Heloc to pay off mortgage faster

[Drew Cameron]

I recently came across a new strategy that I don't quite understand and it sounds too good to be true. The principal is simple. Use your heloc to pay your mortgage and funnel all your funds in and out of it like a checking account. The interest updates daily so you can pay down principal balance much faster than on a traditional mortgage. With a decreasing principal balance the payments go down each month as you pay it off. Plus you can get rid of other payments by funneling them into your account as well. Has anyone else heard of this? Or has anyone used this successfully?

[Gary Floring]

Originally posted by @Chris May: 
"When you transfer a loan balance, you do not save any interest immediately." 

Proponents of using the HELOC strategy are claiming just the opposite: that the moment you apply the $10K line of credit to the mortgage, you immediately "save" (or skip, or avoid, or "never have to pay") tens of thousands of dollars of (future) amortized interest that otherwise would have to be paid had the $10K not been applied. How do you reconcile that claimed "savings" with your statement "...you do not save any interest immediately"?

"The future interest expense on a loan is a deferred liability."    If the mortgage interest in the scenario above is indeed saved, avoided, or skipped, why do you say it is "deferred"? Shouldn't that mortgage interest be permanently wiped out (never paid)?

 "Moving the debt to a different loan product just moves the interest liability with it. So this $21,000 "interest savings" you're seeing on the calculator is really just you moving $21,000 of interest expense to the HELOC. You don't bring down the future interest liability balance until you pay the HELOC principal."

???

But the annual interest amount incurred in paying down $10K on the HELOC is stated as approx. $300-$400. How does $21K of mortgage interest expense get "moved" to the HELOC ?!?

[Jeremy Z.]

Originally posted by @Gary Floring:

Originally posted by @Chris May: 
"When you transfer a loan balance, you do not save any interest immediately." 

Proponents of using the HELOC strategy are claiming just the opposite: that the moment you apply the $10K line of credit to the mortgage, you immediately "save" (or skip, or avoid, or "never have to pay") tens of thousands of dollars of (future) amortized interest that otherwise would have to be paid had the $10K not been applied. How do you reconcile that claimed "savings" with your statement "...you do not save any interest immediately"?

"The future interest expense on a loan is a deferred liability."    If the mortgage interest in the scenario above is indeed saved, avoided, or skipped, why do you say it is "deferred"? Shouldn't that mortgage interest be permanently wiped out (never paid)?

 "Moving the debt to a different loan product just moves the interest liability with it. So this $21,000 "interest savings" you're seeing on the calculator is really just you moving $21,000 of interest expense to the HELOC. You don't bring down the future interest liability balance until you pay the HELOC principal."

???

But the annual interest amount incurred in paying down $10K on the HELOC is stated as approx. $300-$400. How does $21K of mortgage interest expense get "moved" to the HELOC ?!?

 The annual interest amount on that $10,000 portion of the original mortgage is also only $300-$400 (assuming the interest rates of mortgage and HELOC are the same). The interest on that $10,000 portion only comes to $21,000 over the full 30 year life of the loan. Pay it off faster and the total amount of interest accrued goes down, whether you do it in a HELOC or just tackle it in the mortgage.

This isn't trickery. If you need to - think of your mortgage as a bunch of $10,000 chunks. The only reason you pay so much interest in the beginning is because you have a bunch of them. If you want to move one into a HELOC and tackle it there, fine. Or you can just leave it in place and tackle it in your mortgage. But the interest accrued and paid is the same.

[Justin H.]

Originally posted by @Nick Moriwaki:

I don't quite follow what you're saying about the liquid funding, but let me know if you still think so after looking at the spreadsheet.  

Consider if there were 'mortgage+additional+$0 balance HELOC' in your spreadsheet. Since the $50k in the bank account is similarly unnecessary to the HELOC example, the initial principle drops to $150k, the initial bank account drops to $0, and after increasing the 'additional' to maintain the $0 bank account balance, the interest paid drops the rest of the way to exactly match your HELOC style at 18,553.81.

Now there an unaccounted for interest savings due to the slightly lower ADB?  Sure. In the noted example it would be like $8/month with an interest savings of <$500 during the course of the payoff. Accordingly, I would argue it's not one of much long term significance.  Especially not when considering what you're giving up. But as a method of saving, rather than investing, it does technically hold an extremely slight advantage.

However, this is an investment oriented site and here is where the 'liquid funding' comes in. Lets assume a completely equal pair of circumstances. so both have that full $200k HELOC and maintain a minimum of $50 HELOC in reserve. In yours, initially $150k is tied up in having 'paid off' the mortgage, while the other $50k is your reserve. Gradually, over the course of the just shy of 5 years in that particular high additional payoff example, the available HELOC funds increase just a couple of grand a month. Meanwhile, even maintaining the $50k HELOC reserve, mine would have $150k of freely available HELOC funds available at all times. Consider for a moment, the implications of what could be done with investing the unallocated HELOC funds between the two examples? I can't imagine an investor that would rather start with $0 to invest, and only gain a small portion of investable funds each month, in exchange for <$100/year savings...As opposed to having a full $150k to invest starting day 1.

Additionally, your style requires having enough equity in the house to pull out a $200k HELOC on top of the initial mortgage, while mine only requires pulling out $50k HELOC at a minimum to accomplish nearly identical overall savings. So mine is also considerably more accessible to a much larger portion of homeowners who don't have <50% LTV at the time of purchase.

Much like Joshua's method of using the HELOC, it's not that it can't work well...But there would still seem to be at least one better and more flexible option for most situations.

[Nick Moriwaki]

Originally posted by @Justin H.:

Originally posted by @Nick Moriwaki:

I don't quite follow what you're saying about the liquid funding, but let me know if you still think so after looking at the spreadsheet.  

Consider if there were 'mortgage+additional+$0 balance HELOC' in your spreadsheet. Since the $50k in the bank account is similarly unnecessary to the HELOC example, the initial principle drops to $150k, the initial bank account drops to $0, and after increasing the 'additional' to maintain the $0 bank account balance, the interest paid drops the rest of the way to exactly match your HELOC style at 18,553.81.

Now there an unaccounted for interest savings due to the slightly lower ADB?  Sure. In the noted example it would be like $8/month with an interest savings of <$500 during the course of the payoff. Accordingly, I would argue it's not one of much long term significance.  Especially not when considering what you're giving up. But as a method of saving, rather than investing, it does technically hold an extremely slight advantage.

However, this is an investment oriented site and here is where the 'liquid funding' comes in. Lets assume a completely equal pair of circumstances. so both have that full $200k HELOC and maintain a minimum of $50 HELOC in reserve. In yours, initially $150k is tied up in having 'paid off' the mortgage, while the other $50k is your reserve. Gradually, over the course of the just shy of 5 years in that particular high additional payoff example, the available HELOC funds increase just a couple of grand a month. Meanwhile, even maintaining the $50k HELOC reserve, mine would have $150k of freely available HELOC funds available at all times. Consider for a moment, the implications of what could be done with investing the unallocated HELOC funds between the two examples? I can't imagine an investor that would rather start with $0 to invest, and only gain a small portion of investable funds each month, in exchange for <$100/year savings...As opposed to having a full $150k to invest starting day 1.

Additionally, your style requires having enough equity in the house to pull out a $200k HELOC on top of the initial mortgage, while mine only requires pulling out $50k HELOC at a minimum to accomplish nearly identical overall savings. So mine is also considerably more accessible to a much larger portion of homeowners who don't have <50% LTV at the time of purchase.

Much like Joshua's method of using the HELOC, it's not that it can't work well...But there would still seem to be at least one better and more flexible option for most situations.

The initial premise of this was that you normally don't have the equity to get approved for a large HELOC if you are keeping the mortgage. In that event you could still realize the savings but your emergency fund is limited by the HELOC amount you are approved for, whereas my emergency fund starts at a minimum of $50K in the example (if max HELOC approved is $200K then I dump in the $50K). FYI, my example is getting a HELOC that replaces the mortgage at the time of closing, not having enough equity to open a HELOC then make the transaction myself. For example, if the property in the example is worth $275K then my scenario opens up a $220K HELOC (80% LTV) with a balance of $200K then dropping it to $150K with the cash instead of keeping the mortgage and opening up a $20K HELOC as buffer.

The other alternative is to use a PLOC with the HELOC and the mortgage to achieve a larger buffer but again, the much simpler and more flexible way is just to get the max HELOC. Granted this is riskier based on HELOC balance and the size of the PLOC you can get.

Also, the background to the example was that people in the thread continuously said the blanket statement of "just use cash to do the same thing, you don't need the HELOC". My example was a counter example where you can't just use cash to keep up with the HELOC payments.

[Justin Bauer]

Most investor's have to store large amount of money somewhere and a helock is just one place to put it.I have had investors tell me they like escrow accounts to pay there taxes and insurance because they do not have to think about it.I would never have to look at another piece of rel estate again if I could store that capital for them.Look at your average daily balance on your accounts do you want that money working for you or the bank! Money has to reside somewhere I do not think paying off a 4% mortgage is the best place for it pm me and I will share what I have been doing with it for the last 8 years. You can take out the middle man. 

[Joshua S.]

Originally posted by @Jeremy Z.:

Originally posted by @Gary Floring:

Originally posted by @Chris May: 
"When you transfer a loan balance, you do not save any interest immediately." 

Proponents of using the HELOC strategy are claiming just the opposite: that the moment you apply the $10K line of credit to the mortgage, you immediately "save" (or skip, or avoid, or "never have to pay") tens of thousands of dollars of (future) amortized interest that otherwise would have to be paid had the $10K not been applied. How do you reconcile that claimed "savings" with your statement "...you do not save any interest immediately"?

"The future interest expense on a loan is a deferred liability."    If the mortgage interest in the scenario above is indeed saved, avoided, or skipped, why do you say it is "deferred"? Shouldn't that mortgage interest be permanently wiped out (never paid)?

 "Moving the debt to a different loan product just moves the interest liability with it. So this $21,000 "interest savings" you're seeing on the calculator is really just you moving $21,000 of interest expense to the HELOC. You don't bring down the future interest liability balance until you pay the HELOC principal."

???

But the annual interest amount incurred in paying down $10K on the HELOC is stated as approx. $300-$400. How does $21K of mortgage interest expense get "moved" to the HELOC ?!?

 The annual interest amount on that $10,000 portion of the original mortgage is also only $300-$400 (assuming the interest rates of mortgage and HELOC are the same). The interest on that $10,000 portion only comes to $21,000 over the full 30 year life of the loan. Pay it off faster and the total amount of interest accrued goes down, whether you do it in a HELOC or just tackle it in the mortgage.

This isn't trickery. If you need to - think of your mortgage as a bunch of $10,000 chunks. The only reason you pay so much interest in the beginning is because you have a bunch of them. If you want to move one into a HELOC and tackle it there, fine. Or you can just leave it in place and tackle it in your mortgage. But the interest accrued and paid is the same.

You're missing my point. Forget the HELOC for now, because it's obviously causing confusion. For the purpose of finding out where the savings actually come from, we're talking about income or lottery money right now. You're saying (correct me if I'm wrong) that when you pay that $10,000 principal the resulting savings come from that $400 you were going to pay annually over 30 years not being scheduled anymore.

But here's the thing that doesn't work out about that explanation and why skipping is a better way to describe it. It does not take 30 years to pay down $10,000 on the loan. On the Bankrate $200,000 / 4% we've been discussing it takes around 2.5 years. $400 annual interest for 2.5 years is $1000. So, if we go by your explanation of the savings, paying off the $10,000 with lotto winnings would save $1000. Paying off all 20 "$10,000 chunks" early at $1000 savings would net $20,000 savings. That's incongruous with what the calculator is telling us. It's incorrect. You found a calculation that came up with the right numbers when using the wrong inputs, but it doesn't work as a way to explain or calculate the savings when you look at how long you actually pay on that $10,000.

So, here's what's actually happening. While you're making that $10,000 worth of normal payments you are paying an average of $650 to interest each month (range of $666-$635) for 32 months. The REAL WORLD COST of paying down the $10,000 in this way is $20,800 (32x$650). Do it on Bankrate yourself and look at the amo table for $200,000 / 4%. When you plug in that you are making an extra $10,000 payment at the beginning it takes $21,000 and 2.5 years off the loan, which lines up with my explanation (32 months and $20,800) and does not work with your explanation. So, the only way the savings make sense, the only way to truly explain it is that you are literally skipping over these interest payments when you pay the principal early. That is where the savings come from. When paying the $10,000 in normal payments, the interest portion is more or less "getting in the way" of your money paying down the principal, so it costs you 2.5 years and $21,000 to do it that way. When you pay it early, you skip over having to make those interest payments. I mean, think about it. The reason you are paying interest is because you have the money out on loan. If you give it back early, they cancel the interest payments you were scheduled to make if you paid it back on their time line. 

I'm sure you guys are going to be shook by this, but it's the truth. Once you understand this, we can move on to the HELOC discussion, but the HELOC thing was going around in circles because you guys couldn't understand where the true savings were coming from.

[Steven D.]

@Joshua S. Your definition of "savings" is about equal to someone with no money and 0 net worth taking out a 1 million dollar loan and then calling themselves a self made millionaire. The Loan calculators you posted literally show nothing except that making principal payments reduces the term and total interest paid. You didn't even include the dollar amount prepaid in the calculator posted. 

[Chris May]

@Joshua S. @Gary Floring

Josh said "You just said last time that you see $21,000 savings on the calculator, but I'm just swapping that interest over onto the HELOC and now it's all washing out for some reason because I showed you the $21,000 in HELOC interest wasn't possible. I mean, that's legitimately what just happened, so I don't really understand."

You need to look at interest accrued per period for it to make sense. It sounds like you understood my last post about the combined interest. So that's a good step. You're relying on a calculator for future interest savings, but it's missing a piece--the HELOC. The HELOC has unknown future interest. You're missing a variable in the equation--how much principal you pay on the HELOC and when--so the comparison isn't possible. Once you fill in the missing variable, the two scenarios are the same.

I'll jump into the math later, but here's an analogy:

You take the bus to work. It's always a reliable 5 minutes each way. You plan on working there for 10 years. That means you have a total of 26,400 commute minutes in your future (5 minutes x 2 x 22 days in month x 12 months in year x 10 years).

You have a midlife crisis and switch jobs. The new job is in the same building. You tell everyone you saved 26,400 of commuting minutes by ditching that crummy job. Your friends say "but you're still commuting 10 minutes each day, you didn't save any time". To which you respond "but I decided I'm actually going to work one more year". By your math, you're only commuting another 5 x 2 x 22 x 10 = 2,200 minutes.

You changed a variable midway through so the comparison doesn't make sense. If you look at it on a per day (per period) basis, it's clear that you didn't save any commuting time.

The mortgage calculators assume you're going to take 30 years to pay off a loan. Now, you moved 10,000 to the HELOC and say "it only cost me $40 per month" and "I decided I'm actually going to pay this balance off in 4 months" so it only cost me $160. For an accurate comparison, you need a customized amortization table that only assumed 4 months of interest on that $10,000.

Once you do that, the phantom "savings" net out. You didn't save anything by moving the $10,000 to a HELOC. The only thing that saved interest was paying cash.

[Joshua S.]

Originally posted by @Steven D.:

@Joshua S. Your definition of "savings" is about equal to someone with no money and 0 net worth taking out a 1 million dollar loan and then calling themselves a self made millionaire. The Loan calculators you posted literally show nothing except that making principal payments reduces the term and total interest paid. You didn't even include the dollar amount prepaid in the calculator posted. 

No idea what you are talking about, Steven. When you have a $200,000 loan at 4% you are on the hook for $144,000 in interest over 30 years. Saving some of that money is like taking out a loan and calling yourself a millionaire?

Yes, I'm trying to show that making principal payments reduces the term and total interest paid, but also how much is saved and why, because that seems to be a point of contention. I have been talking about paying an extra $10,000 over and over to keep it easy to follow, so I don't understand what, "You didn't even include the dollar amount prepaid in the calculator posted" means. This is so off base, I honestly don't understand what you're responding to.

[Steven D.]

@Joshua S. You are borrowing money that you are paying interest on to pay down another debt that your are paying interest on and then claiming you are saving all this money on interest when it is just not true. Taking from one source to claim great savings on some other source without actually calculating what you are paying in total for that money. How many times did you state "Look at the calculators I posted, they don't lie" I did look at them, they don't lie or explain anything which is why we tried to post more in depth calculators showing total payments for both loans proving your strategy did not work and there were no "savings" that you keep referring to. 

[Chris May]

OK, math time. 

200k mortgage. 5%. 30 years. Monthly payment is $1,073.64.

Month 1: Transfer $10,000 to a HELOC at 5% interest. Monthly interest is $41.67. Let's assume you only pay the HELOC interest. Your combined payment is $1,151.

• Homework - Plug these two scenarios into a mortgage calculator:
  • #1 - One time extra payment of $10,000. Total interest is: $155,383. Payback: 322 months.
  • #2 - Instead of a one time payment, add $41.67 to every monthly payment. Total interest: $168, 836. Payback: 331 months.
• The difference in interest between #1 and #2 is ~$13,500, but you're missing a piece--the $41.67 you paid every month on the HELOC. 41.67 * 322 = $13,417.
• #1 finishes 9 months ahead of #2 but you haven't paid the HELOC yet. Since your mortgage is done, you have an extra $1,073 per month. Pay that towards the HELOC balance. It will take you 9.5 months, and cost you $221 in interest.

So, as I keep saying, what matters is when you pay off the HELOC. If you just take whatever payments you're making to the HELOC, but apply them to the mortgage instead, it's a wash. The reason your total interest on the mortgage comes down is because you're paying 41.67 extra every month. The $10,000 transfer to the HELOC in month one doesn't have any impact.

[Joshua S.]

Originally posted by @Chris May:

@Joshua S. @Gary Floring

Josh said "You just said last time that you see $21,000 savings on the calculator, but I'm just swapping that interest over onto the HELOC and now it's all washing out for some reason because I showed you the $21,000 in HELOC interest wasn't possible. I mean, that's legitimately what just happened, so I don't really understand."

You need to look at interest accrued per period for it to make sense. It sounds like you understood my last post about the combined interest. So that's a good step. You're relying on a calculator for future interest savings, but it's missing a piece--the HELOC. The HELOC has unknown future interest. You're missing a variable in the equation--how much principal you pay on the HELOC and when--so the comparison isn't possible. Once you fill in the missing variable, the two scenarios are the same.

I'll jump into the math later, but here's an analogy:

You take the bus to work. It's always a reliable 5 minutes each way. You plan on working there for 10 years. That means you have a total of 26,400 commute minutes in your future (5 minutes x 2 x 22 days in month x 12 months in year x 10 years).

You have a midlife crisis and switch jobs. The new job is in the same building. You tell everyone you saved 26,400 of commuting minutes by ditching that crummy job. Your friends say "but you're still commuting 10 minutes each day, you didn't save any time". To which you respond "but I decided I'm actually going to work one more year". By your math, you're only commuting another 5 x 2 x 22 x 10 = 2,200 minutes.

You changed a variable midway through so the comparison doesn't make sense. If you look at it on a per day (per period) basis, it's clear that you didn't save any commuting time.

The mortgage calculators assume you're going to take 30 years to pay off a loan. Now, you moved 10,000 to the HELOC and say "it only cost me $40 per month" and "I decided I'm actually going to pay this balance off in 4 months" so it only cost me $160. For an accurate comparison, you need a customized amortization table that only assumed 4 months of interest on that $10,000.

Once you do that, the phantom "savings" net out. You didn't save anything by moving the $10,000 to a HELOC. The only thing that saved interest was paying cash.

Right, that's my exact point to you, Chris. You're saying that the friends are right about the commute, but who wouldn't acknowledge if the guy corrected himself and said he is only working for one more year? Everyone would say, ok, great. So, changing jobs didn't save you on your commute, but changing the length of your career did. Once you understand the full picture of what the guy did, HE DID ULTIMATELY SAVE ON HIS COMMUTE. You're too fixated on the math and trying to make a direct comparison to see the real world results. And then you're calling the guy a dummy because he originally said it was due to the change in jobs. That was a mistake in explanation, not in calculating the results.

So, you're proving my point. By switching the $10,000 from the mortgage to the HELOC, you're not changing the rate you pay on interest (actually, you're going up in rate), but you are changing the rate IN SPEED that you can comfortably pay.

Old way of paying $10,000: 2.5 years and $21,000 in interest if you leave it on the mortgage.

New way of paying $10,000: 10 months and $400 in interest if you put it in the HELOC and use all of your income.

So, I'll do your analogy one better. Everything is the same except the guy's new job is in a building that's a little further away (higher interest rate). Now he's working for one more year and his total commute is 4,400 minutes. But he still saved on total commute vs ten years in the other building, you were just too fixated on his explanation of why (and for some reason saying it's not okay to clarify or update variables to get a proper comparison) to see it.

See, YOU'RE the one trying to keep everything in a little box and saying that everything else being equal, $10,000 on the mortgage is the same as $10,000 on the HELOC, because you're too fixated on the math to see that there are other important variables at play. Everything else ISN'T EQUAL. You take a shorter time to pay it off. If you can't allow for that variable, then what is the point of comparing anything at all? The whole point of comparison is to see the change in results when all the differences are accounted for.

So, going back to the analogy, you're saying that the guy didn't save on his commute because he explained it wrong the first time around. You are wrong. He did ultimately save on his commute, he just explained it wrong and you won't accept the updated information.

[Arch Ross]

This basically let's you put ALL your income into paying down your mortgage, but if you need money you have a line of credit.  I have about 10% of my outstanding mortgage available but am afraid to pay down in case I need the money. 

[Joshua S.]

Originally posted by @Chris May:

OK, math time. 

200k mortgage. 5%. 30 years. Monthly payment is $1,073.64.

Month 1: Transfer $10,000 to a HELOC at 5% interest. Monthly interest is $41.67. Let's assume you only pay the HELOC interest. Your combined payment is $1,151.

• Homework - Plug these two scenarios into a mortgage calculator:
  • #1 - One time extra payment of $10,000. Total interest is: $155,383. Payback: 322 months.
  • #2 - Instead of a one time payment, add $41.67 to every monthly payment. Total interest: $168, 836. Payback: 331 months.
• The difference in interest between #1 and #2 is ~$13,500, but you're missing a piece--the $41.67 you paid every month on the HELOC. 41.67 * 322 = $13,417.
• #1 finishes 9 months ahead of #2 but you haven't paid the HELOC yet. Since your mortgage is done, you have an extra $1,073 per month. Pay that towards the HELOC balance. It will take you 9.5 months, and cost you $221 in interest.

So, as I keep saying, what matters is when you pay off the HELOC. If you just take whatever payments you're making to the HELOC, but apply them to the mortgage instead, it's a wash. The reason your total interest on the mortgage comes down is because you're paying 41.67 extra every month. The $10,000 transfer to the HELOC in month one doesn't have any impact.

Chris, as I said in my other post, I think the key to this whole thing is setting the HELOC aside completely and understanding where the savings come from when you make an additional principal payment. The HELOC aspect seems to be obfuscating the source of the savings from paying extra principal.

Could you just do me a favor and show the calculations of savings from paying additional principal (from income, bonuses, inheritance, lottery winnings, etc.) that match up with the calculator? I'd like to see your explanation of how much you save and where the savings come from when you get a $10,000 lump sum from wherever and plunk it on the mortgage. 

[Chris May]

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

[Steven D.]

Oh man it's just amazing. Don't get caught up on the math that actually explains what is happening, just focus on my hypothetical situations. I got this money and skipped a bunch of mortgage interest payments. But you had to pay back that money + interest? Don't focus on that that's irrelevant I skipped interest payments. 

[Chris May]

Originally posted by @Steven D.:

Oh man it's just amazing. Don't get caught up on the math that actually explains what is happening, just focus on my hypothetical situations. I got this money and skipped a bunch of mortgage interest payments. But you had to pay back that money + interest? Don't focus on that that's irrelevant I skipped interest payments. 

Josh is trying do the Tour de France on a tricycle--and he's never ridden a bike before. 

Those online mortgage calculators are for quick, simple mortgage math. They have a million assumptions built into them (the most important one: payments are made with cash, not debt). This is complicated financial math... need to use the right tool for the job.

[Joshua S.]

Originally posted by @Chris May:

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

Chris, that IS the takeaway. You're good at math, that's great. But if you would truly hear the guy say he cut down the commute by switching jobs and then not accept when he said, "Oh, sorry, I guess I should've mentioned the other job is a one year contract, so that's how I'm really saving on my commute", then it's really got nothing to do with math, you're just being rude and not listening. You might roll your eyes or chuckle that he thought initially he saved on commute by switching jobs, but he was right about the end results.

The reason I'm saying you're too wrapped up in the math is because you yourself admitted - you wrote a whole post admitting - that unless it's a direct comparison and everything else is equal, then it's somehow not a true comparison. I think that's a convenient way for you to ignore the variables that I'm talking about that make the two situations different. You seem like a smart guy, so the only conclusion I can come to is that you're deliberately acting obtuse because you don't want to end up wrong because you overlooked some important aspect. I understand apples to apples comparisons, but this isn't one. I'm saying that this is an orange and here are some of the differences between an orange and an apple. See, apples are great, Chris, but this is an orange and it's got fiber like your apple, but also it's got vitamin C and stuff. Cool, right? No, it's not cool, Josh. Comparing something that might have different benefits is not fair. If you're going to compare fruit, go get another apple to compare to my apple so it's a level playing field.

Who's a better baseball team, the Cubs or the Sox? I don't know, Chris told me we're not allowed to compare and contrast the differences or do any real world comparisons because they're both baseball teams with the same amount of players in the same city. He just wants to leave it at that. You mean you can't look at the different variables and stats and try to see who is better? No, Chris said they look the same on the surface, so they are exactly the same no matter what. I think he's been saying they are equal for a couple years and his ego is wrapped up it, so he doesn't want anybody to find out they are different.

Anyway, I'm happy to leave it here, too. I'm actually happy about the way this turned out to be honest. When I found out about it I sort of felt like I would feel guilty not explaining it to friends and family and stuff, but didn't know how they would take it, so I think that's why I reached out on here to try to help people understand it. But after seeing "a dozen super smart people" or whatever struggle with it, I feel like at least I tried and I'm totally happy to do it and just keep it to myself. I'll try to come back and let you know about all the money I'm saving at some point, though, when I'm a bit deeper in. Good luck to you, too.

[Chris May]

Originally posted by @Joshua S.:

Originally posted by @Chris May:

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

Chris, that IS the takeaway. You're good at math, that's great. But if you would truly hear the guy say he cut down the commute by switching jobs and then not accept when he said, "Oh, sorry, I guess I should've mentioned the other job is a one year contract, so that's how I'm really saving on my commute", then it's really got nothing to do with math, you're just being rude and not listening. You might roll your eyes or chuckle that he thought initially he saved on commute by switching jobs, but he was right about the end results.

The reason I'm saying you're too wrapped up in the math is because you yourself admitted - you wrote a whole post admitting - that unless it's a direct comparison and everything else is equal, then it's somehow not a true comparison. I think that's a convenient way for you to ignore the variables that I'm talking about that make the two situations different. You seem like a smart guy, so the only conclusion I can come to is that you're deliberately acting obtuse because you don't want to end up wrong because you overlooked some important aspect. I understand apples to apples comparisons, but this isn't one. I'm saying that this is an orange and here are some of the differences between an orange and an apple. See, apples are great, Chris, but this is an orange and it's got fiber like your apple, but also it's got vitamin C and stuff. Cool, right? No, it's not cool, Josh. Comparing something that might have different benefits is not fair. If you're going to compare fruit, go get another apple to compare to my apple so it's a level playing field.

Who's a better baseball team, the Cubs or the Sox? I don't know, Chris told me we're not allowed to compare and contrast the differences or do any real world comparisons because they're both baseball teams with the same amount of players in the same city. He just wants to leave it at that. You mean you can't look at the different variables and stats and try to see who is better? No, Chris said they look the same on the surface, so they are exactly the same no matter what. I think he's been saying they are equal for a couple years and his ego is wrapped up it, so he doesn't anybody to find out they are different.

Anyway, I'm happy to leave it here, too. I'm actually happy about the way this turned out to be honest. When I found out about it I sort of felt like I would feel guilty not explaining it to friends and family and stuff, but didn't know how they would take it, so I think that's why I reached out on here to try to help people understand it. But after seeing "a dozen super smart people" or whatever struggle with it, I feel like at least I tried and I'm totally happy to do it and just keep it to myself. I'll try to come back and let you know about all the money I'm saving at some point, though, when I'm a bit deeper in. Good luck to you, too.

 It's not a one year contract, he decided after switching jobs that he only wants to work a year. If he had just decided to stay at his current job and only work a year THE SAVINGS ARE THE SAME.

[Jeremy Z.]

@Joshua S.

Old way of paying $10,000: 2.5 years and $21,000 in interest if you leave it on the mortgage.

New way of paying $10,000: 10 months and $400 in interest if you put it in the HELOC and use all of your income.

This is the mistake you have been making repeatedly. Why do you think one method takes 2.5 years and the other takes 10 months? The answer is because you aren't actually putting real numbers to the amount you are paying each month in those scenarios. If you truly determined how much you pay toward your HELOC after all is said and done each month, and then ran a scenario where you paid that much against your mortgage each month, you would see that it comes out roughly the same. There could be some minor variance due to average daily balance or rate differences, but certainly not the 20 months you claim.

Use the HELOC approach if you want to. But if you don't assign real numbers to both scenarios you are just making up numbers and spreading misinformation/confusion. I agree with @Chris May, learning financial math would be very useful for you. The amortization calculators you are using are great, but they can be misused or misleading if you don't have a full understanding of the math principles.

[Jeremy Z.]

Originally posted by @Joshua S.:

Originally posted by @Chris May:

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

Chris, that IS the takeaway. You're good at math, that's great. But if you would truly hear the guy say he cut down the commute by switching jobs and then not accept when he said, "Oh, sorry, I guess I should've mentioned the other job is a one year contract, so that's how I'm really saving on my commute", then it's really got nothing to do with math, you're just being rude and not listening. You might roll your eyes or chuckle that he thought initially he saved on commute by switching jobs, but he was right about the end results.

The reason I'm saying you're too wrapped up in the math is because you yourself admitted - you wrote a whole post admitting - that unless it's a direct comparison and everything else is equal, then it's somehow not a true comparison. I think that's a convenient way for you to ignore the variables that I'm talking about that make the two situations different. You seem like a smart guy, so the only conclusion I can come to is that you're deliberately acting obtuse because you don't want to end up wrong because you overlooked some important aspect. I understand apples to apples comparisons, but this isn't one. I'm saying that this is an orange and here are some of the differences between an orange and an apple. See, apples are great, Chris, but this is an orange and it's got fiber like your apple, but also it's got vitamin C and stuff. Cool, right? No, it's not cool, Josh. Comparing something that might have different benefits is not fair. If you're going to compare fruit, go get another apple to compare to my apple so it's a level playing field.

Who's a better baseball team, the Cubs or the Sox? I don't know, Chris told me we're not allowed to compare and contrast the differences or do any real world comparisons because they're both baseball teams with the same amount of players in the same city. He just wants to leave it at that. You mean you can't look at the different variables and stats and try to see who is better? No, Chris said they look the same on the surface, so they are exactly the same no matter what. I think he's been saying they are equal for a couple years and his ego is wrapped up it, so he doesn't want anybody to find out they are different.

Anyway, I'm happy to leave it here, too. I'm actually happy about the way this turned out to be honest. When I found out about it I sort of felt like I would feel guilty not explaining it to friends and family and stuff, but didn't know how they would take it, so I think that's why I reached out on here to try to help people understand it. But after seeing "a dozen super smart people" or whatever struggle with it, I feel like at least I tried and I'm totally happy to do it and just keep it to myself. I'll try to come back and let you know about all the money I'm saving at some point, though, when I'm a bit deeper in. Good luck to you, too.

 You also seem to keep switching back and forth from, "Ok, the results are the same, but there is nothing wrong with my method" to, "My method pays off debt way faster".

[Joshua S.]

Originally posted by @Chris May:

Originally posted by @Joshua S.:

Originally posted by @Chris May:

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

Chris, that IS the takeaway. You're good at math, that's great. But if you would truly hear the guy say he cut down the commute by switching jobs and then not accept when he said, "Oh, sorry, I guess I should've mentioned the other job is a one year contract, so that's how I'm really saving on my commute", then it's really got nothing to do with math, you're just being rude and not listening. You might roll your eyes or chuckle that he thought initially he saved on commute by switching jobs, but he was right about the end results.

The reason I'm saying you're too wrapped up in the math is because you yourself admitted - you wrote a whole post admitting - that unless it's a direct comparison and everything else is equal, then it's somehow not a true comparison. I think that's a convenient way for you to ignore the variables that I'm talking about that make the two situations different. You seem like a smart guy, so the only conclusion I can come to is that you're deliberately acting obtuse because you don't want to end up wrong because you overlooked some important aspect. I understand apples to apples comparisons, but this isn't one. I'm saying that this is an orange and here are some of the differences between an orange and an apple. See, apples are great, Chris, but this is an orange and it's got fiber like your apple, but also it's got vitamin C and stuff. Cool, right? No, it's not cool, Josh. Comparing something that might have different benefits is not fair. If you're going to compare fruit, go get another apple to compare to my apple so it's a level playing field.

Who's a better baseball team, the Cubs or the Sox? I don't know, Chris told me we're not allowed to compare and contrast the differences or do any real world comparisons because they're both baseball teams with the same amount of players in the same city. He just wants to leave it at that. You mean you can't look at the different variables and stats and try to see who is better? No, Chris said they look the same on the surface, so they are exactly the same no matter what. I think he's been saying they are equal for a couple years and his ego is wrapped up it, so he doesn't anybody to find out they are different.

Anyway, I'm happy to leave it here, too. I'm actually happy about the way this turned out to be honest. When I found out about it I sort of felt like I would feel guilty not explaining it to friends and family and stuff, but didn't know how they would take it, so I think that's why I reached out on here to try to help people understand it. But after seeing "a dozen super smart people" or whatever struggle with it, I feel like at least I tried and I'm totally happy to do it and just keep it to myself. I'll try to come back and let you know about all the money I'm saving at some point, though, when I'm a bit deeper in. Good luck to you, too.

 It's not a one year contract, he decided after switching jobs that he only wants to work a year. If he had just decided to stay at his current job and only work a year THE SAVINGS ARE THE SAME.

Chris, I honestly want to be done with this now, I'm trying to end it on a positive note, but here's something a little bit unrelated for everyone to ponder.

When you refinance, there are a lot of different reasons to do so. You might want a lower rate, you might want your cash out, you might want a lower payment, some combination of those, right? But ultimately you are swapping debt for other debt on different terms. There's a lower payment, you're paying it back faster or slower (10, 15, 30 year), you get a better interest rate, you walked with cash to do something else, something is different that works for you and maybe you are sacrificing something to get something else that you wanted more. Maybe you lowered your payment but extended your mortgage and that was the best end result for you. People do things all the time that are counterintuitive or "wrong", but they needed or wanted the end result bad enough. The act of swapping debt for other debt isn't by default a bad or stupid thing to do, it's a calculated decision based on what your needs are at that time. Maybe you don't even care that much about your terms, but you want to be with a different lender because you think that might improve your situation. There are tons of reason to "swap debt for other debt" that have nothing to do with math.

My point is, there is a lot more to this (and every situation) than math. You studied math, so you think it's everything, but it's not plain and simple. Math can figure out the numbers - awesome. But it can't account for all the intangibles or other aspects that a person might be considering. That's what you are refusing to look at, so obviously this couldn't truly go anywhere. All I can say is that I hope you see someday that there is more to a decision than calculations. As I said, good luck and take care.

[Chris May]

Originally posted by @Joshua S.:

Originally posted by @Chris May:

Originally posted by @Joshua S.:

Originally posted by @Chris May:

@Joshua S. I'm sorry, but if that was your takeaway from that analogy, then you're not going to get this. 

Respectfully, I'm done doing math for your.

I mean this with all sincerity: please teach yourself some Excel skills and really get into the weeds of financial math if this is something that interests you.

I'm not getting "stuck in the math". The math is literally all there is.

A dozen people on this thread are trying to explain it to you, but you keep looking at it through this lens of "somehow I must be right." If your accept that you're probably wrong, because a chorus of smart people are saying so, then go back and read through the thread, combined with your new Excel and financial math skills, I'm confident it'll click.

Good luck, man.

Chris, that IS the takeaway. You're good at math, that's great. But if you would truly hear the guy say he cut down the commute by switching jobs and then not accept when he said, "Oh, sorry, I guess I should've mentioned the other job is a one year contract, so that's how I'm really saving on my commute", then it's really got nothing to do with math, you're just being rude and not listening. You might roll your eyes or chuckle that he thought initially he saved on commute by switching jobs, but he was right about the end results.

The reason I'm saying you're too wrapped up in the math is because you yourself admitted - you wrote a whole post admitting - that unless it's a direct comparison and everything else is equal, then it's somehow not a true comparison. I think that's a convenient way for you to ignore the variables that I'm talking about that make the two situations different. You seem like a smart guy, so the only conclusion I can come to is that you're deliberately acting obtuse because you don't want to end up wrong because you overlooked some important aspect. I understand apples to apples comparisons, but this isn't one. I'm saying that this is an orange and here are some of the differences between an orange and an apple. See, apples are great, Chris, but this is an orange and it's got fiber like your apple, but also it's got vitamin C and stuff. Cool, right? No, it's not cool, Josh. Comparing something that might have different benefits is not fair. If you're going to compare fruit, go get another apple to compare to my apple so it's a level playing field.

Who's a better baseball team, the Cubs or the Sox? I don't know, Chris told me we're not allowed to compare and contrast the differences or do any real world comparisons because they're both baseball teams with the same amount of players in the same city. He just wants to leave it at that. You mean you can't look at the different variables and stats and try to see who is better? No, Chris said they look the same on the surface, so they are exactly the same no matter what. I think he's been saying they are equal for a couple years and his ego is wrapped up it, so he doesn't anybody to find out they are different.

Anyway, I'm happy to leave it here, too. I'm actually happy about the way this turned out to be honest. When I found out about it I sort of felt like I would feel guilty not explaining it to friends and family and stuff, but didn't know how they would take it, so I think that's why I reached out on here to try to help people understand it. But after seeing "a dozen super smart people" or whatever struggle with it, I feel like at least I tried and I'm totally happy to do it and just keep it to myself. I'll try to come back and let you know about all the money I'm saving at some point, though, when I'm a bit deeper in. Good luck to you, too.

 It's not a one year contract, he decided after switching jobs that he only wants to work a year. If he had just decided to stay at his current job and only work a year THE SAVINGS ARE THE SAME.

Chris, I honestly want to be done with this now, I'm trying to end it on a positive note, but here's something a little bit unrelated for everyone to ponder.

When you refinance, there are a lot of different reasons to do so. You might want a lower rate, you might want your cash out, you might want a lower payment, some combination of those, right? But ultimately you are swapping debt for other debt on different terms. There's a lower payment, you're paying it back faster or slower (10, 15, 30 year), you get a better interest rate, you walked with cash to do something else, something is different that works for you and maybe you are sacrificing something to get something else that you wanted more. Maybe you lowered your payment but extended your mortgage and that was the best end result for you. People do things all the time that are counterintuitive or "wrong", but they needed or wanted the end result bad enough. The act of swapping debt for other debt isn't by default a bad or stupid thing to do, it's a calculated decision based on what your needs are at that time. Maybe you don't even care that much about your terms, but you want to be with a different lender because you think that might improve your situation. There are tons of reason to "swap debt for other debt" that have nothing to do with math.

My point is, there is a lot more to this (and every situation) than math. You studied math, so you think it's everything, but it's not plain and simple. Math can figure out the numbers - awesome. But it can't account for all the intangibles or other aspects that a person might be considering. That's what you are refusing to look at, so obviously this couldn't truly go anywhere. All I can say is that I hope you see someday that there is more to a decision than calculations. As I said, good luck and take care.

I agree that there are a million reasons to make a decision that don't involve math. There are valid reasons to use a HELOC instead of a mortgage.

I disagree that there is anything subjective about calculating interest. It's only math. That's what this thread is about. Moving debt to a HELOC does not save on interest charges. This conclusion can only be reached with math. There is nothing subjective about it.

[Jeremy Z.]

@Joshua Smith

You came to this thread stating that a HELOC is "super cheap money" and that a mortgage is "really expensive money". The people responding to you have used examples to demonstrate that simply isn't true. No one said that your method won't accelerate paying down your mortgage, just that it isn't a magic bullet that allows you to pay your mortgage faster than other methods of accelerated payment.

No one is saying that people's situations aren't different. Or that they can't use whatever approach feels best for them. But we do feel it is important to refute misinformation.

Amortization calculators are a great tool. The Bankrate calculator has an "extra payments" section that is very useful. Determine how much you actually pay each month toward your HELOC to pay it off in 10 months (I know that can be a bit of a challenge if you put your paycheck in there and then pay bills out of it, but it's doable). Now, plug that amount into the "to your monthly mortgage payment" field in the Extra Payments section and you can see right on the amortization table that the amount will be reduced by $10,000 in roughly 10 months. If it doesn't, double check to make sure you accurately determined how much you paid toward your HELOC each month after paying out expenses. Not how much interest you paid toward your HELOC, or principle, but total amount you paid toward it.

The numbers don't lie. We're not telling you to use the math because we are saying your method is bad. We're doing it to clear up misconception and bad information. You sound like you are paying down debt quickly. That's great. Understanding the numbers might arm you with the information you need to pay it down even faster!

[Jeremy Z.]

As a follow up to my previous post, in 10 months you will have paid down the mortgage by $10,000 plus the amount paid down by your normal scheduled payments. Same thing happens when you pay down the HELOC - your regular mortgage payments also continue to reduce your principal balance.

I went ahead and did the math. In order to pay a $10,000 HELOC at 5% interest off in 10 months, you need to pay $1,023 toward it each month. Plug that number into Bankrate's "to your monthly mortgage payment" field in the Extra Payments section and check the results.