Replace Your Mortgage with a heloc

[Danny E Wyatt]

Saw ad for Replace Your Mortgage 

Its done with a heloc, supposedly pay off in 5 to 7 years. Anyone know if this works?

[Ashish Acharya]

@Danny E Wyatt , 

HELOC interest will generally higher than your mortgage. Would you refinance your current loan with a higher interest loan?

Someone asked the same question before. Rather than taking out HELCO at higher interest and paying off the mortgage, and then paying off the HELOC in 5/7 years, why dont you pay off your mortgage in 5/7 years? You would pay less interest for 5/7 years on your original loan rather than HELCO. And there are other costs associated with HELOC.

HELOC should be used if you are going to earn more return on your loan than you are paying in the interest.

Hope that makes sense. 

[Danny E Wyatt]

Hello,

My loan is 6.75, The Heloc is 3.99. You maybe right, Ill try to figure it out, Thanks 

[Jon Horton]

I did that and it works great for me. There is a strategy, requiring self discipline, you need to use to make it work but it works great.

PM me and we can jump on a call  where I would be happy to share the logic.

[Justin Phillips]

Unfortunately, Texas has some Heloc restrictions that make this loan not make quite as much sense. However, in the other 49 states, and the other countries that have been using Offset mortgages for decades it's an incredible tool! 

3 Reasons this can't be replicated making extra payments on a traditional 30 Year Fixed:
1. Even with paying extra every month, your payment the next month never gets cheaper. (No Snowball Effect)
2. You can't be as aggressive, because you don't have access to those extra payments without selling/ReFi
3. You're still paying interest first to the bank based on the Amm. schedule. 

The opposite of those 3 are true with Offset mortgages. For those who qualify, it's an incredible personal finance tool, and investment finance option. 

[Trevor Reed]

Justin Is correct about Texas - we have some odd stuff here. But be careful of the introductory rates and variable rates on the HELOCS. What makes sense today may be a terrible decision tomorrow. Be certain you understand the terms of the HELOC.

[Justin Phillips]

To Trevor's point, it's really not for everyone. If someone is living paycheck to paycheck, or doesn't have any reserves, it won't work. It's really just for those that are good with money, and live on less than they make. 
For qualified candidates, the interest rate really doesn't matter. When you're paying off in 5 years without changing spending habits, it's really not an interest rate sensitive loan. It's more a function of interest cost that you'll want to look at, and how much interest is saved in that timeline. For anyone who qualifies, the math works at today's low rates and the lifetime cap rate as well.