HELOC stratergy


#1

I heard that HELOC can be used to payoff the mortgage faster. There could be many strategies in achieving this.
Does anyone have experience in this area? any suggestions? I planning to apply for HELOC, just in case real estate values goes down in near future.
Sorry if question is vague, too tired today.


#2

If HELOC interest rate is less than Mortgage Interest rate, you have a chance to pay off mortgage using HELOC. Normally, you pay more interest paying down using HELOC as you are allowed to pay interest only in HELOC for some duration (10 years).

Feel free to get HELOC. I use HELOC as emergency fund, never touched it for many years.


#3

I have never heard of anyone doing this. Generally HELOC has higher interests rate than plain vanilla mortgages.


#4

Heloc could be useful to save interest expenses for some people. If you have a lot of cash sitting around from time to time, you can use a Heloc to replace the mortgage or part of the mortgage. You can deposit all your cash into Heloc and use Heloc checks as your check book. This way, your money always earns you the interest rate equal to the mortgage rate.

But Heloc rate is higher than mortgage rate, so the overall savings could be a variable of your balance and the rate differential.

Basically, you can use Heloc as your saving account and put your money to work harder for you.


#5

Looks not right.Any earning are taxed by both IRS+CA as short term capital gain basis.


#6

You save mortgage interest by paying your cash into Heloc, there is no income and no tax. If you leave your money in CD, you’ll pay tax.


#7

The OP is asking “is there any benefit of borrowing money from HELOC?”, while you are telling pay your cash to bring down HELOC balance !


#8

OP wants to use Heloc as a tool to pay off his mortgage faster. Not an easy task.

Anyone got Heloc on rental property? I like to get Heloc on rentals but did not find any bank to do it. Cashout refi is doable, but if you have no use for the cash out fund for a while, you are paying interest for nothing.


#9

So I wanted to chime in here. I have a regular mortgage ( ARM ) and a HELOC. My banker put 70% of my loan into the ARM and 10% into the HELOC. Without going into the numbers, the HELOC rate is very very low for the 1st year and increases to more than the ARM after the first year. This is good for me because I needed a few months to liquidate other illiquid assets without incurring the regular mortgage interest every month. Of course I plan to pay the HELOC completely in the 1st year.


#10

Thanks @BAGB
As you point out, i was looking at ways to use heloc to pay off mortgage faster.
There are some videos on youtube that suggest it is possible but im not sure if its a scam


#11

I came across some videos on youtube that suggest it is possible but im not sure if its a scam


#12

Sanfax, it’s not a scam, but an exaggeration. If you use a Heloc as checking/savings account, you can of course save on interest expenses. But it all depends on how much money you usually hold in your check and savings account. If you have a lot of money sitting, it could be good strategy.

But realistically, if you have a $800k mortgage, if you want to pay off in 5 years, that’s $160k payment every year just for principal. Plus interest, you will need to pay close to $190k per year. Most people do not have this much after tax and after spending income.


#13

By utilizing HELOC to payoff mortgage loans, you’re replacing long term fixed rate loans with short term variable rate loans. There are risks in case of interest rate jump or bank freezing your line of credit. IMO, this carries more risks than a 5/7 year ARM.


#14

@sanfax,

That video is a just a marketing junk to subscribe his channel or his classes. This is mainly for those who keeps lot of cash at checking. Last 12 years, I would have got more than 25 finances/refinances that includes HELOCs and various mortgages.

Getting HELOC as standby is good, but using HELOC is not good unless temporary borrow.


#15

Good points.

Are there better loans than mortgage loans? Always thought mortgage loans are the cheapest loans in town.


#16

Most of the times, 30 year fixed Mortgage rates are always cheaper than HELOCs. HELOCs are always comes with Prime Rate+0.25% or Prime + 0.10% (lowest ever I have seen) or Prime + 2%. During 2006-2007 period, I have seen HELOC something like Prime minus 0.25% (very rare) which is not common now.

My last HELOC was prime + 2% which is 5.5% interest rate.


#17

Zuckerberg got a loan from First Republic at 1% or so? Helps to be a billionaire.


#18

He did that to understand how it works.


#19

The secret to lending is to lend to those who don’t need it…First Republic is a great bank…I had a 2% loan for years…It was variable, but interest rates were stable. …


#20

im thinking if i had a bulk of cash in hand, in future, what should i do. Say 100k in hand and outstanding loan amt is 750k @ 3.5% rate

  • Pay the bulk towards outstanding mortgage balance, reduce the monthly payment? and obtain a HELOC after that and just keep it there.
  • invest in stock market through ETF and such.
  • invest in fixed deposit in India, that gives 7 to 8 % returns at zero risk. if deposited through older parents, it could be 8 to 9 %. However there would be US taxes on the returns, depending on the tax bracket and bring back the money to US might be a hassle. Btw, is there anything like that in China?
  • Any other suggestions please?