklassik]

Michael Purcell, DO the benefit of using the same bank is the bank will give a a lower rate for having a mortgage with them and will also allow you to set up a free checking and saving account, they’ll wave the fees for that.

[@LightGesture]

I didn't know a HELOC would have interest on it until the end of the term. Learning more about it now... Good to know if be paying interest every payment......

[@michellem2659]

I have done this recently. Got 250,000 from my equity and considering sending over to pay off my balance of 119,000. My only concern, of which my HELOC bank cannot answer, is what will be my minimum monthly payment? Is it just the interest? Do I have a monthly that I’m responsible for like when you have a credit card or mortgage there’s that minimum? If anyone knows please advise, thank you

[@ms.pixie9725]

Can you let us know the outcome since you did it

[@michellem2659]

@@ms.pixie9725 sure, as of today I have totally paid off my HELOC mortgage. In my original question I asked what would my payment be because I didn’t know and these banks don’t have good customer service but I will say that I transferred everything from my HELOC to pay off the original mortgage and my monthly payment was less than $400. Of course I paid way more principal. As of today it’s totally paid off. Hope that answers your question.

[@eddiepan2000]

I need to know more about HELOC, not understanding all of it yet. In where I live, my home value has doubled, so what should I do with HELOC?

[@BeatTheBush]

Likely, nothing much because the method I talk about gains you little.

[@learnsomethingneweveryday1539]

I'm remortgaging and my first payment will be 2nd July. Is it wise to pay one months payment now to count as June payment as I believe I should get 3 weeks worth of June's payment back with the previous lender. Is this one of the tips to pay off mortgage faster if you are already remortgaging

[@BeatTheBush]

You don't have to worry about all this one time event. Fact is, the more you pay and the sooner you pay, the faster you will pay off your mortgage faster.

[@mohammadmustafa5349]

Hello Everyone, To anyone who has used the HELOC Strategy/Velocity Banking. I have a MAJOR question: Once you paid down any given the debt, such as a Credit Card, do you allow that money to continue to attack the HELOC meaning: just let it do it’s thing while recycling through the HELOC in turn paying down the HELOC faster, allowing you to perform another pull of whatever amount you usually pull for the big chunk payment. OR do you take that extra amount that you have and use it in a Snowball effect? Thanks All.

[@BeatTheBush]

Best best is to not use this at all and just use more cash to pay it down. The floating amount of money you put in a mortgage may only amount to about $350 per $10k that you put in per year.

[@melissiadjohnson8399]

I have been learning about Velocity banking and if you know about this method then having a heloc is a benefit but only if you are not swimming in debt ( you can use other debt weapons like 0% credit cards to get out of debt first) You use a heloc or ploc to make chunk payments on the principle of your mortgage saving you tens of thousands on the interest and paying your mortgage off in a very short period of time. And he is right, you have to get the right heloc or ploc with the right terms, draw period, etc. you don’t want one with interest payments only.

[@jerrod1457]

The only difference between a mortgage and HELOC in how the interest rate is calculated is whether it is monthly (for the mortgage) or daily (for the HELOC). It has nothing to do with simple vs. amortized because the "amortized" interest of the mortgage is just the simple monthly interest (mortgage rate divided 12) multiplied by the balance of the loan (vs. the HELOC's daily average balance multiplied by the daily interest rate then multiplied by the number of days in that month). The reason why the interest on the mortgage is "front loaded" is because the balance is larger at the beginning than at the end (which will be the same with the HELOC). Example: let's compare a $200,000 5-year mortgage with a 3% interest rate to using a HELOC with the same interest rate to pay that total mortgage balance (assume you don't use the HELOC for anything else). The interest paid in the first month of the mortgage is $500 (out of a payment of $3593.74). The interest accrued (assuming you start paying down the balance of the HELOC at the beginning of the second month) in the first month of the HELOC is $493 (for a 30-day month) or $510 (for a 31-day month). The only reason why a HELOC would allow for a faster mortgage payoff (holding all else constant) is if you have a lower interest rate. The reason why advocates of the HELOC method tell everyone to deposit their income into the HELOC is because the net income a person has each month acts to "pay down" the HELOC balance. Extra principal payments equal to a person's monthly net income would achieve the same thing for a standard mortgage. There is nothing magical about a HELOC. It's not that it requires some math wizardry that the naysayers don't understand. If instead you applied the same mechanics of the HELOC method to a traditional mortgage (i.e. get a lower interest rate, apply monthly net income to the loan balance, payoff credit cards each month) you would end up with very similar results but with fewer moving parts and less risk of the having banks close your line of credit like they did in 2008/2009 (which is why it is not a good idea to use the HELOC as your emergency fund).

[@lilacxzplayz4561]

In other words, it means that if you have money LEFT OVER TO SAVE from your paycheck after all expenses are paid, then instead if putting it in a savings/checking account, use it to pay principal payment on your mortgage, and use the HELOC for your emergency (which is what the savings was supposed to be for). It works if that idea is fine for you. But some people,dont want to live on the idea of credit and want to actually see money in their savings account. Also, another problem with this strategy is that it wont work if you dont have money LEFT OVER. yes u can just use the money LEFT OVER to directly paydown mortgage principal,without having a HELOC.it does exactly the same thing. The HELOC is just suggested to cover for emergencies now that you dont have a savings (because u used it all up as a principal payment.)

[@Bleedblackandgold51]

I actually have a heloc in the first position and I love it. You do have to have self control. I have access to around $60,000.00 and climbing weekly. It's working out great for me so far.

[@BeatTheBush]

Wow, you actually did it. They do take away the line sometimes and not let you borrow more in times of tough economy like back in the housing bust. I really wonder about that aspect of risk.

[@Bleedblackandgold51]

BeatTheBush I really hope that doesn't happen.

[@kennethsmith7002]

Bleedblackandgold51 would you be willing to walk me through how to do this?

[@TruthOrConsequences2]

+Bleedblackandgold51 I've also got a 1st lien HELOC and have $40,000 equity at this time. I have about 2 1/2 to 3 years left for a complete payoff! Get a HELOC in the 1st lien position and the banks won't freeze it in an economic downturn.

[@9erslady37]

@@TruthOrConsequences2 would the interest rate be higher without lien?

[@andrewpm2]

You illustrate a small interest payment savings but I thought there was a greater savings in overall interest and payoff within a much shorter time frame (assuming you are making the same exact mortgage payment amount each month).

[@flyaznguy810]

This only works if you have positive cashflow.

[@dispassionateobserver]

Correct.

[@GordonShumway1910]

What does positive cash flow mean exactly?

[@jerrod1457]

@@GordonShumway1910 It means you have a positive net income each month... if you have a traditional mortgage that leaves you with zero net income, this "method" will not work. Here's a comment that I left on a couple of Kwak Brother videos: The only difference between a mortgage and HELOC in how the interest rate is calculated is whether it is monthly (for the mortgage) or daily (for the HELOC). It has nothing to do with simple vs. amortized because the "amortized" interest of the mortgage is just the simple monthly interest (mortgage rate divided 12) multiplied by the balance of the loan (vs. the HELOC's daily average balance multiplied by the daily interest rate then multiplied by the number of days in that month). The reason why the interest on the mortgage is "front loaded" is because the balance is larger at the beginning than at the end (which will be the same with the HELOC). Example: let's compare a $200,000 5-year mortgage with a 3% interest rate to using a HELOC with the same interest rate to pay that total mortgage balance (assume you don't use the HELOC for anything else). The interest paid in the first month of the mortgage is $500 (out of a payment of $3593.74). The interest accrued (assuming you start paying down the balance of the HELOC at the beginning of the second month) in the first month of the HELOC is $493 (for a 30-day month) or $510 (for a 31-day month). The only reason why a HELOC would allow for a faster mortgage payoff (holding all else constant) is if you have a lower interest rate. The reason why you tell everyone to deposit their income into the HELOC is because the net income a person has each month acts to "pay down" the HELOC balance. Extra principal payments equal to a person's monthly net income would achieve the same thing for a standard mortgage. There is nothing magical about a HELOC. It's not that it requires some math wizardry that the naysayers don't understand. If instead you applied the same mechanics of your HELOC method to a traditional mortgage (i.e. get a lower interest rate, apply monthly net income to the loan balance, payoff credit cards each month) you would end up with very similar results but with fewer moving parts and less risk of the having banks close your line of credit like they did in 2008/2009 (which is why it is not a good idea to use the HELOC as your emergency fund).

[@smartestpaperinvestor180]

But if you have + cash flow, why not just pay that extra into your mortgage ? I am confused

[@breadforzion]

You can also get a fixed rate heloc. Usually a little more than variable rate but worth it if you get it while rates are low

[@BeatTheBush]

You can but then to me, its still too much trouble.

[@smartestpaperinvestor180]

I'm confused. In your examples, you put $40K from checking/saving accts into HELOC to bring down the interest. If you just pay $40K lump sump on the mortgage, you will have 60K mortgage @4% = $2400 interest/yr which is actually better than the $3K / yr interest on the HELOC. The only difference is you "still have access" to your $40K in HELOC in case emergency (@5% interest)

[@globescape4771]

I have a 15 year mortgage of 86K left at 3%. Does the HELOC benefit me? The rates for HELOC is around 8.5% for 25K.

[@BeatTheBush]

Like I said, I do not do this myself as it seems more work than it is worth. Ouch... 8.5%? It'll be hard to turn a profit on this.

[@nicholaslam5880]

What would you recommend is the fastest way to pay off a house without using a HELOC?

[@mando8222]

Deploy your tax return towards the Mortgage

[@ellie7541]

Hi Francis, its been 4 years since you did this HELOC video. I was wondering, given current economy, could HELOC be a potential option for someone that may be considering to either: go back to grad school, to do major home repair, pay bills due to recession related lost of employment, or even to have cash available for potential housing down payment as the prices are coming with with rising interests rate? I’ll interested in your thoughts on this topic. Thanks.

[@BeatTheBush]

Personally I hate heloc since it means borrowing against your home. You add another point of failure for losing your home if you cannot make the payments. Still, it could be a useful tool but I personally avoid it.

[@ellie7541]

@@BeatTheBush Thank you so much for the quick reply! I completely agree with you, this is not an ideal strategies.

[@tubro007]

The more cash you have sitting around the more HELOC makes sense. The Adjustable APR is a pain, but if you are dropping it all into your mortgage, then you can convert your HELOC to a fixed Home Equity Loan with the same bank at no cost with some. Though rates will be higher at the bank where you prefer to do your checking it is much easier to manage your checking and HELOC at the same bank. The prepayment penalty can cause headaches if you decide to move, try really hard to get the loan officer to waive the prepayment penalty before you agree to the HELOC.

[@BeatTheBush]

And you shouldn't have too much cash sitting around as anything over 1 year of emergency savings should really be invested. UNLESS you are sitting on the cash for some other reason of course. Agree with the same bank thing.

[@RealEstateInvestingUnmasked]

Of course, if you had enough control to save up $40K, you probably have enough control to not pull from your HELOC haphazardly. On the other hand, if you have $40K lying around with a $100K mortgage, and you put it all down on your mortgage instead of putting in on an HELOC, your mortgage would be immediately reduced to $60K, meaning at 4% interest, you'd only pay $2,400 per year. It does not make sense to get a HELOC to pay off your mortgage unless it is a lower % rate than your mortgage and the fees to open the HELOC are minimal...even then, with the adjustable nature of HELOC's, you're setting yourself up for failure. It's much better to just pay additional principal payments toward the mortgage to pay it off faster. Thanks for sharing the 'idea.'

[@adeptioveritas]

Your mortgage doesnt have simple interest as you were trying to explain it its compound interest which means that for that 250k home if you pay the 30 year mortgage you will end up paying more like 2 to 3 times that amount Heloc is simple interest and a lot less money over all, but please anyone viewing this do your own research a Heloc can be a great strategy to pay off your home.

[@BeatTheBush]

I calculate simple interest as a short cut rough estimation for a single year. Some like things correct to the penny but then this is like measuring how much oil to put in a recipe by eye balling it.

[@Fallaciez]

J Mo Dont get dragged in... there's no benefit to getting the Loc

[@jwake4803]

@Walt Whitman given the method that is described in this video, I couldn't agree with you more. I wouldn't recommend this method to anybody. A key distinction, however, is that mortgage interest is amortized whereas most HELOCS are interest only loans based off of average daily balance. The right way to use a HELOC to pay off your mortgage early is to do it by smaller increments, 5K or 10K at a time and deposit your entire paycheck into the HELOC every month to keep your ADB down, then use your HELOC for your monthly expenses and repeat each month. This only works if you're disciplined and you spend less than you make. The key mindset is that you are transferring your debt to chunk away at the principal of your mortgage and save tens if not hundreds of thousands of dollars of amortized interest throughout the loan. I wouldn't recommend it to most people, but it has worked wonders for me.

[@ljbrandt500]

Does this strategy negate the mortgage interest tax deduction? Also, having long term debt at low interest may not be such a bad thing considering inflation is likely to go up.

[@BeatTheBush]

No. HELOC interest can be tax deductible. There are certainly a lot of moving parts here to make this worth while. Specially when you are trying to make use of that emergency fund that sits idle. I was estimating the delta is only about $1000 after all is done when you have $40k more not paying interest. So this might not be worth the hassle and dangers.

[@oacy16]

I have a mortgage with 3%. I also have a personal line of credit for 6% apr. is it worth to use a personal line of credit to pay out a principal?

[@BeatTheBush]

No it isn't. Why would you pay off a lower interest rate with a higher one?

[@expendable4h002]

When you use the HELOC loan to pay off the mortgage, are you only paying principle or interest and principle?

[@BeatTheBush]

Either is fine. You have to make your current payment current so you have to pay interest due first.

[@expendable4h002]

@@BeatTheBush for example: Make regular mortgage payment and then pay an additional $10k in principle from HELOC loan. Then with any positive cash flow you have after paying your overhead, pay back the HELOC as soon as possible and repeat?

[@tonyduart6414]

Where every poster goes wrong is introducing peripheral stuff. Give one example, with specific dollar amount and only explain HELOC

[@Rapturehead_Riley]

I’ve been sorta doing this but still leaving a couple thousand in regular checking just because I don’t know how I would do the budget without cash. Anyone have tips on how to budget with a situation like this?

[@BeatTheBush]

I think that is the right way. Just leave as little in the checking as possible, perhaps 1 months' spending worth. But still, I would say this has a lot of work and very little benefit.

[@mycaddigo4562]

Heloc’s aren’t amortized like a mortgage. Doesn’t that even give you more savings ?

[@nashvillesessioncoach6330]

As the video mentioned HELOCs are prime plus 1%. We are currently seeing interest rates at their lowest in 60 years. If they change they're not going down...that's a given. It doesn't matter how responsible a person is if the economy goes south. Home values can drop....rates can go up....loans can get called. I remember back in the '80s when the home mortgage interest rates jumped to around 14%. Too scary for me....I'd just rather not put my home at risk over gaining $1k here and there. God bless!

[@BallawdeQuincewold]

I don't get it. What's the difference between paying off your morgage with your checking account? Is it because with a morgage the monthly amount you have to pay is fixed and with a home equity loan the amount you pay interest on is variable?

[@BeatTheBush]

You can pay with money in your checking but money paid is locked in your mortgage and you can no longer access it. This way you can use ALL of your money and make all of it work for you. The variable rate is a little bit more expensive though so there is a break even point. It is also adjustable so there is danger in it if you use it wrong.

[@yulungjasonlee]

So instead of taking the money in the checking account to pay the principal directly, using the heloc will end up paying less interest over the life of the mortgage than just taking the extra money and apply it directly to the mortgage principal because of difference of how interest is compounded between a mortgage vs heloc?

[@BeatTheBush]

It's more a bout utilizing money that would otherwise be idle in your checking account. But I still think this method is a bit risky to get a few hundred more a year.

[@yulungjasonlee]

@@BeatTheBush yeah I just built a spreadsheet and it looks like you would have to pay off the HELOC pretty quickly to make this actually worthwhile which means you are just exhausting ur funds otherwise u would have. To be honest, it would make more sense to take that idle money and pay the loan principal directly instead of taking out the HELOC that would have interest on it...this turned out to be a terrible mathematic idea even for people that have idle money...

[@1966bluemax]

I still don’t get it. What’s the difference when you just put the money from your checking and savings directly to your mortgage. Why do you have to use heloc?

[@BeatTheBush]

If you put all of it from checking and savings then you will have nothing to use. Heloc allows you a line of credit to tap when you need it in an emergency.

[@1966bluemax]

BeatTheBush I guess that’s the only advantage. This method is only good for long 30 year mortgage. It certainly cuts the compound interest down and the term of the loan. But, for already short 7 year loan, I’ll just do it directly.

[@lazvega06]

The key why using a HELOC to payoff mortgage sooner is the way to go! daily calculation is better because you can use your income to pay the HELOC back every month and use the HELOC to pay for all your expenses including Mortgage. This is an example and correct me if I am wrong: you have a $120,000, 30 years Mortgage at 4% fixed rate and get a HELOC of say $40,000 at 5%, then you use all $40,000 towards paying part of your mortgage: $120,000-$40,000=$80,000, now you owe your mortgage $80,000 and owe your line of credit $40,000(Total debt combined is now equal to $120,000) ok?. Let us say you have a household income of $6,000 a month,(here comes the part in which I think daily calculation is better even at a higher interest rate) pay $6,000 (Income) to the line of credit, then you HELOC balance is gonna be $34,000, then you start paying all your expenses, (Mortgage included) with the line of credit, your expenses are not due the same day, that is why one day you are going to pay less money than others, due to the daily calculations of interest whereas monthly calculations are roughly the same every month and once is paid you will not be able to use that money ever again or work with it.

[@aquatrax123]

Why not just pay as much money as you can to your mortgage and in the event you need money you could always take out a HELOC as a last resort?

[@dec1slh]

You can get a HELOC and not use it. I got a HELOC last year because I plan on paying my mortgage off at an accelerated rate. This year so far I have paid and additional 30k towards my primary mortgage, the HELOC is down to a couple thousand. Next year I plan on paying paying an extra 12k towards primary mortgage from the HELOC every 3 - 4 months, that way my balance doesn't get too if, if rates get too high, I can pay off the balance and stop using it. I will have primary mortgage paid off by end of 2019.

[@BeatTheBush]

What dec1slh said.

[@aquatrax123]

Got you, makes sense now. Was hard to wrap my mind around taking a loan out with a higher rate but now I understand. Thanks for the videos!

[@edr121]

That is because by using the HELOC as your checking account you would be using all your income in a dual way. 1)When your paycheck hits the account it immediately reduces the principal. For everyday it sits in the account the amount of interest that need to be paid is less than if the money was elsewhere. 2)After the money sat in the account an reduced your interest for days or even weeks the you can make your regular payments without having to spend extra.

[@ericwsmith7722]

Dec1slh, when do you think your going to pay off your HELC ?... 30 years ?

[@EnriqueLopez-oj5wh]

Understand but how do u managed ..? Meaning how do u managed the deposit on the heloc

[@BeatTheBush]

Not sure what you mean by that.

[@123thatsithaha]

Hi beat the bush, I have a question and cannot find a clear answer, it may be off subject but im hopping you can answer or redirect me. Im getting ready to payoff my mortgage principal, i know that there is no early pay off penalty on my mortgage, but is there anything else i should be aware of before doing anything? Is it as simply as say writing my mortgage bill and then just adding another 80k on top of principle, would then bring my principle balance to zero. Is that all i need to do? Or do i need request for some proper documentation? Or is there a specific way to do an early payoff? I will try and call my mortgage bank again but i remeber last time they didnt really know nether because my loan isnt really with a direct bank its kinda generated through just a dept collector, idk if that makes sense.

[@BeatTheBush]

I can tell you some things that would happen but your lender might differ a bit. The deed paper work needs to be transferred fully to your name and hence there will be some stuff that happen. Your lender might have an early payoff amount that includes interest up to that vary day which may not show on your account. My attitude for these things is to just do it and see what happens but I cannot really recommend what you should do for liability reasons.

[@123thatsithaha]

BeatTheBush okay i have another question, my sister help coborrow/sign the house for me, and she wishes to have her name taken out of the title, how should i go about this. Should i worry about removing her now? Or wait until i payoff and then go to the deed or something?

[@dandelionc69]

I still don’t get it

[@lraequityitstime9836]

The ONLY way to pay off your $200k mortgage in 5-7 years is by paying a minimum of $3,334 a month. FIRST you will pay the $200,000 ➗60 months(5yrs)= $3,333.33 monthly principal. THEN you will pay the interest 1-2 years depending on your interest rates. Signed LRAequity it’s time.

[@Truth_Seeker9]

I thought the whole purpose was to get your first lien on the house as a heloc to replace your mortgage..not a second loan?

[@venomfastback]

Thats what I would do. There is no way I would get this kind of loan without paying off my house with it.

[@ianwagoner138]

I am not a supporter of this strategy. However, I feel your explanation of the concept is better than most. I appreciated the quick pace. Videos created by others are too slow and redundent. Good job sir!

[@BeatTheBush]

Thanks!

[@salvadorgalvan5024]

What if I just put the 20k towards the principal? I’m confused

[@kevin7280]

You are better off investing cash flow into ETF and 15y later pay off the mortgage and invest the rest in a flat and rent that out. Mortgage 2% interest/ ETF 8% average growth. Maybe lucky and you can pay mortgage off after 10y, maybe need 15y...but ETF will do more than 2% average per year.