Paying off house within 5 years...

[Brendan Curley]

I stumbled across this guys website this past weekend and read this post.  I just wanted to know peoples thoughts on this and if you believe it would actually work?

How to pay off your house within 5 years using these awesome ninja tricks

Clayton Morris

December 21, 2015

A few years ago I discovered an amazing way to pay off the house you live in with virtually no time at all. I'm talking 3 to 5 years. And the best part is you don't need to use any of your own money to do it. All you need is a home-equity line of credit, some form of income, and a little discipline.

Let me start off by saying that I'm going to be using round numbers to illustrate my point. For the sake of argument let's say you owe $100,000 on your primary residence. Let's also say that your house is worth $130,000. And you make $3000 a month. The basic premise of this ninja trick will work for anyone even if you owe $500,000 on your house or $50,000 on your house, it doesn't matter.

With the above numbers you can see that the difference between $130,000 and $100,000 is $30,000. That means in this example you have $30,000 of equity in your house. Follow me?

Step one: call up a few local banks and tell them that you're interested in a home equity line of credit and ask them if they have any introductory specials. Our local bank recently had a 1.99% interest rate special for the first year. Important, when they ask you this question: Would you like a home-equity loan or a home-equity line of credit? You need to make sure that you're asking for a home equity line of credit also known as a HELOC. The difference is very important because in a home equity loan the bank will write you a check for the total amount of the equity in your home. So in this example they would cut you a check for $30,000. With a home equity line of credit they're extending a credit line of $30,000 which you can use for a number of years. Don't get bogged down in these details just make sure you get a home equity line of credit.

Because you're getting a home equity line of credit on your primary residence you're likely to get 80 to 90% loan to value ratio. This means that of the $30,000 in equity you're going to get 80 to 90% of that. And that's a value of $24,000-$27,000 depending on the bank.

Again for the sake of argument let's say the bank gave you $24,000 to work with. Most banks will give you a checkbook and debit card associated with this new account. You're going to need this checkbook for step three.

Step Two: Treat this new bank account as your primary bank account. That means you're going to do everything with this account. You'll use this account to set up your direct deposit at work, pay for groceries, pay for gas, everything. Forget about your old bank account. Pretend it longer exists.

Step Three: Grab one of those shiny new HELOC checks and write up a payment to your primary mortgage company. Make the check out for $10,000. Be sure to designate that you're making a payment to your principle balance.

Now it's time to update our numbers. Your primary loan amount is now $90,000 and the balance on your HELOC is now $10,000. You just paid down 10% of the entire balance your primary mortgage with one check. Now you might be saying to yourself that sounds great why wouldn't I just save up $10,000 and make that payment? You could do that of course. But how long will that take you to save that cash? With this strategy the moment the bank approves your HELOC you get to cut a check to pay down the principal balance. See the difference?

Okay I can sense your skepticism. You're probably saying to yourself, "Wait a second that doesn't help me because all I'm doing is shifting money around." Yes that's exactly right. Except it's not your money, it's the banks. You're completely altering the amoratization schedule of your primary mortgage. And instead of paying it off in 25 years you're paying it off in under five years.

The reason the ninja trick works so well is because you set up your HELOC as your primary bank account. Remember your balance is now $10,000. For now. Then your paycheck from work arrives as a direct deposit and your HELOC balance is suddenly $7000. You buy some groceries, you pay for gas, you go to the movies, and your balance goes up to $7250. When you get your next paycheck your new balance is? You guessed it, it's $4250. In a few short weeks or months your HELOC balance will be back down to zero. The reason this works so well is because the remaining money from your paycheck is not sitting in a random bank account doing nothing for you, with this model it's actually paying down your loan balance.

A few short months later your HELOC balance is zero. Then all you need to do is get out the checkbook once again and write another $10,000 check to the primary balance on your mortgage. Now suddenly that loan has dropped to $80,000. Within virtually no time at all you paid down 20% on the principal balance of your loan.

The system will only work if you are diligent about utilizing the HELOC as your primary checking account. The moment you start keeping multiple bank accounts the system will fail.

I know it seems complicated. That's why I want you to go back and reread this article two or three more times until it sinks in. The real fun will begin once you figure out how quickly you can pay off your mortgage.

[Andy Bosone]

@Philip Katz - I am in the midst of this right now (6 months into it). I am using a HELOC on my primary residence to pay off a mortgage on a rental property I have. The results are meeting my expectations and are following very closely to the "model" that I planned out using a simple spreadsheet. Moral of the story is this:

1. Balance on condo as of 12/1/2017 = $183,000

2. Line of credit issued in Jan 2018 for $70,400

3. Balance on condo as of today $17,000 (disclaimer 35k of this was paid from savings. I attacked the mortgage with the HELOC and some cash)

4. Balance on HELOC as of today is $56,000

5. Condo will be paid off in 12/2018.

6. HELOC will be paid off in 3/2020.

7. I will then use HELOC the same way to pay down principle residence mortgage (369k balance). Will be paid off in 2023.

8. These projections make certain assumptions. 1. Interest rates don't change (HELOC could go up and probably will). 2. My budget doesn't change (I know this will change as we are having another baby, but...) 3. Our income doesn't change (hopefully we actually get a raise or two over the next 5 years. This will help offset the other changes).

This model works if you use it properly. I was "earning" 1% on the savings...not worth having it sit there and not be working, while I'm paying interest on other loans. Using the cash and the HELOC will save me about 86k in interest payments on the condo, but will cost a whopping 3.3k in interest on the HELOC. I'm ok with paying 3.3k to save 86k.

It is very important to stick to a budget. I try to put as much on my CC as possible and then pay it off each month. To budget, I took my last two years spending and averaged it monthly and then added $500 as a cushion. If you create a plan within the confines of your own personal situation and stick to a budget, this does work. Another point to clarify is that our lifestyle has not changed one bit. That is, we haven't had to cut out anything in order to make this progress. The only downside or negative would be that our savings account is significantly lower. However I address that by keeping a decent cushion on the HELOC in case I need to write an emergency check.

Message me if you want more info on my personal experience.  I have some tools I can share with you.