Hello guys, I am wondering if any of you have done this or those of you that are experienced when it comes to real estate. Paying off your mortgage faster with a HELOC. https://www.replaceyourmortgage.com/ This guy "coaches" people through it for a fee of course. Obviously it's paying off a loan with a loan... yes get that... I'm more curious if anyone has actually done this or those experienced in real estate who have thoughts. Thanks
Numbers look skewed Shows 5% down on the 30 year example I don't of any conventional heloc that allows you to borrow over 80% equity. Also while max heloc term is usually 15-20 years the rate is generally higher than a conventional 15/30year mortgage. So basically if you throw extra money on the lower interest fixed mortgage you should in theory pay it off faster than the heloc route. I do like the heloc advantage of being able to tap the equity versus the fixed route.
It's a loaded question. Yes, it can be done, yes, it can make sense but there are so many other aspects beyond just saving interest on a mortgage that have to be considered first. Don't know who these promoters are. Way back people were charging $3500 to set you up and the client just ended up another submission to ripoffreport.com. The point of having the HELOC isn't to maintain a balance, the point is to pay it off asap with excess cash flow. One really doesn't need to be "coached" if one understands the process.
If we can assume it MAY make sense, which indeed it may but I don't know enough myself to say that, that is where I'm trying to see does it really benefit that much. Compare this to paying the mortgage off on your own with faster with each monthly paycheck (assuming you have enough in the bank to live off of) or whether you use your monthly income to have some sort of invest return that yields just as a good of a return as paying off the mortgage with a HELOC. Are either of these options as good, or any other possibly options? That is what I'm trying to understand.
It's a ridiculous notion. The only issue is the "time value/cost of money" (interest rate on the loan). If your HELOC is at a lower rate than your mortgage (unlikely), then perhaps you should do it.... assuming you can meet the payments. Tax laws can weigh in. If you want to pay your mortgage off faster, just make additional payments on the principal.
HELOCs often have a minimum payment like a credit card and it might be lower than an amortized mortgage payment and I can see someone swapping a $180,000 remaining mortgage for a HELOC and having more flexible payments though you can accrue more interest. Time to maturity might not matter if you have a 10 year HELOC replacing a 10 year remaining amortization. But you can manage payments differently than fixed mortgage payments. You can still make the mortgage payment amount to your HELOC and pay down the principle faster since a mortgage has fixed P and I breakdown unless you send more money. HELOC you can direct a lot more to the principal up front. If you are in a higher rate mortgage it might be expensive to refinance (amortization starts over again) so swapping to HELOC gets you the lower rate without starting over. Lots of pros to doing it but really depends on your situation and payment and rate.
But that's not really what was being asked. The nature of these "programs" is to take a HELOC for a smallish amount and then pay off asap. Most of them recommend using the HELOC like a checkbook. They're just making things super complicated so they justify their fees. The HELOC interest paid might not be deductible at all. Would the program still make sense? Might, depending on the financial objectives. It all boils down to simple math.
My understanding of using a HELOC to pay off a mortgage to pay off a mortgage is really only advisable when it is done for a rental property under particular circumstances. It is usually a scenario where the owner still has the ability to cover the HELOC payment out of the rental monthly cashflow but desires to get rid of the longer term mortgage and pay down the HELOC quickly to own the property free & clear --- at which point the owner will have greatly increased cash flow with no loans. Of course there are all sorts of tax angles to consider for the rental in this situation including that the HELOC / mortgage is an expense, depreciation, etc. etc. Note: I do not own rentals. I am not a rental, loan or tax expert. Take the above for what it is worth.
You need to be really current on the tax laws. (They often change*... any time some politico wants to "do something" to attract the votes of a certain group.) At one time (don't know if it still is the case), you could deduct the interest on your 1st mortgatge, but could not deduct the interest on your 2nd/HELOC. Rather than do a HELOC, you'd most often be better off to make extra principal payments on your 1st or refinance your 1st if at a lower rate. May be other considerations, of course. *As recently... Trump tax plan reduced the SALT tax deduction to pay for giving somebody else some money in their pocket. On the surface, they guy who is charging people to teach them how to use a HELOC to pay off their 1st mortgage seems to be a scam artist. (Years ago in my financial planning practice which included life insurance, of course... there were some who touted "buy a participating life insurance policy (expensive) and use the dividends to pay off your home mortgage". Well, the "dividends" aren't really dividends at all. The tax court ruled long ago that "insurance dividends" are merely a return of overpaid premium and are therefore not taxable". IOW... an unscrupulous life insurance agent tells people to "pay extra principal on your mortgage to pay it off sooner... but do it through an expensive insurance policy". Unconscionable deception.)
I am not an expert on tax laws. I will note that what you state is correct about homes you own AFAIK and are not operated as rental properties. There is a host of tax rules related to cash flow and real estate rentals that go beyond the tax deduction for the interest portion of the payments (which most homeowners are focused on). I will allow someone who has experience in running multiple rental properties with outstanding loans chime in on the subject.