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Updated over 1 year ago,
Clarification on article about using a HELOC to build wealth
Hi,
I just read through the article at https://www.biggerpockets.com/blog/how-im-using-helocs-to-build-wealth by Charles Hardage. I'm unclear on one thing, though. Charles said:
"Our first HELOC allowed us to save $50,000 in principal off our home, which saved $30,000 in interest. We still had to pay interest on the HELOC, but that was only a few thousand dollars over the course of a year. But by using the HELOC, we saved about seven years of mortgage payments on the back end."
So, Charles is saying that he took out a HELOC to pay down his principal? Let's say you have a 30-yr fixed first mortage at, say, 5%, with a current principal of $200,000 after 10-ish years of payments and an original loan amount of $300,000, and you take out a $50,000 HELOC with a 5-yr draw & 20-yr repayment period at, say, 9%. In this scenario, how does that help someone save first mortgage interest and enable them to have capital to nab investment properties? It strikes me that you're borrowing at 9% to pay down money that you're only paying 5% on, so how does that help you save interest? Also, how much do you pay on your first mortgage versus how much you use for capital on acquiring real estate?
Appreciate some clarification here.