Home equity line of credit

[Serg Kap]

Very new to me. HELOC

Who else has taken a "home equity line of credit " in order to speed up the process of paying off home earlier. I heard you can pay off your home 5-7 years. 

New to me would like to hear some wisdom in the area of HELOC thank you

[David Vernich]

A HELOC is a line of credit secured by your personal residence and these loans typically have a variable interest rate. The bank I work for had a really good deal last year. First year teaser rate was 1.99% for 12 months and the remaining nine years of the term of the HELOC had a rate pegged to the Prime Rate (currently 3.75%). There is no magic in using a HELOC to pay off your home mortgage any earlier. Simply make additional payments towards principal and you will accomplish the same thing. If the Prime Rate goes up 0.25% every few months when the Federal Reserve meets, your HELOC interest rate can exceed your 30 year fixed rate (historically, HELOC rates were higher than first mortgage rates since the lender was in second lien position behind the mortgage lender so they were taking more of a risk in the event of a default) so now YOU would be taking on the unnecessary interest rate risk in a rising rate environment. If the HELOC rate is not substantially below your fixed rate, then I would recommend you keep your fixed rate loan and make extra principal payments which is what you would be doing on the HELOC to pay it off in 5 - 7 years. The magic in paying off debt earlier is due to rapid principal reduction, not shaving a quarter or half a point off the interest rate.