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?

[Jeremy Z.]

@Thierry Enongene

Seems like a creative way to eliminate the PMI you are paying. Conventional mortgages have a request process for getting PMI removed early, but it usually involves paying for a full appraisal. If getting a HELOC or other loan allows you to accomplish the same thing at a lower cost, I say go for it!

[Brent Coombs]

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

[Thierry Enongene]

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

[Joshua S.]

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

I'll translate for Brent. Basically he's saying that if you get an appraisal and it shows that you're at 80% after your expected appreciation, why would you need to go and get a HELOC to pay down your loan to get to that 80% mark? In other words, it may be that you just need the appraisal to get you to 80%, not both the HELOC and the appraisal. That's a fair point, but at least in my experience when I applied for the HELOC I got an appraisal that I never had to pay for, so that's a reason to apply right there, in my opinion.

Brent talks in gibberish, but he actually has a good point that I didn't realize. If you truly have appreciated to the point where you have an 80% LTV then you just need to get an appraisal and prove it at which time the bank should drop your PMI. I would still apply for a HELOC just to get the appraisal and then you're already on that path if your LTV comes in high and you end up wanting the HELOC, anyway, but that's just me.

[Brent Coombs]

@Thierry Enongene, yes, I was "suggesting that (you) petition (your) current lender to re-appraise the home to take the PMI off". Mind you, if its value has only gone up 8% in 2.5 years, that would be considered by many as mediocre growth rather than being thought of as being "in a high growth area". And if you only had 3.5% negligible equity to begin with, it's not surprising that you're getting impatient. [All the more reason to never get carried away with how much you pay for your primary in the first place, rather than only buying bargains!] What puts me in the "against" camp regarding borrowing even more against your home at this point in time, is that it's unnecessary! If you're convinced you could pay down a HELOC as well as your mortgage, then taking out an extra line of credit with your home as security, when the only reason you want to do so is to help you discipline yourself to hasten your debt pay down on that same home, can be considered wishy washy (mamby pamby, half-hearted, indecisive)...

ie. Instead, be bold! Start making extra principal-only payments next pay day, and every pay!

[Cara Lonsdale]

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

If you are not at at least 80% LTV, then most likely, you won't be able to get a HELOC. And the cost for obtaining one would probably be cost prohibitive compared to just paying the remaining 4 years on your PMI, which should be smaller by now compared to the original PMI payments you were making at the beginning of the loan.

Also, it is important to note that just petitioning the current lender to remove the PMI doesn't do that automatically. Most loan docs stipulate that the 80% LTV is based on the ORIGINAL purchase price. IF the lender allows for a re-valuation, it usually means that you will incur the expense of an appraisal. Keep in mind, the lender picks the appraiser. So, if you are on the fence about your value, the appraiser will not be stretching value for you.

[Jeremy Z.]

@Thierry Enongene

I think a couple of posters here are misinterpreting you. If I read your posts correctly, you have more than 20% equity based on the current market value of your home (as opposed to the 86% LTV based on your original amortization schedule). If you can get a HELOC without having to pay for the valuation (or even if you have to pay a small fee) then I think that would be a good way to avoid the cost involved with a full appraisal (i.e. petitioning your existing mortgage lender) and the risk that the appraisal might come in low. Or, like @Joshua S. said, you could even consider a personal line of credit. Just make sure the interest and fees involved with any HELOC or LOC you consider are lower than the cost of petitioning your existing lender or paying the interest+PMI as scheduled. At $200/mo or even $100/mo for the PMI, it seems like that could very well be possible.

[Michael Mullins]

I’ve been using Bill @ Truth in Equity. We just paid off our rental first with that strategy, but for it to work you have to have positive cash flow. If you don’t it doesn’t work.

We are now working on our primary house and will have that paid off in 3 years.

[Joshua S.]

Originally posted by @Cara Lonsdale:

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

If you are not at at least 80% LTV, then most likely, you won't be able to get a HELOC. And the cost for obtaining one would probably be cost prohibitive compared to just paying the remaining 4 years on your PMI, which should be smaller by now compared to the original PMI payments you were making at the beginning of the loan.

Also, it is important to note that just petitioning the current lender to remove the PMI doesn't do that automatically. Most loan docs stipulate that the 80% LTV is based on the ORIGINAL purchase price. IF the lender allows for a re-valuation, it usually means that you will incur the expense of an appraisal. Keep in mind, the lender picks the appraiser. So, if you are on the fence about your value, the appraiser will not be stretching value for you.

Sorry to differ with you, but your first paragraph is not necessarily correct. I got a HELOC with around 84% LTV recently, so the 80% mark doesn't necessarily mean anything. To be fair, though, I have nearly perfect credit, good debt to income ratio, low credit usage, etc. so those may be factors. Second, there was no cost to get the HELOC. They appraised the house and waived all origination fees with the stipulation that I keep the loan open for at least 3 years. If I close it before then I need to reimburse them around $291. Third, not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV.

Second paragraph, I agree, I think he should contact his lender and see what their procedure is if he hasn't already. It's guesswork until he knows exactly how they handle this. But this is why I was suggesting applying for the HELOC with someone who will waive fees and appraise the home for him. Then he will at least have the information about his true / current LTV. I don't know if his current lender would accept an appraisal done for another lender, but he could tell them he had it done (leaving out the part about the HELOC) and ask if they would accept it. You'd think if it was done by a licensed residential appraiser it wouldn't matter who it was, but they might have a rule about it or something. At least he'd know if it was worth paying for an appraisal through his lender if they forced him, though.

[Thierry Enongene]

Thanks for the insights guys, greatly appreciated. I'll just inquire with my lender first and see how it goes.

[Cara Lonsdale]

Originally posted by @Joshua S.:

Originally posted by @Cara Lonsdale:

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

If you are not at at least 80% LTV, then most likely, you won't be able to get a HELOC. And the cost for obtaining one would probably be cost prohibitive compared to just paying the remaining 4 years on your PMI, which should be smaller by now compared to the original PMI payments you were making at the beginning of the loan.

Also, it is important to note that just petitioning the current lender to remove the PMI doesn't do that automatically. Most loan docs stipulate that the 80% LTV is based on the ORIGINAL purchase price. IF the lender allows for a re-valuation, it usually means that you will incur the expense of an appraisal. Keep in mind, the lender picks the appraiser. So, if you are on the fence about your value, the appraiser will not be stretching value for you.

Sorry to differ with you, but your first paragraph is not necessarily correct. I got a HELOC with around 84% LTV recently, so the 80% mark doesn't necessarily mean anything. To be fair, though, I have nearly perfect credit, good debt to income ratio, low credit usage, etc. so those may be factors. Second, there was no cost to get the HELOC. They appraised the house and waived all origination fees with the stipulation that I keep the loan open for at least 3 years. If I close it before then I need to reimburse them around $291. Third, not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV.

Second paragraph, I agree, I think he should contact his lender and see what their procedure is if he hasn't already. It's guesswork until he knows exactly how they handle this. But this is why I was suggesting applying for the HELOC with someone who will waive fees and appraise the home for him. Then he will at least have the information about his true / current LTV. I don't know if his current lender would accept an appraisal done for another lender, but he could tell them he had it done (leaving out the part about the HELOC) and ask if they would accept it. You'd think if it was done by a licensed residential appraiser it wouldn't matter who it was, but they might have a rule about it or something. At least he'd know if it was worth paying for an appraisal through his lender if they forced him, though.

When was your HELOC completed? I mean what year? What state? Was it on a primary residence or investment property? Lending rules are changing all the time, and depend on specific situations. So, it is impossible to suggest that someone could get the same thing that you got.

You are right. If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years. However, many of them taper off after so many years. A PMI that was once $250 per month on year 1, may be $120 by year 8.

Primary residence may get you a higher LTV for a HELOC. But not many lenders will offer a 2nd for an investment property.

So, as you can tell, there are many variables to come to an answer.  No blanket answer here.

[Joshua S.]

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

Sorry, Thierry, I just caught this misunderstanding. Yes, everyone is suggesting that you contact your current lender to ask if they will take the PMI off of your loan based on your appreciation. My lender uses 70% for whatever reason, but they have told me that I can pay for an appraisal and if it shows I am at 70% or lower they will drop the PMI. Your lender may work differently, but that's why everyone was trying to make sure you were calling them to get the procedure from the horse's mouth.

So, to clarify, here's what I would do. I would call and make sure they will do what we are describing for sure (likely they will) and ask if they will accept any appraisal or if they only accept one from companies they work with. If they say they will accept any licensed appraisal I would figure out a HELOC lender that will waive your appraisal and origination fees and have the property appraised for free. Then contact the original lender to prove your LTV is low enough and get your PMI dropped if your appraisal comes back high enough. Then you can proceed with the HELOC if you are approved or ditch it if you change your mind.

[Joshua S.]

Originally posted by @Cara Lonsdale:

Originally posted by @Joshua S.:

Originally posted by @Cara Lonsdale:

Originally posted by @Thierry Enongene:

Originally posted by @Brent Coombs:

Originally posted by @Thierry Enongene:

Originally posted by @Joshua S.:

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

You may want to check with your lender that your target is 80%, because I have PMI on one of my loans and their website says they will take it off when I reach 70%. I'm not sure why that is, but it's their rule. The other place you can look for more equity / lower LTV is in your appreciation depending on how long you have had the property. Again, this is the case with my lender, but they say you can pay for an appraisal and if your home has appreciated, that will add to your equity as well.

Secondly, if you are paying PMI you might not be able to find a lender that will give you a HELOC since you may not have the equity. But in this case you could also try a personal line of credit. The interest rate will be higher, but especially if you are able to avoid years of paying for PMI, it would still work in your favor. I know I'm in the "for" crowd, just thought I would throw this out there. Good luck.

Yes the target is 80%. The thing is the actual loan it not at 80% LTV, but the value of the home is significantly more, thanks to pretty good appreciation from the past 2.5 years or so since purchase. I think an appraisal would be required if a lender was to grant a heloc, to kinda get the real market value of the home on the record or something along those lines. We are in fact in a high growth area. Anyway I will just need inquire with lenders and check if they do grant them. But my thinking included the projected new appraised value to be considered as equity.

If "the value of the home is significantly more" (than you paid), won't you already have 20%+ equity? ie. If their appraisal will show that you already owe less than 80% of its current value, why wouldn't they remove the PMI (without you artificially paying for extra equity)? 

[Conversely, if you're not at 20%+ equity yet, then how much did you over pay 2.5 years ago?]...

Well I'm not at 80% LTV with my original loan. I guess per the lender, everything is still based on the original transaction. My actual documents show right now LTV is 86% , and the PMI is scheduled to fall off October 2022. Again, I don't cherish the concept of paying the premium that long, it feels like I'm throwing money away.

I'm not quite sure if I follow what you are saying. The Heloc and the mortgage will prob not be from the same lender. Unless you are suggesting that I petition my current lender to re-appraise the home to take the PMI off. I guess I never thought about it that way, but is that something mortgage lenders even allow? But yes, based on the true value of the home now, we should be below the 80% mark.

Also to follow up on Josh's point, the value I am using is the one determined by the county recently for next year's tax assessment (ouch) , not zillow and the like. Although zillow has it 10k more than the county does, but I'd rather be conservative. But it has appreciated about 8% or so, and that's why i was thinking about the heloc to wipe out the remaining 6% and save the 4 years of PMI left to pay.

If you are not at at least 80% LTV, then most likely, you won't be able to get a HELOC. And the cost for obtaining one would probably be cost prohibitive compared to just paying the remaining 4 years on your PMI, which should be smaller by now compared to the original PMI payments you were making at the beginning of the loan.

Also, it is important to note that just petitioning the current lender to remove the PMI doesn't do that automatically. Most loan docs stipulate that the 80% LTV is based on the ORIGINAL purchase price. IF the lender allows for a re-valuation, it usually means that you will incur the expense of an appraisal. Keep in mind, the lender picks the appraiser. So, if you are on the fence about your value, the appraiser will not be stretching value for you.

Sorry to differ with you, but your first paragraph is not necessarily correct. I got a HELOC with around 84% LTV recently, so the 80% mark doesn't necessarily mean anything. To be fair, though, I have nearly perfect credit, good debt to income ratio, low credit usage, etc. so those may be factors. Second, there was no cost to get the HELOC. They appraised the house and waived all origination fees with the stipulation that I keep the loan open for at least 3 years. If I close it before then I need to reimburse them around $291. Third, not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV.

Second paragraph, I agree, I think he should contact his lender and see what their procedure is if he hasn't already. It's guesswork until he knows exactly how they handle this. But this is why I was suggesting applying for the HELOC with someone who will waive fees and appraise the home for him. Then he will at least have the information about his true / current LTV. I don't know if his current lender would accept an appraisal done for another lender, but he could tell them he had it done (leaving out the part about the HELOC) and ask if they would accept it. You'd think if it was done by a licensed residential appraiser it wouldn't matter who it was, but they might have a rule about it or something. At least he'd know if it was worth paying for an appraisal through his lender if they forced him, though.

When was your HELOC completed? I mean what year? What state? Was it on a primary residence or investment property? Lending rules are changing all the time, and depend on specific situations. So, it is impossible to suggest that someone could get the same thing that you got.

You are right. If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years. However, many of them taper off after so many years. A PMI that was once $250 per month on year 1, may be $120 by year 8.

Primary residence may get you a higher LTV for a HELOC. But not many lenders will offer a 2nd for an investment property.

So, as you can tell, there are many variables to come to an answer.  No blanket answer here.

It was completed last year on my primary on the east coast. Yeah, that's all I really meant, that there are many variables and you can't necessarily assume there will be costs for the HELOC and whatnot. Cheers.

[Brent Coombs]

@Joshua S., you wrote: "not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV".

And Cara wrote: "If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years".

But, if you refinance out of a mandatory-PMI loan (at any time), your new (conventional or HELOC) loan need not have a PMI attached (depending on LTV), right?

ie. @ 20%+ equity, stop fiddling about trying to get an additional HELOC! Refi the whole loan!

[Nick Moriwaki]

I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.

If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.

For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.

But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.

[Joshua S.]

Originally posted by @Brent Coombs:

@Joshua S., you wrote: "not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV".

And Cara wrote: "If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years".

But, if you refinance out of a mandatory-PMI loan (at any time), your new (conventional or HELOC) loan need not have a PMI attached (depending on LTV), right?

ie. @ 20%+ equity, stop fiddling about trying to get an additional HELOC! Refi the whole loan!

HELOC no cost, refi thousands of dollars eat into your savings and start you back at 30 years.

[Brent Coombs]

Originally posted by @Joshua S.:

Originally posted by @Brent Coombs:

@Joshua S., you wrote: "not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV".

And Cara wrote: "If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years".

But, if you refinance out of a mandatory-PMI loan (at any time), your new (conventional or HELOC) loan need not have a PMI attached (depending on LTV), right?

ie. @ 20%+ equity, stop fiddling about trying to get an additional HELOC! Refi the whole loan!

HELOC no cost, refi thousands of dollars eat into your savings and start you back at 30 years.

If you want to continue paying hundreds of dollars a month PMI, "regardless of equity / LTV", it seems I can't talk you out of that. But perhaps it's not too late for Thierry?...

[Chris May]

Originally posted by @Thierry Enongene:

So guys I have read both arguments  in excess and I kinda see where both sides are coming from and it makes sense. I guess one big factor that swirls in my head regarding the arguments is how to me, it seem like one of the big differences is TIME. However, putting a dollar value to it may be a whole other discussion.  I am however trying to adopt the heloc strategy, at least just one time, because I really think it will help with my personal situation and wanted to get insight from the 'against camp' if my thinking is flawed. 

The thing is I currently have a PMI on my mortgage. I know the ideal is always for all to put 20% down, but I never had that luxury. The PMI component adds around $200 to my mortgage. I believe if I get a heloc to knock down my principal down to 80 LTV , it will wipe off the PMI right off the bat, saving me roughly 5 years of PMI payments, and approx 12k, which would have been all premium and not benefit me in anyway. At least I see the heloc as a replacement of the mortgage portion subject to PMI. All payments/extra payments will now go to the actual mortgage (aka $200 now goes to actual mortgage, not PMI). Am I flawed in adopting this strategy in this manner? Its seems intuitive to me.

On my first house, I put 10% down, had a HELOC for 10%, and financed the other 80 with a traditional mortgage. I know US Bank will go to 90% LTV, and I think Freedom Financial does too. I'm sure there are others. US Bank was a no cost loan--they paid the appraisal, origination fees... everything.

Get a HELOC for the additional 10% and use it to pay the mortgage. Of course, you'll be paying more towards your loan (regular mortgage + HELOC), but you'll be saving the $200 per month on the PMI. Makes sense to me if you can find a bank that go to the LTV you need on the HELOC.

This isn't really the "HELOC strategy" strategy being discussed on this thread though.

[Joshua S.]

Originally posted by @Brent Coombs:

Originally posted by @Joshua S.:

Originally posted by @Brent Coombs:

@Joshua S., you wrote: "not all PMI payments change. At least on the one loan I have with PMI the amount has been constant regardless of equity / LTV".

And Cara wrote: "If you have an old FHA loan, that MIP lasts for 10 years regardless of LTV, and many of those have the same payment for the whole 10 years".

But, if you refinance out of a mandatory-PMI loan (at any time), your new (conventional or HELOC) loan need not have a PMI attached (depending on LTV), right?

ie. @ 20%+ equity, stop fiddling about trying to get an additional HELOC! Refi the whole loan!

HELOC no cost, refi thousands of dollars eat into your savings and start you back at 30 years.

If you want to continue paying hundreds of dollars a month PMI, "regardless of equity / LTV", it seems I can't talk you out of that. But perhaps it's not too late for Thierry?...

I actually didn't mean "regardless of equity / LTV", you're right, I misspoke. What I meant was that my PMI will fall off when my equity is high enough, but it's been a steady amount the whole time. However, my PMI is only $39/month, so I'm working toward paying down principal to get rid of it, but it's not exactly an emergency and the profit on the rental more than covers it.

Should Thierry do evasive maneuvers to get rid of his PMI? Definitely.

[Steven D.]

Originally posted by @Cara Lonsdale

If you are not at at least 80% LTV, then most likely, you won't be able to get a HELOC. And the cost for obtaining one would probably be cost prohibitive compared to just paying the remaining 4 years on your PMI, which should be smaller by now compared to the original PMI payments you were making at the beginning of the loan.

PMI % is based on the original amount borrowed, it does not decrease as you pay down principal.

[Duc Ong]

Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc

Originally posted by @Nick Moriwaki:

I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.

If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.

For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.

But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.

[Jeremy Z.]

@Joshua S.

Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.

Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".

[Joshua S.]

Originally posted by @Jeremy Z.:

@Joshua S.

Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.

Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".

Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side. 

Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.

[Jeremy Z.]

Originally posted by @Joshua S.:

Originally posted by @Jeremy Z.:

@Joshua S.

Are you sure your lender requires 70% LTV for automatic PMI termination? I've only ever seen 78% quoted, and this article by the Consumer Financial Protection Bureau seems to indicate that 78% is federal law under the Homeowners Protection Act. I would follow up with your lender if you are still paying PMI and have reached 78% LTV or less.

Here is the actual Homeowners Protection Act. I didn't read through the entire document, but a quick search found 5 mentions of "78%".

Yes, I'm sure. I find it odd, too, but it's "only" $39/month and my profit on the place has more than covered it. I'm planning on having it taken off within the next 6-12 months, but I wanted to pay down some more principal before paying for an appraisal in case I'm off on the appreciation side. 

Anyway, thanks for the info, I will bring that up to them at some point and see what they say. Right now I'm at just over 80%, anyway, so it's not an issue I can press either way, but I'd obviously like to know if the target is wrong.

If I was in your position I definitely wouldn't pay for a full appraisal. Everything I am reading indicates that 78% LTV is a federal requirement. Even if there is an exception to that requirement in your case, it probably makes more sense to just wait until you pay off the next big chunk with your HELOC (as long as that gets you to 70%). A full appraisal in my market runs $700 these days. Even at $400 the numbers probably wouldn't make sense, especially since an appraisal could still come in low. Now if the lender will accept a BPO (broker price opinion) or some other inexpensive valuation, that is a different story. But I think they typically require a full appraisal.

Anyway, just thought I would offer a little unsolicited advice :) Cheers!

[Nick Moriwaki]

Originally posted by @Duc Ong:

Nick, which bank offered 90% LTV in Hawaii?
Thanks,
Duc

Originally posted by @Nick Moriwaki:

I would agree that an additional HELOC may be unnecessary and potentially less effective in your case. In my experience in Hawaii, I have worked with 1 bank that offered up to 90% LTV but I think that is very rare. Also, as mentioned, most banks will waive most of the loan origination fees associated with opening a HELOC, but I have not heard of a local bank that waives the appraisal. Doesn't hurt to ask though.

If you've been reading through the posts you'd know that I am a proponent of completely flipping your mortgage into a HELOC (i.e. - take the entire mortgage balance and swap that out for a HELOC with the same balance). I have many posts with a link to my spreadsheet to show the effectiveness of this strategy. When I get a chance I can post it again for you to take a look at and plug in your numbers or if you go through the past few pages of the thread you should be able to find a link.

For background, I started exactly where you are a few years ago - I paid 10% for a studio and was trudging my way along paying a mortgage + PMI for about a year before I found out about this HELOC strategy. I used a PLOC to knock my balance down enough to flip my remaining mortgage balance into a HELOC. The PLOC rate (7.5%) was much higher than my mortgage interest rate, but luckily I was able to take advantage of local promotional rates for HELOCs. Long story short, I used the strategy to save significant amounts of interest and put that immediately to use to get into buy and hold investing, which nets me more cash flow to facilitate the strategy.

But again, do your research and ask questions. Plug in your numbers and play around with the interest rates to see how the interest savings change based on different future scenarios. Also, many have mentioned that some banks may call the loan due if financial circumstances change and/or that they could freeze the LOC if your property value starts to dip. This paired with rising interest rates on variable rate LOCs may or may not be within your risk tolerance for my version of the strategy.

From what I've heard, Bank of Hawaii will go up to 90% LTV on owner occupant and investment properties. Currently I have one at 85% LTV. The others I've worked with are American Savings (80% LTV on owner occupant and 65% LTV on investment) and First Hawaiian Bank (80% LTV for owner occupant, but not sure about investments).