All Forum Posts by: Joshua Silver

Yes, I think you have a weird HELOC. I am just charged x amount of interest on my HELOC depending on what I have out at the time. I have a couple of them with rates between 4-8%, but the thing is that in this strategy the rate doesn't matter. What matters is that you're using otherwise dead money that's sitting in your checking or savings account to keep downward pressure on your mortgage. Using a HELOC to buy other properties is fine, but it doesn't really have anything to do with this strategy. Thanks.

That doesn't surprise me at all. I'm guessing you can't understand most of what I said. Did you want to say anything constructive or intelligent? 

Actually, Joe, regardless of how well your tenants pay down your mortgage, you lose just because you are "paying down your mortgage" instead of inheriting a bunch of free and clear properties from your family.

So, I've posted on this since around May 2018 when I first started it and I wanted to give anyone who cares an update since 2019 was my first full year doing it. For those that aren't familiar with the strategy, the idea is that you have money idly sitting in your checking account that could be helping to bring down your mortgage interest (a massive wealth killer, imo). The problem is, when you put that money toward your mortgage you no longer have it in your checking account to pay bills as they come in. So, this strategy allows you to put your money toward your mortgage, but still use it to pay your bills when they come in. What you do is open a HELOC (some people say you should do a first position HELOC, but I disagree) and essentially take a small portion of your mortgage - say $10K (I do $20K) and put it on the HELOC. Then you basically use the HELOC as your checking account - you put paychecks into it and pay bills out of it - and as long as you are making more than you're spending, the balance will gradually go down. Then you repeat the process.

Detractors have said that it's pointless because the $10K in question is still charging you the same amount of interest regardless of whether it's on your mortgage or your HELOC, but that's missing the point and ignoring the benefits of how it works in the real world. The reason the strategy works is because of the difference in how it's paid down. For example, on a $200K mortgage it takes about 3 years and around $20K in interest to pay down the $10K when you pay on the bank's schedule. When you take $10K of the balance and put it on the HELOC it takes 6-10 months and around $600 in interest to pay down. Obviously, you can see the massive savings on both time and interest. Since this is essentially a way of paying principal early, you could achieve the same type of savings just using your emergency fund / extra income to pay down your principal early, but most people don't have the savings or want to use it for this purpose. This strategy allows you to pay principal early and save a bunch of time and money without using your own savings. You're simply rearranging the way you do your banking.

And if nothing else, think about your money sitting your checking account every month just waiting to do it's job. We're supposed to be investors who put our money to work. Would you run a business and let your employees sit around all day? This strategy - even if you can't get your head around anything else - allows you to keep your checking account working for you by continuously putting all your funds toward your mortgage, but still be able to pay your bills.

Anyway, in the end for 2019 I was able to put an extra $12K on my mortgage (this is additional equity, btw, so I look at it like a savings acct.) and save a little over $19K in interest. And that's all without skipping the proverbial lattes and saving like crazy. In fact, we had some extra expenses come up this year and could have done way better about budgeting and this strategy still worked really well. It's simply a better, more efficient way to pay down a mortgage and make sure your money is always working for you. The only "cost" to this strategy is the difference between my mortgage rate and my HELOC rate (eg. 4% vs 6%) to have the meowny in a different vehicle. I don't feel like calculating that right now, but I can assure you it wasn't anywhere near the $19K I saved, it was probably between $1-2K.

This strategy does take some work to implement, but it's been very worthwhile, so I would highly recommend doing it. Thanks.

How would you like it if your employer just paid you whenever they got around to it? You might think that's "different", but it's not. This is a financial obligation you are not meeting and the justification you gave is invalid. You can sign up with a bank that has free bill pay, send the funds electronically, give her post dated checks, etc. - there are plenty of good solutions to avoid being "harassed", but finding a way to justify being a bad tenant isn't one of them. Good luck.

It looks like you got your answer, but I'm also in favor of doing a 30 year and trying to pay it off like a 15. The flexibility of being able to pay it off faster, but lower the payment if you need to is really great. Good luck.

Yes, typically with a cash out refi you basically take out a loan for more than what is owed and you keep the difference in cash. Going back to the $100K balance and $150K value thing, you would get a new $150K mortgage that pays off your old $100K mortgage and you keep the remaining $50K. It's the same in every other way, so you can do a fixed 30 year and so forth. Obviously, in this case if you're paid off then you're just getting the full amount instead of $50K.

As far as home equity loans, I've always known them as second mortgages meaning that you would keep your original mortgage in place and just take a new mortgage out for the $50K, because if you're doing it on a house that's paid off I would consider that a cash out refi. You're basically getting a new first mortgage, so I wouldn't consider it a home equity loan. A loan officer might have some other way to differentiate, but as far as I'm concerned in your position I wouldn't think a home equity loan would apply because it's not a second loan just for your equity and leaving a first loan in place.

I have a $20K HELOC and a $35K and I've never seen any impact on my FICO at all. I agree with the guy who said get the largest one possible. I don't think having a larger HELOC has any downsides or will prevent you from borrowing more in some other area. Having unused credit is a good thing. Good luck!

Cash out refinance means you are taking out one big loan and you get all your equity in one lump sum. Home equity loan means you are taking on a second mortgage that's only equal to whatever equity you have in the house. This doesn't really apply to you, because you are going to be fully paid off. But if you had a place that was worth $150K, for example, and the loan balance was $100K that means you have $50K in equity and could get a home equity loan for that $50K. For these first two you get them in a lump sum, but the minute you get them you start accumulating interest and owe on them in the first month.

HELOC means the same as a home equity loan, except it's revolving like a credit card and they don't just give you $50K - it's a $50K line of credit. The benefit is that you don't have to start paying on the full amount right away you just pay on what you're using. So, if you use $10K of the $50K then next month you only owe on the $10K. This is the better way to go, imo, but the rate is a little higher. So, if you know exactly where you're using the whole amount and want the lower rate, go with a cash out refi. If you don't know exactly where the money is going and want to be able to use it as you need it get a HELOC and pay the higher rate. Good luck!

I was able to get a HELOC on a rental property from PenFed last year, so unless that's changed I would go to them. You need to sort of donate a small amount or something to become a member, but it's super easy and then you can get a HELOC on a rental.

And TD Bank gave me an unsecured personal line of $50K without ever using them before, so I would try that if you're looking unsecured. We have great credit, high income, cash flowing rentals, low DTI and credit usage, etc. so I obviously can't vouch that you will have the same experience, but I can tell you for sure it's out there. Good luck!