Can You Really Pay Off Your Mortgage Early with a HELOC?

There’s a new strategy floating around the personal finance world: paying off your mortgage faster with a home equity line of credit, commonly known as a HELOC. The strategy alleges that you can pay off your mortgage in just a few years.

Will it work?

On paper it’s brilliant, but I think most of us easily recognize that paper theories don’t always work in the real world. On closer inspection, the HELOC method looks to be more of a myth than anything else.

But let’s take a look at the strategy and consider the likelihood of it succeeding.

The “Cliff’s Notes” Version of the Strategy

The “method” of paying off your mortgage early using a HELOC is more than a little complicated. You can read the full version of the strategy here, but here’s a summary of how it works:

  • You must have a positive cash flowthat is, your monthly income exceeds your expensesthe more the better.
  • In select months, you put your entire paycheck towards your mortgage.
  • You need a credit card, one that will give you “free money” (a grace period) for up to 45 days.
  • In the months when you put your entire paycheck towards your mortgage, you put the rest of your expenses on your credit card.
  • You add a HELOC to your home, preferably one with a debit card.
  • After the end of the credit card grace period, you transfer your entire credit card balance to the HELOC.
  • With your next paycheck, you pay off your HELOC balance, instead of your mortgage.
  • The next paycheckafter the one that pays off the HELOCis once again applied to your mortgage.
  • Repeat the cycle again and again.

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Confused? Let’s work out an example.

Say you have a $200,000 mortgage, and your net paycheck is $5,000 per month. One month, you apply your whole paycheck to the mortgage. This immediately lowers the mortgage balance to $195,000. That month, you pay your non-housing living expenses, say $2,000, using your credit card.

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Then, you pay your mortgage payment, say $1,000, using your HELOC. You also pay your credit card balance with your HELOC.  At the end of the month, you owe $3,000 on the HELOC and $195,000 on the mortgage, but your credit card has a zero balance.

The next month, your $5,000 paycheck goes to paying $1,000 for the mortgage payment and $2,000 for living expenses. The remaining $2,000 reducing the HELOC to $1,000.

In the third month, your $5,000 paycheck goes to paying $1,000 for the mortgage payment, $2,000 for living expenses, and $1,000 to zero-out the HELOC.

That leaves you with an extra $1,000, which you carry over to the fourth month. And in the fourth month, you repeat the original cycle of paying your entire $5,000 paycheck toward the mortgage, lowering it to $190,000.

If you are successful in managing this strategy, you should be able to manage four $5,000 payments toward your mortgage each year, above and beyond your regular monthly mortgage payments. That means paying an extra $20,000 of mortgage principal each year.

At that rate, your mortgage will be paid in full after substantially less than 10 years (remembering that the regular mortgage payments that you are continuing to make will also reduce the mortgage balance in increasing increments).

It looks like a brilliant plan, but why is this method unlikely to work?

The Strategy is Too Complex to Be Workable

In general, the best financial strategies are the ones that are most simple. Simplicity is the basic concept behind dollar-cost averaging and investing in index funds. Simple means that you don’t have to think about it, or struggle to make it happenand that’s exactly what it takes to make it work.

The HELOC strategy is anything but simple. You’re essentially setting up a scheme based on debt. This scheme is used not only to pay off your mortgage, but also to manage your entire financial situation. It means that you’re constantly juggling between a credit card and a HELOC, while putting all of your extra money into your first mortgage.

It Will Take More Discipline Than Most People Have

Apart from the fact that it will take discipline to manage the complexity of the HELOC strategy, it will also be very difficult to keep it going during times of financial stress. And you can bet that such times will develop well before your first mortgage is paid off.

For example, the loss of a job will put a hold on the entire strategy. Depending on where you are in the cycle when that last paycheck comes in, you could get stuck with extra debt, too. And if your new job pays less, you may not be able to resume the practice.

In addition, you may get sidetracked by personal factors. For example, since you will be making liberal use of both a credit card and your HELOC, the temptation will be great to use both lines for unrelated purposes.

Using debt as part of any strategy is like playing with fire. That’s because as you become more comfortable using debt, the possibility of abusing it becomes ever greater. It will take incredible discipline for the several years that it will take to pay off the mortgage to avoid landing in a worse financial situation.

You’re Replacing One Form of Debt With Another

The HELOC strategy is at its heart a debt strategy. You’re using a credit card and a HELOC to pay off your mortgage. In the short run at least, that means replacing long-term debt with short-term debt.

The only way to truly get out of debt is by paying it off out of your income or other assets. Using debt to pay off other debt has the real potential to go in an unexpected direction. For example, if after five years of using strategy your $200,000 mortgage is paid down to $100,000, but you now have $100,000 in credit card and HELOC debt, you will have accomplished nothing constructive.

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The Strategy is Unlikely to Work Quickly

Like so many other strategies that make miraculous claims, it’s unlikely that you’ll pay off your mortgage in just a few years. First, step back and consider the implications of paying an extra $20,000 per year into your mortgage until it’s paid off. How long will you be able to make that effort?

What happens if along the way you decide you want start a business, or you incur huge medical costs, or you find yourself needing to direct a large amount of your income into taking care of a stricken family member?

The HELOC strategy will have to be abandoned. It’s called life, and it has a way of getting in the way of high-minded plans, especially big ones.

A strategy that requires this amount of money and level of discipline will have to be completed in a few short years, otherwise you will likely tire of the effort. For example, if you’re only able to apply a single monthly paycheck to your mortgage each year, the plan you were hoping would be completed in say eight years, may take more than 20.

HELOCs Are Variable Rate Loans

Using a HELOC to pay off your first mortgage is an unequal exchange. This is because HELOCs have variable rates, while first mortgages usually have a fixed rate. You may be exchanging a fixed rate of 3.something or 4.something, for a variable rate HELOC that could conceivably jump into double digits in a rising interest rate environment.

This will be a serious problem if you’re unable to maintain strict control over your use of the HELOC for the intended purpose only. Not everyone can manage that.

HELOC Lines Can Be Frozen By the Bank

Back in the financial meltdown after 2007, many banks took to freezing HELOCs. They’re revolving lines of credit, so banks are within their rights to do that even if you have been faithfully making payments. That could leave you with a debt obligation that needs to be serviced, but no ability to tap the line further to continue your HELOC strategy.

Don’t be so sure that HELOC freezes won’t happen again in the future. Whatever has happened in the past is very likely to be repeated. And if your strategy for paying off your mortgage relies on a HELOC, your bank could put a sudden end to your effort.

There Are Better Ways to Pay Off Your Mortgage Early

There are less complicated ways to pay off your mortgage early, and they will generally give you more control over the process.

Refinance to a lower rate. Refinancing an existing mortgage to a lower interest rate can save a lot of money. Our recommendation is to use LendingTree to research mortgage rates.

Make extra principal payments. You can choose to pay a certain amount of extra principal to your regular monthly payments. It could be $100 per month, or be something less formal, like paying an extra $1,000 each year. Not only will this reduce the term of your mortgage, but it will also give you complete control of the process along the way. You can make extra payments either higher or lower, depending upon your financial situation at the time.

Make one extra payment each year. By making just one extra payment per year, you can reduce a 30 year mortgage down to 26 years. This is the same effect as a biweekly mortgage payment arrangement, since a biweekly mortgage effectively creates 13 payments per year.

Pay your mortgage based on a shorter term. If you have a 30-year mortgage, you can make payments based on a 20-year term, chopping a full decade off the loan.

Create a “sinking fund.” This is actually a concept from the business world. Companies often set up what are known as sinking funds for the purpose of retiring specific debts. It’s a matter of adding money to a dedicated savings account, until the balance is sufficient to pay off the loan completely. You can do the same thing to pay off your mortgage. It has the advantage of giving you control of the money until you’re ready to completely pay off the mortgage.

Keep in mind that paying off a mortgage is a long-term process, one that will take many years. For that reason, the method that you choose must fit comfortably within both your personality and your financial situation.

And the HELOC method? It’s interesting, I’m sure you’ll agree. But it’s not likely to work for most people. And for some, it could turn out to be a disaster.

Topics: Mortgages

312 Responses to “Can You Really Pay Off Your Mortgage Early with a HELOC?”

  1. ColoradoJeff

    I used this method to pay off my house in only 7 years (Original loan amount was 204k), but I also took advantage of “re-casting” my 30 year fixed mortgage every time I paid it down 50k. Recasting doesn’t change the interest paid on the first mortgage, but it does reduce the ‘required’ principal you have to pay each month, effectively lowering the payment. I still kept paying the original payment amount and only re-casted the loan just in case there was an emergency where I needed to temporarily just pay the minimum 1st mortgage payment. A few years into this process, I actually lost my job and had no income for a few months, but thanks to re-casting the the original mortgage, the payment was only $492 (including the escrow and taxes). Once I found employment again, I starting shoveling as much as possible into the first mortgage and basically using the heloc as a checking account. I re-casted my original traditional mortgage over 3 times before I paid it off.

  2. I love the ideas of HELOC, but no one seem to mention that we still have the regurlar mortgage payment to make in addition to the HELOC. Or am missing that from all the post. I am currently have balance of $150k and home value at $375k bringing home yet about $4200. With $4200, $1300 will go toward my regular mortgage payment leavng with $2900 excluding all expense. How would I be able to ultilize HELOC. Any response would be greatly appreciates. thanks

    • Anthony Rushing

      Hey there,
      Good question. In this particular strategy the HELOC completely takes the place of your current mortgage. So the interest payment for your HELOC actually is your mortgage payment. Therefore the remaining income after your other expenses becomes your principal payment.
      Does that help?

    • I think they idea is the get a HELOC to pay off your mortgage balance. You just go from 1 payment to another. I can understand why someone would want to get a HELOC if they have a lot of equity in their home. I was looking into the best options since I owe 87k and my home value is now 259K at 4.85%. If I were to get a HELOC of 100K with a 750 FICO score, I can obtain the top tier rate however it is higher than my mortgage rate. I could pay off the loan, but why would I do that if it benefits me on my tax returns. My payments are reasonable and I always pay more towards principal on the day I make my main payment. I figure it may be best if I get down to 50K balance remaining. At that time I can get a 80K loan, pay off the mortgage, fix up my home, sell it and move and still have a little extra to pay off my credit card with is higher interest saving me there. I’m lucky to only have 1 main CC with the best interest rate since my credit is stellar. It’s still never going to be less than a HELOC interest rate, so I could clearly save there. Just know there are several ways to go about this. You can get a HELOC and take it all at once and not do 5 different withdrawals which would stick you with more of the variable prime rate at that time PLUS you have to pay an annual fee just to hold the HELOC. I’m thinking, is it really worth it right now if I can get by a little longer. It’s quite tasty thining of having a little extra money to fall back on when ‘LIFE’ happens. Take it from me, I’m a cancer survivor with unanticipated medical debt. The good news on that is I’m making arranged payments directly to the hospital without any interest. I’m keeping an eye on the prime rates for now. If it gets under 5% unless I want to simply refinance to bring my payment down. It’s still beneficial to have a mortgage payment for tax purposes. Without that, I wouldn’t get much back on my return with just property tax and student loan interest. I do not believe you can use a HELOC interest on your taxes. Just something to think about.

  3. The real question should be: “Why in the world would anyone ever want to pay off their house?” What do you expect to gain by paying off your home? Security? Just miss one property tax payment and see just how much of your home you really own! Even worse, get sued by someone and have a ton of equity in your home that a lawyer can both look up and go after! There is no cheaper line of credit you could possibly get for investing than a home mortgage. Take that equity and put it to work! At the same time you will be limiting your vulnerability to sharks! I never plan on having a home paid for, that would be dangerous in the extreme, and wasteful.

      • twice what you borrowed over the course of 22 years is really not that much if you take that value and do a present value calculation…. i’d rather have that money now to leverage and get a high rate return rather than get caught up in the total interest over a very long period of time

  4. If you have enough equity to get a HELOC that pays off your mortgage debt, wouldn’t you have taken a vehicle that adjusts to a lower payment each payment made towards the HELOC as the interest is annualized and take your long term debt off the books?

    • Anthony Rushing

      This is a good point. There is one thing to consider though. The interest rate that you see is different than the effective interest rate you end up paying.

      This is true because the main factor that affects the cost of funds (number of dollars spent to borrow money) is your balance, not the rate tacked onto your loan. The main idea behind this strategy is that because you’re able to decrease the balance using 100% of your income before expenses, then the cost of funds decreases because you’re paying interest on a decreased balance. So what we find is that people with greater cash-flow have a lower effective interest rate because they’re offsetting their balance, therefore paying interest on a much lower amount. The greater the cash flow, the more the HELOC strategy will outperform a lower-rate mortgage.

  5. I will share a story. Me: B.S. Accounting, CPA (I took the test four times so not a genius, I am just stubborn and work hard), Big Four audit firm with 4 audit seasons under my belt, MBA (2005) from top B-school. It was early 2009, just after the financial crisis. I had several investment properties. One had a HELOC. Wasn’t trying this nifty idea but wanted the liquidity. I think the HELOC was $75k. I had maybe $10k drawn on it. Got a letter from the lender (a large nationally known bank) that said they determined the value of my house had fallen and that I no longer had any HELOC availability. The line remained opened but they set the total availability to just over $10k. Overnight – poof! No availability, no warning and no liquidity. I had an appraisal done and appealed. They put the line back to $75k. Several months later they took it away again. It was scary, but a great lesson. Playing with these products is/can be fire. Full disclosure: I now work for a bank… I have 15 years in investment banking under my belt. I don’t work for a Wallstreet bank, but instead a “middle market” bank that has values consistent with my own. I am now a managing director (which means my soul was crushed for 10+ years but I learned a bit). I would never gamble liquidity in the manner suggested unless I had other liquid cash. I was never taught the value of real liquidity (cash, gold, etc.) in undergrad, grad, cpa test, I-banking, etc. Everything works until all of a sudden its not working. That’s what financial shocks are called. The CFO of one of my clients has ~$500MM credit facility. He always keeps $75mm to $100mm drawn, and the cash parked in another company account. When liquidity crunch hits you had better have some cash…. that’s my only issue with this strategy, other than being overly cumbersome. I agree with others: just pay the dang thing off quickly and sleep good at night with some excess cash liquidity and cant go zap overnight.

  6. KJGuest

    This all is just an overly complicated way of making extra payments while simultaneously playing with fire. Just make extra payments on your mortgage! If you don’t have the discipline to do that, this HELOC method won’t work for you, either. I paid off my 30 year in just under 11 years by making consistent, incremental extra payments throughout the life of the loan, and then we made a “sinking fund” payment at the end as described in the article. I paid $50/month extra for the first year and a half of the mortgage, then each year after that, I increased my monthly extra payment by another $50/month. At the end, I was paying either $550 or $600 extra/month. The key here was that I purchased a home I could afford, then as I received raises and/or cut my budget, I could keep up with the extra monthly amount. I also threw any extra “found” money at the mortgage, such as when I received a bonus or had a tax refund. Those extras were $1-$2K extra a year. Then, about 6 months before we paid off the mortgage, I got married. When my husband’s and my combined emergency savings was large enough that we felt we could pay off the remaining balance while leaving us with a fully funded emergency fund, we did so. Had I not had my husband’s help at the end, I still would have been able to pay this off on my own perhaps a year or two later than we actually did. This saved thousands in interest, and it was not a complicated plan. Yes, life got in the way sometimes, and I couldn’t always make the extra payments, but I did so the vast majority of the time and did my best to stay current with my written payoff plan.

  7. Mike M

    Here’s what you do. I actually just did this and I will have my house paid off in a year and 3 months. I am using regions bank to do this. I just got a First Lien Heloc on my property. Here are my numbers. I have a home that is valued at $194k dollars. My remaining balance is $81095. I did a first lien heloc which took me from a 4.75 fixed 30 year mortgage to a variable 5.387. I put my entire paycheck of $7000 per month into this account. I have approximately $2500 of living expenses. This means that after living expenses I am paying $4500 on the principal of my mortgage every month. I am also putting an immediate payment of $23500 that I have saved directly on the principal of the note further reducing the repayment timeline. I’ve run multiple calculators from various sites and each calculator shows me repaying my note in under a year and a half. I’ll never do a traditional mortgage again.

      • Anthony Rushing

        Hey there, I’ve taught this strategy to a number of people and have also helped them with obtaining First Lien Helocs as well.

        You can refinance your current mortgage with a first position HELOC. There are a number of places that you can get this done.

        There are two main things I would look for when considering who to choose. 1. I’d try and find an entity that can provide the support from an education standpoint to ensure that you understand what a HELOC is and how the strategy works with the structure of a HELOC. Although this concept isn’t new to the world (it’s really popular in Australia, S. Africa and across Europe,) it’s fairly uncommon in the U.S. When considering an unfamiliar financial strategy, you want to ensure that you’re working with people who know and understand the concept to help others become proficient in the concepts. 2. Find a lender that will service this loan in a way that is not cumbersome. Even the most “educated” people with this strategy can fail at the overall goal if following through with the strategy takes additional steps outside of their normal routine. There are companies that have this setup.

        Let me know if you’d like to learn more, I’m happy to help educate more on the subject.


    • I’m curious how this is easier than just taking your $4500 of disposable income each month and just making an extra principal payment with it? Remaining balance is $81,095 – $23500 you have saved means you would owe $57,595 which divided by $4500 in extra payments each month = 13 months until payoff. Without a HELOC which could be frozen at any time and if you ran into a problem and couldn’t make the full $4500 a month in payments for a particular month, you could simply scale it back.

      • L Wilcox

        The process does not work the same with a traditional mortgage. The reason is your “extra” cash flow is still liquid under the HELOC and the principal is lowered exponentially each month so the APR is calculated off the lower number reducing the actual interest accrued during the life of the loan.

      • Anthony Rushing

        This is a great point! You could absolutely do this with your current mortgage. If you were to follow this strategy and put 100% of your income into your mortgage, how would you pay your bills?

  8. Antonio Smith

    ??? Seriously. This is some ridiculous nonsense!!! All this work to make 4 full payments of 5k annually at most. That’s 20k to priniciple at most. Let me make it easier using this geniuses own numbers.

    200k Loan = 1k monthly P/I payment
    Living Expenses = 2k
    Income = 5k
    total after debt = $3k
    Rapid payoff process:
    1000.00 toward P/I + $3000.00 left after budgeted monthly expenses = $4000 monthly toward debt = $12k P/I annually and $36K annually directly toward Principle.

    $200,000 home loan is Paid in Full between 4yr 1ms – 4yr 7ms.

    **** You don’t have to make it complicated, you just need to be disciplined and remember speed works in your favor when it comes to interest and savings**** Early and often

  9. Bart Moran

    I’ve been in consumer lending for three decades. This HELOC scheme is a bad idea. I’m sure it will work for some, but not all. Anything will work for some, not all.
    The best plan is a simple plan which offers flexibility. A good example is simply paying extra on your principal balance each month. The HELOC plan has zero flexibility. You must follow it 100% or it will implode.
    Always understand that you cannot borrow your way out of debt. Period.

  10. I have a question, Please reply.

    Let us take numbers
    Suppose X has 100k in Heloc and
    350k in Mortgage.
    X do have balance in business account as he is incorporated to pay say the 100k of HELOC.
    He does not earn interest in Business account. Paying off HELOC would incur TAX as it would be personal income. What do you guys think?
    1. Pay off HELOC and make it Zero and end of the year put it back in Business account?
    January pay off HELOC
    2. Pay off HELOC and Pay tax?
    3. Do not touch Business account?
    4. Other?

    • MortgageAngel

      Indeed, CMG is the creator of this patented loan product. It’s a 1st TD line of credit that does what no other HELOC does. There’s much confusion about this! Many financial experts sharing ‘instructions’ on how to pay your home off faster with a HELOC. Ignore these people. It is not the same thing.

  11. Nancy Patterson

    I paid off my mortgage with a HELOC loan in 2018 and loving it! Separated my escrow – no more shortage notices! Insurance and property tax are on auto pay in my checking account. Regardless that a HELOC is variable, I’m using it as a checking account. It’s an open ended account for 10 yrs. I can put money in and take money out. A mortgage is close ended. Once the money goes in, they keep it! I know I’m saving a lot of money on interest. Would never do a mortgage again. Too slow to pay and way too much interest! Refinancing – way too money in closing costs – so stupid! For me, a HELOC is working. I use and then download it into excel. I know where every penning is going!

    • Hank Irving

      Awesome! Good for you and THANKS for spelling out what a first lien HELOC is!! Its genius for the disciplined and cash flow postive people out there, The people who write biased commentary slamming it are either bankers or mortgage officers. Im so done with what “they” say. Banks are trembling at the thought of “this” going mainstream. Its NOT for everyone, but its definitely for the reponsible cash flow positive people who trust in their ability to be their own bank and stop depending on the banks and government for financial “things”. Happy for you!

      • First Tech Credit Union is another really good one for HELOC. The author is incorrect though, there’s no need to use a credit card, you simply use your HELOC as a checking account. The purpose of this method is to change the ratio between interest and principle on your first mortgage. That is, paying a huge chunk towards your first mortgage’s principle (taken from HELOC) so going forward a larger portion of your regular payments will be applied to principle. Your monthly paycheck direct deposits then satisfy the monthly payment requirement of your HELOC. As a matter of a fact, this is one of the preferred and offered methods in Canada if someone wants to buy a home. Hope this helps.

    • Thanks for your positive report! I’ve researching the system and in Texas, we cannot get a 1st lien HELOC so have to settle for separate accounts and the “chunking” strategy. I’m still researching but the thing that keeps getting in my way is how to track the whole darn thing. I’m used to using a budgeting program called YNAB but can’t seem to make it work for this strategy. Did you figure out a way using Mint? Is that method in Mint something you would be will to share? Thanks!

  12. It’s like the author flipped a coin and chose to go negative on this topic even though he points out that this is all doable with discipline. Sometimes editors also get involved and whip up the controversy in the story to get traffic. They got me! 🙂

    This suggestion to refi is such bad advice (and shameless plug for the bank!) I can’t even…you do not “save” money when you pay thousands in closing costs. Sure, your cash flow may go up with the lower monthly payment but you also reset the amortization clock and then you’re back to square one with the payment front-loaded with interest!

    Important features of the HELOC are that it is a revolving debt account that:
    • uses simple instead of compounding interest
    • can have a debit/visa card
    • can have checks writing
    • have interest you can write off
    • you can pay off and reuse credit anytime

    The basic idea here is to knock down the amortization schedule by months/years by moving some of the principle over to the HELOC and being *disciplined* with your payments. I have all of this automated after I move part of mortgage over to HELOC: part of paycheck *more than mortgage due* goes to HELOC and mortgage is paid by HELOC autopay. I KNOW this scenario is saving me interest payments because even with a higher interest rate, the simple interest portion of my HELOC payment is much less than that of the mortgage payment. Eventually, my HELOC get’s back to zero and I move another chunk of mortgage over to the HELOC and repeat the process.

    • Can you expand on the interest write off. I am planning on refinancing my existing mortgage in to a 1st Mortgage HELOC. Will I be able to write the interest off on it?

  13. I saw a video on youtube about HELOC being used to pay a mortgage earlier. The effort and time dedicating to this strategy is a joke. I’d recommend just don’t worry about it work hard make more money and pay it off sooner.

    • Jason

      Keep thinking that way the banks love your mindset they make lots of extra money off of people like you and the author of this article I have used my heloc to knock out all debt and am in the process of killing a 30 year mortgage in 3.5 years it does work but you have to be very disciplined how you use it and also I saved a large emergency fund to bail myself out if needed and have access to another $14k signature line of credit too just have to be smart with you spending

      • It’s absurd to think people are disciplined or that they have $2000 after expenses laying around to pay down the HELOC or CC. It’s more reasonable to assume that one has an extra $100 to $200 to knock down the HELOC/CC. That’s why they are in debt in the first place. Most are not and it will explode if they use this method! This method can and does work, but use with extreme caution! There are so many variables that can completely derail a quick pay-off. And, I am willing to bet too many people will jump on the Velocity Band Wagon w/o fully understanding the pros and cons.

  14. Hello, first time poster here. Original purchase year was 2009 with a $303,000 mortgage and I have been aggressively paying off my principal & now have a remaining balance of $64,000 at a 5% interest rate. Current value of the home is $550,000+. My question is, is it in my best interest to take out a HELOC to pay off my principal mortgage and then just pay the HELOC off aggressively? When I run the numbers, it seems like a no-brainer but I may be missing something.I have $50K in liquid savings that I would prefer not to use plus some other investments as well as maxing out my IRA contributions each year. I am also looking to sell my house and move soon so I would pull from the HELOC to add to my down payment. Would that work? I am typically very good with numbers but would appreciate a second set of eyes. Thank you!

    • Robert

      Yes, HELOC > Mortgage if you have 1) the discipline and understanding of how the strategy works and 2) if you can minimize interest rate risk.

      Otherwise, it is “too good to be true” and you should definitely aggressively pay down a HELOC. The other benefit is that the HELOC can act as your checking account; you say you have $50k in liquid savings (which I assume is emergency savings/or the like). You can put the $50k and pay off the HELOC to minimize your interest. If you do have some sort of event where you need the $50k, you can simply write yourself the check to withdraw the amount. It’s just storing the money with the bank by paying down HELOC/mortgage instead of savings account which renders 1-2% interest.

  15. Jeffrey Loose

    It’s been a decade since I used a HELOC. But banks loan you up to 80% of the value of the home, tops. So $100,000 value and you own $80,000. Guess what no HELOC from the bank. Now you owe $60,000 so $80,000-$60,000. You can get a maximum of a $20,000 line of credit from a HELOC. Now I know things might have changed since I had at HELOC but the bank providing a HELOC requires your home be appraised by a bank recommended appraiser and not be more than a year old. Appraisal fee from $300 to $1000 or more depending on were you live and size of home, thats your out of pocket expense. If you’re putting more than 20% down on a new home apply for a HELOC within the first year of starting your loan. I assuming anyone looking into this knows they have positive cash flow and discipline to use this method. I modified the HELOC plan, I had a HELOC but never borrowed against it. I kept it as an emergency fund if needed and just made extra payments each month. Since bills came out different times of the month and utilities can change month to month I would draw down my account leaving a $1000 balance to account for any changes and send the extra money to pay extra on my mortgage. NOTE: you have to let the bank know any extra money is to be applied to principle or they will put it in escrow and give you a big check at the end of the year wasting a year of your time. So example time. I did the numbers. So $100,000 loan at 3.5% interest. Either way you still have to pay your monthly note. You can swing an extra $5000 a quarter. So say month 1 and 2 you send $2000 extra and month 3 $1000, straight to the bank, no HELOC balance. You pay off the $100,000 in 4.25 years and pay $7700 in interest versus $61,600 in interest over 30 years a minimum payments. Now you use the HELOC and pay $5000 every 3 months extra principle and every 3 months you pay off the HELOC balance. You pay off the $100,000 loan in 4.25 years and pay $8000 in interest. Yes these numbers are rounded. This assumes the interest rate remains constant till the original loan is paid off. Not going to happen in real life. This also assumes you pay the HELOC off with $2000 months 1 and 2 and $1000 plus interest difference at month 3. Now a HELOC’s interest is tax deductible, so it’s probably a wash using either method. Personal line of credit or credit card will work as well, but you have higher rates and no tax break.
    Keeping a mortgage for tax breaks is absurd. Why pay a bank say $3000 in interest a year to get $300 back in taxes from uncle sam. Keeping money in savings right now is absurd too. Interest rates are so low you make nothing. My bank offers like 0.4% on $50,000 in savings. That’s $35 a year in interest. I can find that picking up change in the Wal-Mart parking lot. Savings accounts are for when your debt free.
    Refinance at lower rate only works if you can get away with no closing costs.
    Life happens is a weak excuse not to use a HELOC. Life happens. If I have a $50,000 surgery I still have to pay that off and that just slows the process either way. Yeah by not having the HELOC I only have to worry about the mortgage payment and not both. If I lose my job, well I might be losing my house anyway. Least with the HELOC I could max it out and run off with some money, but still lose my house. Or maybe I just have to sell it and start over.
    At the end of the day you are just a cheap renter for the bank till you own your home and the deed to prove it. The bank can take you house on payment 359 if you default.

    By the way $100k at 3.5%, year 1 amorization interest $3469.41. Year 1 HELOC interest $3457.21. You save $12.20.
    My personal thought own your house as fast as you can. Pay extra straight to the bank when you can. Get the HELOC for the sole purpose of having a safety net, that what I did. But thanks to paying my house off early, I own my home and was able to survive getting laid off and unemployed for a year and a half and didn’t have to change my lifestyle.

    • Totally agree with you. we did the same thing. Bought our home in 2014 @560,000k. Now we have 248k left. we are aiming to pay it off in the next 4 yrs.. bring total of 8 yrs. we use exactly your method. It works great for us. yes discipline and living below our means helps us to pay off our mortgage as soon as possible so we can retire a bit a head of our schedule.

  16. Are people still reading this thread? I have a First Position HELOC, and it is amazing. The original poster on this thread does not understand the First Position HELOC at all, and really made something quite simple, very very hard to understand. For one thing, you don’t need a credit card for this loan method. If people are still reading this, I will explain all, and give results. Thanks

  17. I thought the idea was to use your total HELOC to pay off a ‘remaining balance on your mortgage’ BUT ONLY IF your HELOC had a lower interest rate, and you are able to pay off HELOC
    So if my HELOC is $75000 – pay off my mtg when it hits that amount, then make extra payments to HELOC to pay that down

    • Your HELOC will never have a lower interest rate than your mortgage. What it does have is simple interest vs compound interest. This is perhaps the biggest advantage to this method.

  18. Well said….discipline is the key.
    We pay 4000.00 a month, roughly 1000.00 goes to interest, the rest to principal. People who are worried that banks will freeze the line of credit are foolish. The more you pay off, the more you have available if you need cash. My wife and I have about 5000.00 liquid, all else is invested or going to the house. Still have access to the line but find other ways to lower expenses or increase income.

    • Diana Ferreyra

      no putting a HELOC in first postion will not hurt your credit score, but keep in mind that you would be exposing a lot of debt to a variable rate. there are more effective ways of putting this strategy into effect, find out more by completing a profile on and scheduling a meeting to review your profile results for a plan that would work best for you.

      • Payton Baldridge

        I would never advice anyone to get a variable rate HELOC. I’m not sure why everyone keeps saying this. Fixed rate HELOCs have been available for years now.

  19. schwabbie

    This is a lot of work and you get the same results if you just take the money left over from your salary and apply it directly to your mortgage. In the example they have $1K mortgage and $2K expenses leaving $2K left. $2K x 12 months = $24K.

    • Issue with this Theory is that you will not be knocking the principal balance in large amounts. Meaning every time you apply the $5k it drastically reduces the interest paid on the next payment due to the way amortized loans are set up.

    • This strategy allows you to use your daily living expense money to lower the average daily balance on the account. If you just paid more on the loan you would be missing out on the $500-$2000 per month money that is used for food, gas, utilities. Most people leave this money sit in a checking account for 0 interest all month. This method allows you to apply that amount to the loan balance and still be able to get it out when your electric bill is due.

      • This is what I was looking for but don’t want to make a huge mistake. I’m 64 and cannot afford to make too many mistakes… not enough time to fix them… if you know what I mean. I have no mortgage but family crisis has put me in $50k cc debt. The interest is killing me. Plus I have the potential to make a real estate investment and would need cash quickly. Thought if I took a HELOC; paid off CC debt with loan; transfer all monies into HELOC account every month to lessen interest; change payment dates to last week of month; should be able to pay off CC within 1 year. I have 2 mortgages on 2 real estate commercial properties that I though I could start paying off with interest money saved. What am I missing that could hurt me? THank you so much for your time and expertise.

  20. The reason to do this isn’t that it saves you a “ton” of interest. The reason is because, normally, if you poured all of your money into paying off a mortgage, then you have $0.00 in liquid asset. So if anything financial happens out of the norm, then you’re in trouble because that portion of the mortgage you paid off isn’t isn’t easy to access.

    Since people know this, they don’t dump every last cent into their mortgage payments. However, with a HELOC, it is flexible just like a credit card — meaning that you can dump everything into paying it off, but if something happens you still have a spendable account. This does save you some interest, but remember you’ll also have closing costs with a HELOC (and sometimes even annual fees).

    So yeah you might save some interest,but the power comes in knowing that you have a spendable account so you can literally dump every last cent into paying off the mortgage — which in turn does pay it off quicker than without one (unless you want to risk a $0.00 liquid balance). The danger is that you max out your HELOC and now you have 2 loans that you can’t payoff. So this approach requires discipline too.

    • Totally correct with the flexibility of being able to draw the money out of the HELOC when needed. I am currently doing this and I found a bank that had zero closing costs on the HELOC with zero fees. I only pay interest on what I use.

      I made a lump sum principle payment in July and August and am currently paying it down in my HELOC. Dont think of the HELOC like a cc, it’s more like a checking account. Instead of storing my money in an actual checking account, I keep it in the HELOC to keep the daily interest charges low.

      From July to December, I paid about $500 in interest in the HELOC. My monthly mortgage payment is $1429, of which on July 1 only $520 went to principle. Thay means $920 was going towards interest. Each month. I saved 6 payments this year of over $900 in interest and still going.

    • You can always get a HELOC even if your house is 100% paid off, so the asset is actually liquid…to a point. If there’s really little interest savings to all of these programs, then what’s the point? Make extra principal payments as much and as quickly as you can and skip all the shenanigans of using HELOC, credit card, expensive software, etc.

    • That’s the only reason to do this…save money on interest, which it MIGHT save you a tiny bit, if you do everything right and to the “T”. As for emergencies, you can still have a HELOC on a paid off home/mortgage, so there’s the easy access money.

      • You can save a lot on interest, depending on what cashflow strategy you utilize with a HELOC. Google “HELOC calculator” and run some numbers to get an idea for your situation.

  21. Rick Hart

    A suggestion in the article is to refinance? Really…really? Refinance into a shorter term mortgage? What? Come on. This is not in the consumer’s best interest. This article was not thought out very thoroughly at all. Refinancing will set you back ten’s of thousands of dollars as well as extending an already unrealistic 30 year term. Refinancing into a shorter period mortgage will greatly increase your odds of defaulting on the loan. This is downright irresponsible advice. The mortgage is the most insidious device ever created in which to financially enslave people today. Have you ever wondered where all your money goes and why you are one paycheck away from insolvency? Look no further. A HELOC allows YOU to set the terms of repayment and its minimum payment DECREASES over time. Do you want to take ownership of your own financial destiny? Or just leave it to “the experts” who have never had your well being at heart but padding their own pockets? You CAN pay off your home in a fraction of the time (or not…you decide) as well as save tens or hundreds of thousands of dollars. This is the biggest win-win for the consumer…EVER!!!

    • Rick, the article says to refinance to a lower rate. Not necessarily a higher payment.
      I always scratch my head when people say, “But I don’t want to add ANOTHER 30 years onto my mortgage!”
      To both you and Tommy – There’s actually a very simple answer that only takes a one time thought process…
      No one is FORCING you to make the new lower payment on a refi.
      I love HELOC’s and use them strategically. But if someone can get a lower rate on a 30 year fixed mortgage, and do it with minimal fees (if someone is charging you 10’s of thousands you’re getting ripped off) then by all means lower the rate, keep making your same payment, and shave years off of that mortgage.
      Yes, I am a mortgage lender, so I love running these numbers for people. If someone already has a low-ish rate, then a refi won’t make sense, But if they’re over roughly 5% now, then it definitely could make sense. And sometimes a “no-cost” option is the best option. All that means is that the client can choose a rate that has enough credit to cover the closing costs. Again, if their rate is already decent compared to the market (and most people are already under 5%, so refi’s in this market are pretty much dead anyway), then no, a refi isn’t going to make any sense.
      I really just wanted to remind people to think about the whole myth that a refi adds back years. ONLY if you just make that new lower payment. And it only takes a one time setup after the refi to put the auto pay on with the old higher payment. And BAM – you just shaved off years and thousands of dollars.

      • The problem with refinancing is you’re basically resetting your mortgage to so you will be paying mostly interest and a little bit of principal again. The bankers love it when you refinance.7 to 10 years into your mortgage you are paying more principal then when you first set up your mortgage. That is typically when the bank suggests your refinance “to help you” NOT. Don’t be fooled.

      • I find the comments interesting. I found the article reasoned and practical and pretty spot-on. I am not a banker (don’t know why some posters think the author is) and make the following observations:

        I had a friend who worked in finance/accounting who was very articulate about “levering debt” — we once got into a heated debate about this. I suggested that it wasn’t wise to borrow to increase wealth and using debt to get ahead can backfire. My friend disagreed and insisted that a creative, careful use of debt was very smart, that there was really “nothing to lose.” My friend’s arguments sounded a lot like some of the HELOC to pay off mortgage debt advocates. Read on if you want to hear how a real life story of how it played out…. 🙂

        I bought a home before the downturn and overpaid but paid a good chunk of my own cash. My friend (who was probably maxed out credit wise) got a nice deal on a house purchased after the bubble burst and I believe financed nearly all of it. At this stage, my friend seemed “better off.” But fast forward a few years. Both of us suffered “unexpected” events — life happens. I struggled but paid the mortgage every month. My friend, who earned a higher salary, besides having a second income earner in the home, wound up entangled in debt and lost their home to foreclosure.

        In other words, debt catches up with you! In the real world, nearly ANY line of credit can be frozen or reduced. Economic downturn, etc. And HELOCs don’t have a 30 year fixed interest rate – the interest can increase. The only time to me taking out debt to “advance” seems to make sense is if you have CASH sufficient to cover the debt. For instance, if you put $10k on a credit card with a low interest / no interest rate and have $10k in the bank to pay off.

        Anyway, the old fable of the tortoise and the hare probably would have said it better than I did in this post. There is a way that seems wise, but built on shaky principles. Seems to me that ideas to use other people’s money to get ahead don’t work as well as using your own methodically.

  22. I did not read all the comments. So someone may have already made this comment. I uses all my saving, extra cash and income tax to paid on the principal of my mortgage with no worries. I do not use my HELOC to pay on the principal. I use my HELOC as a security net. My heloc and Credit cards are my emergency cash.

    • Totally agreed with you M&M. we also open our HELOC, and did not use it . we keep it as our emergency fund.We dumped 50k of our emergency fund into our mortgage right after our HELOC account open.

  23. I’m sure others have stated the author makes the concept more confusing than it needs to be. The idea is simple, you just have to run your own numbers on a HELOC calculator. If you are cash flow positive by a good bit every month it would especially make sense to run the numbers. The concept is to put your entire paycheck towards the HELOC balance every month. You use a credit card to pay for all your expenses. When the credit card is due, you pay that balance off with your HELOC funds. Whatever is left is paying down the principal. The obvious benefit is every penny you make above expenses is reducing the principal on the HELOC and you have no funds sitting around idle in a checking or savings account. On top of that, you’re reducing the principal at a rapid pace which makes the interest rate much less of a concern. Interest rate feeds off the principal. This has the benefit of a 10 year mortgage with the flexibility of having access to your funds instead of them being tied up in the equity of your home. The downside from what I understand is the bank issuing the HELOC could cut off access to the funds in times of economic turmoil (which doesn’t seem likely to happen very soon). You may want to have a little safety net in savings to cover unexpected expenses early on when interest payments are at their highest and you are most vulnerable, but worst case you could always refinance back onto a suitable mortgage at a lower monthly payment if cash flow became tight.

    • Wildy Moya

      The H.E.L.O.C does not work that way. YES your interest rate might be higher than a regular mortgage loan but the way payments are distributed is the key. On a mortgage let’s say $800/month. Maybe $130 bucks goes towards the principal the rest for interest/insurance/taxes. The heloc makes it so you still pay the same mortgage payment but also a little more each payment. Using the heloc as your bank. Basically your paycheck goes into the heloc paying the monthly payment and mortgage all in one at a lower interest payment to the bank who issued the mortgage loan. In effect paying down the principal on the mortgage faster that normal. Like mentioned in this article only works if you can manage the heloc debt with the income you get.

      • Perhaps a more important aspect of the strategy is the use of the credit card. When you pay an extra $2,000 today to a mortgage, the interest stops accruing on that $2,000 completely (at least temporarily). Over the next few weeks putting all living expenses on a credit card costs no interest as long as the balance is paid in full each month. Bottom line is the strategy absolutely works. However, it works only if executed flawlessly or nearly flawlessly. You must have extreme financial discipline which most people do not have. As the author wisely pointed out, life happens to even the most disciplined. If income is disrupted or an unexpected expense occurs you may have accomplished nothing but transferring long term debt to short term debt which can quickly become unsustainable. Bottom line is proceed with caution. You still need a rainy day fund. If your strategy is “I’ll just refinance back into long term debt if I hit a bump in the road” be even more cautious. If you hit that rough spot you will likely not be able to refi at that point. The strategy works but it is fraught with risk. The idea that you can pay off your mortgage in just a few years because of this strategy is misleading at best and more likely completely untrue. What allows anyone to pay off a mortgage in just a few years is an income that far exceeds monthly expenses and the discipline to use that income to pay off the mortgage. The strategy can help to speed the process but it’s the additional principal payments to the debt, be it short term or long term, that actually gets the job done.

    • Scott Reyes

      Since you clearly don’t get what’s going on . You use the heloc to limit the banks intrest . Here’s how it’s supposed to work and it work if you doing this way . Here’s my situation 104000k 4.29 that’s 372$ in interest the first 2 months my payment is 511 p&i so only 140$ pays down so lets say I put 5k to loan 8% using a heloc How many months of 371 did I just save 5000/140 35m 35m times 371$ is ? Holy shit 13000$ let’s say I only have 1000$ extra to put in my heloc so it takes 5 months to pay off say I left it empty it’s intrest cost is 33$ a month so yeah about 170$ in intrest. Would you trade 170$ to make 13000$ hell yes you would . On month six 99000* .0429 / 12 353 a month avg 190$ comes off princ so lets go again 5000/190 is 26 months 26*353=9000$ again 170$ on heloc intrest to save 9000$ . So in just one year I cut down 61 months . Math ain’t exactly on point but if any body here can see my point you can see how this works. I will say one thing the faster you can start the better . If your 10 years of a 30 year I don’t recommend but if you are early it’s beneficial. On my example I started second year I owe 78k of 104 on a starting note I’m 26000$ paid off if I didn’t I’d be around 101k. I’d also like to say if you do that math and when ever you get to the point we’re your monthly intrest cost is higher than your mortgage interest stop and give your self a hand no you can stop and just pay like normal and you can just make regular payments for 5 years or so

    • In the world of finance…. interest calculations are not just principle “x” times Rate “y” – Banks want us to focus on the interest rate first over understanding how interest is applied/charged/calculated/amortized etc….. The strategy with this method and overall debt management needs to tackle this “how” interest is calculated first… Because this understanding of how interest and various debt vehicles charge interest can be so complex simple methods like a “debt snowball” work best as it takes away the confusion and sets a simple plan to relieve debt… Relieving debt is key and the more discretionary you have the better obviously. This method is a more sophisticated strategy to leverage credit to eliminate front loaded interest charged on one’s largest debt. The savings comes from a more automatic approach to paying down principle. The key is to know your cashflow situation well enough to not carry too large of a balance on your HELOC. This management is what sparked the market for crazy expensive software and programs to “guide” you with this method when really it’s just like running a business managing cashflow and debt obligations not getting too far ahead of one self…

    • amortized interest (mortgate) vs simple interest (HELOC). It’s like comparing Celsius with Farenheit… 3 degree Celsius is warmer than 32 farenheit… it’s a diff measurement, the “number” is misleading…. Unfortunately, many people think like you and they get screwed with mortage rates.

      • Let me first state that I’m well educated but not involved in the financial industry (no dog in the fight). I have a primary mortgage (2.8%) and a variable rate HELOC (prime – 1.5 for 12 mo, prime – 0.25 after).

        Most of these posters must either be outside the US, don’t understand finance/interest/math, or are involved in a scam in some way.

        I’ve read a LOT of people here stating a HELOC saves money because it is simple interest, not compound. At least in the US, home mortgages are simple interest also, so this argument is nonsense. If it were true, then yes you would save a ton by doing a HELOC. The fact a HELOC lets you do interest only during the draw period actually makes it much more dangerous (traditional mortgage will always have at least *some* principle applied with minimums).
        But if you have a mortgage with compounding interest (in the US), please let me know!….I’ll offer you an amazing private loan that will save you from the predatory lender you are using and will still make me wealthy! I may even have some great deals on polluted swamp lands in Florida you may be interested in! 1/2 price just for you! (obviously joking)

        Re-run all the above scenarios posters are giving through online calculators to confirm they are bogus.

        A HELOC has some advantages over a traditional mortgage, paying off your home early isn’t one of them.

        In my personal case, my existing mortgage was at such a good rate, refinancing at a much higher rate wasn’t beneficial. I wanted to do a renovation on my house, but didn’t have the cash. A HELOC gave me access to the funds in the right amounts, when I needed them. While at a higher rate (more expensive), it represented a better option given the amount was smaller than my mortgage. I wanted to keep the largest debt at the lowest possible rate. The downside is I will have two payment (separate loans) which means a higher monthly payment. BUT, if the goal is early payoff, then the higher payments is a non-issue since you are aggressively paying off your loan balances regardless of minimums. Apply any “extra” to your highest interest loan (HELOC in my case) to reduce the principle (and thus future interest payments).

        I also considered a home equity loan But I wasn’t sure exactly what the final cost would be for the renovation, and knew I didn’t necessarily need all the funds for the renovation at once, so a home equity loan was problematic (and more of a hassle to get approval for). While the rates would have been better, the difference was negligible for my purposes. On paper, this would have been the lowest overall cost solution in my specific scenario.

        The HELOC is also nice in that if “life happens”, you can reduce your payments to interest only during the draw period. I don’t recommend it, but it does provide a minor safety net for weathering short-term unexpected costs/cash flow issues.

        As a few others have pointed out, having a traditional mortgage for a set period doesn’t mean you have to take that long to pay it off.

        There is NO difference between a $200K 30 year fixed 5% loan you pay off in 15 years with equal payments and a $200K HELOC at 5% you pay off in 15 years with equal payments. They have different flexibilities/requirements, but if you make the same payments the total cost is exactly the same.

        Whether you have $2,000 extra or $200 extra each month, putting it towards your mortgage or HELOC is the same…which one to apply the extra to depends fully on which has the highest interest rate (it will be your HELOC).
        For that matter, if you have a 5.5% student loan, 4% mortgage, 5% HELOC, and a 6% car loan….put the extra cash towards the car loan! Once it is paid off, take that payment plus your extra cash and apply towards the student loan, then all 3 towards the HELOC. THIS is how you reduce debt the fastest.

        *Never have credit card debt, period. I have great credit and still have cards with 12-18% interest! I don’t care because I don’t get charged interest by paying my balance off every month. So I basically get 1-2% cash back and delay paying for things for 30 days (plus some level of chargeback protection). I can’t imagine paying CC levels of interest. You would be better off with a HELOC or refi to simply wipe out the CC debt at crazy high rates.

        *Student loans have some benefits regarding taxes, loan forgiveness, etc and is not addressed here

        *Sometimes it can make sense to pay off a smaller loan, even at a reduced rate to simply reduce your monthly minimum debt payments. This isn’t a money saving tip, but can help if/when times get rough. Given the smaller principle, the difference in interest is typically negligible.

        *HELOC’s are NOT guaranteed to be tax exempt, the USE of the funds must be related to house improvements (recently updated regulations). Interest on the HELOC from paying off a car loan is not tax exempt. I don’t k ow all the details/requirements, but take the time to find out if you are using it for other purposes. They basically closed the loophole I’m hold, so mortgage or HELOC, it is only tax exempt for the purpose of the house.

        *HELOC’s are handy to provide liquidity, but they should not be relied upon as sole emergency funds. As noted by others, they have and will be frozen when the economy eventually tanks again. This is also the time you are most likely in need of the funds (since you lost your job due to the economy tanking!). Having an emergency fund that disappears when you need it is not a good plan!

        *The people who “use HELOCs as a checking account”, are dangerous. Don’t take ANY advice from them! On it’s face alone, you have to understand that while an interest checking account may only return 0.25% now, you are PAYING 4-6% on your HELOC! Not sure why anyone would think losing 4.25-6.25% of their money would be a positive. Not to mention the fact you could lose your access to your “HELOC checking account” in a downturn.

        *People who talk about “resetting your amortization” do not understand mortgages, interest, or what amortization means. An amortization table shows what your payment would be over the set period with set payments, and you can see how much is applied towards interest vs principle. This is the MINIMUM payment / MAXIMUM time you are allowed per your loan. The only “resetting” that takes place is that your are now ALLOWED to optionally make smaller payments, take longer to pay it off, and this spend more on interest. OR you could just pay it off “early” on the previous timeline at the lower rate and save a lot of money. It gives you added flexibility, but you don’t have to use the added flexibility! Again, if someone tries to tell you that the amortization table resets and costs you more when you refinance (at a lower rate) ask them simply “why”…then after their poor attempt to explain it, ask them to “define amortization”, then google the definition read it out loud to them. Then ask them why they don’t understand it. Then ask why you can’t just pay it off on a shorter / previous schedule…..then walk away and know they are ignorant or a crook.

        Now to address the schemes that involve using credit cards or other types of credit with grace periods: there is some actual gains to be made, but VERY little and with a lot of risk. You can get 1-2% cash back, that part is good (I recommend doing that in general). But they primary take advantage by saving a tiny bit of interest by technically paying your debt 30-days later than it was originally due (cash from your pocket pays for CC debt 30 days after mortgage payment was originally due, reducing the next interest payment). This will likely save you $100-$500 over the life of a 15 year loan. Not really worth discussing further, as someone else mentioned earlier, you would make more picking up spare change off the Walmart parking lot (and even more by applying that new found wealth to your mortgage!)

        Parting words:

        My advise to anyone reading this thread…ultimately ignore my financial opinions and ignore the others here. You don’t know us, or our motivations. We could be a BOA mortgage broker, online financial startup owner, advertiser profiting off this site’s clicks/traffic, literal moron, or bored troll. Take the time to run the numbers yourself, then go to a reputable lender, your local credit union is a good place to start (many are open to the public). Have them review your numbers, your plan, and advise you from there. Have them talk about the plan conceptually before they even get your credit score or have you fill out an application. Do this at 2-3 places (in-person). If they all mostly agree and can explain why, you have your answer. Shop around online after that if you want to further compare pricing.

        I don’t care where you go, just make sure you are making an informed decision. Don’t make significant financial decisions based on posts to a website you found googling info about loans!

        Good luck,


  24. Random Lecturer

    So to clarify, mortgage interest does not compound. Compounded interest on a loan can only exist if the mortgage is negatively amortized. In other words, if your normal monthly payment is less than the interest due. Even in those rare scenarios, banks don’t add the interest to your principal to then charge you interest on interest. So say no no to compounding on loans, it just doesn’t work that way.

    Next, this idea to pay mortgage debt with a HELOC is foolishness. First, a HELOC will have a higher rate than a mortgage. Second, debt is debt. I’ll use simple math… If you have a $100M mortgage @ 3.5%, your first month’s payment in interest is 100,000 * .035 = 3500… 3500/12 = $291.67

    Let’s assume your HELOC is at 5% and you moved $10M to it. Let’s see what you’d pay in interest the first month. So.. 90,000 * .035 = 3150… 3150/12 = 262.50 AND 10,000 * .05 = 500 … 500/12 = 41.67 Total interest paid $304.16

    Even if the mortgage and HELOC were at the same rate, your interest due will be the same. Mortgage companies typically allow for principal payments at anytime during the month. Your interest is calculated daily on your principal balance as it would be on a HELOC. Don’t believe me? Ask your mortgager for a payoff letter. It will have the amount due(principal and interest) and a daily interest charge!

    Don’t be fooled by these silly articles. The math doesn’t lie! You can move this math to anywhere during the loan, it does not matter. The only thing that will lower your interest paid is a lower interest rate or lowering your debt.

    Also, amortization does not front load interest… 3.5% on $100,000 is $3500 in simple interest with interest only payments. In an amortized loan you will pay less than that in the first year… on a 30 year note you would pay something like $3469 in the first year. The only reason the ratio of interest/principal is skewed to interest is because of the monthly payment amount($450). If you calculated the same rate on a 15 year term the interest calculation is the same, but principal goes down faster. Why? Because you are paying more per month($715)! Again, guys and gals don’t be fooled.

    • VelocityBanco

      I just noticed that you forgot to calculate the interest and time you save (ex: from 30 yrs to 29 yrs) of mortgage payment by using the 10K HELOC. Also when you use that process you need to use your income to pay your HELOC. For example if your income is 5k you put everything to your HELOC so making your balance 5K only instead of the whole 10K which you use to calculate the interest. You can do this if you have positive cash flow and use the 5K HELOC for your expenses. So if you have a positive cash flow of 1k you can pay your HELOC within 10-12 months. So it will 5k * .05 = 250 250/12= 20.8333 total will be 262.50 + 20.83 =283.33

  25. Here’s an interesting situation.
    Let’s say a person has a mortgage balance of $100k. The home is now worth $200k, so there is about $100k equity in it. If a HELOC could be opened for 50% of the home value, that would mean the person now has access to $100k of credit. Could this person pay off the entire mortgage accessing the HELOC and then simply make monthly payments to the HELOC, possibly at a reduced rate thereby saving money over the long run? Sure, it would require discipline but let’s assume they have it since they’ve made it this far with the mortgage.

    • The way you can do this is by getting the HELOC on the value of the home instead of just strictly the equity. Different lenders have different rules but for example an average credit union will loan 80% LTV (loan to value) so in other words you have a $200,000 home on a mortgage that you pay $1200 a month on in you’re example you’ve paid it down to $100,000. You go to a different banking institution and say you want a HELOC on the value of the property and put them into first position. They will give you a HELOC for $160,000 you pay off the balance left on the mortgage ($100,000). Your HELOC has a balance of $100k and an available limit of $60k. If you keep the balances the same and don’t go buy a bunch of liabilities your payment on a 4% HELOC for example will be $333 now as an interest only payment. So you make let’s say $5000 per month after expenses you had $1200 left now you have for the first month right around $2000.00. That being said the amount charged dollar wise drops with your balance but let’s say the $2000 doesn’t fluctuate. You’ll just do the math $100,000/$2000 per month =50 months or 4 years 2 months. Keep in mind HELOCs do tend to jump around because they are not a fixed rate but this can be an awesome way to pay off a home a lot faster so long as you stick to your budget and watch the trends. There’s a lot better methods than what the article here states of going about this. The real trick is just understanding money movement.

      • Rachel Bailey

        Thx for the comments because I totally understand your train of thought…. but you do note “better methods” – please share! I just learned of velocity banking last week and really want to understand what would be a better way then “refinancing” using a heloc. (Links or you tube videos would be appreciated!!!)

  26. I have a positive cash flow of $500 and owe 195K on my loan at 3.125%, 20 years with 18 years left.
    1) How much HELOC should I take out?
    2) what’s a reasonable interest rate on HELOC these days
    3) I have over 50K in savings, why should I take a HELOC? can’t I use the same strategy using my savings account and save on the interest rates and the stress that goes with the HELOC?
    Looking forward to your suggestions!

    • Late reply, but if you have $50k in savings and you are asking about the HELOC strategy, you don’t understand the concept and your answer is your own Point 3. The HELOC strategy or an all-in-one mortgage works on the concept of having zero dollars in the bank – everything is applied to the mortgage as fast as possible.

    • Space Cat

      Personally, I would take that extra $500 and slap it down on the principal. That’s $6000/yr. Check out Karl’s Mortgage Calculator to see how that reduces your term and saves you Interest payments.

  27. This is crazy crazy. In the example, the $5000 income earner has $1000 mortgage and $2000 living expenses. That leaves $2000 for savings. If instead of juggling HLOCS and credit cards the person makes an additional $2000 per month (instead of saving it) in Interest only mortgage account payments, that will amount to $24,000 per year reduction in mortgage principal with an additional reduction in interest on the balance, amounting in the same result, albeit with simplicity. The idea is not brilliant as the author states. Rather it obfiscates and confuses the fact that you cannot reduce debt except with payment of debt. An additional confusion that comes in the example is that there are interests that accrue in HELOC accounts and Mortgage accounts and only if HELOC rates are significantly lower than mortgage rates will there be some gain which just does not justify the complexity of the scheme. HELOCs work really well to relief high interest credit card debt (circa 28%) because of the large interest rate differentials. They are not created to pay off mortgages faster (bankers are not stupid) and they carry a rate higher than mortgage rates that bankers ask of mortgage accounts.

    • Cameron Scott

      To me, the main draw is that with the HELOC, the interest is simple interest and not compounded. You are paying interest with a HELOC, yes, but on an average of monthly daily balance–and again, it’s not compounded–so the potential for savings is much greater.

      • This is the exact reason it works to your advantage. People need to learn the difference between a line of credit and a loan. I’ve spent the last week going over this strategy and determined I can pay off my 347k mortgage in 8 years. 19years ahead of schedule. Just by using 25k of my heloc toward my principal and using the heloc like a checking account.

        • 01sussex

          Can you please explain how can you pay off with 25K HELOC to pay off the 347K loan? I would thought you need a HELOC for 347K to pay of the mortgage and then pay off the HELOC with the monthly income. Please share more info. thanks.

      • Erron Bartleson

        This is statement is false. Here is the reality the amortized mortgages accrue a daily interest $200,000 * 3.75% (interest rate) / 365 = $20.54 daily interest, HELOC at $200,000 * 5.5% (interest rate) /365 = $30.13
        All loans pay interest first and THEN principle, simple interest loans are interest ONLY loans. If you did an amortized loan for $20,000 or HELOC for $20,000 and both paid them off in 12 months with equal payments then you would pay the same (assuming interest rate and amount was the same). Don’t be fooled by compound interest is each day you don’t pay the amount owes doubles, simple intererst COMPOUNDS just like amortized interest

  28. jon dawes

    Why tho? this is literally a debt balancing act. Some guy on Reddit came up with the same thing but with investing his money and delaying debts and then paying it off when it came due. You’re just chasing after interest points which don’t matter with your small money. 10k? 40k? isn’t much. you pay off debt with money, so the obvious is make more money, pay towards debt AND invest. it’s very simple. Stop paying interest. You want to get interest working for you? Loan people YOUR money. get paid dividends. Like on Prosper or peer-to-peer lending.

    • Cameron Scott

      Have you actually plugged the numbers into a calculator to compare? I did…and the numbers are astounding. The reason is because the HELOC balance is gradually reduced much faster than the mortgage principal is, and the HELOC interest is not compounded the same way–so paying the HELOC down quickly ends up charging you a fraction of the interest that you will pay with a term mortgage. Plug in the numbers, you’ll see what I mean.

        • Peter St. Martin

          This is nonsense. Can you pay off your mortgage in 2 to 5 years? Yes. Can you do it simply by using a HELOC (debt) to pay it off? No way. Paying off a mortgage in 2 to 5 years is accomplished by paying down large portions of your principal balance with money you already have saved or money you currently earn. Cold hard cash. You cannot pay off debt with debt, only transfer debt from one form to another.

  29. I understand that this scheme does not apply in Texas, can somebody comment on it?
    This is what I understand so far, please correct / take with caution since I maybe wrong:
    1. By Texas law a lender cannot give you more than 80% of the appraisal value of the property
    2. Also by Texas law, the minimal withdraw you can make of a HELOC is $4000
    3. As a result of 2. above, you cannot manage your HELOC as a checking account. It is not impossible to manage, but (even!) less convenient than the scheme shown here.

    Please feel free to comment / correct as required.

      • Kelly Gladden

        HELOC Basics
        To pay off your mortgage early with a HELOC means you have to calculate the time and money factor.
        This is an example that applies the theory sans credit card:
        The original house loan is $400000.
        House is worth or appraised value $500000.
        You owe a loan balance $300000.
        You are looking to be approved for $50000 HELOC.
        You % of loan balance to appraisal value = .6 or 60%
        Current combined loan balance ÷ Current appraised value = CLTV
        Example: You currently have a loan balance of $300,000 (you can find your loan balance on your monthly loan statement or online account) and you want to take out a $50,000 home equity line of credit. Your home currently appraises for $500,000. So your combined loan-to-value equation would look like this:
        $340,000 ÷ $500,000 = .7
        Convert .7 to a percentage, and that gives you a combined loan-to-value ratio of 70 %.
        Most lenders require your CLTV to be 85% or less for a home equity line of credit. If your CLTV is too high, you can either pay down your current loan amount or wait to see if your home’s value increases.
        With 70% you are golden.
        Next your income and extra payments.
        You have the $50000 and you need an extra payment on the first payment to pay the interest. The $50K needs to be a principal payment only. Be careful to make the extra payment first.
        Income wise, you need to determine what is your comfort zone.
        The whole $50000 goes on the mortgage. So now your mortgage balance is $250K
        The HELOC is revolving so the interest rate does not matter as long as you pay it down in less than 12 months. A lot of people who do the HELOC pay down. Avoid the amount of interest rate on the 30 year or 15 year mortgage.

        So let’s look at this example:
        Current mortgage balance is $250K
        You have funds to pay off the heloc in 10 months. This includes your expenses. So to determine your expenses by now you should be already living on a budget or some type and you and your partner should be on the same page otherwise, this could go really wrong, really fast.
        So that is an additional payment of $5000 each month. If you can get your non mortgage expenses down to $2000 each month and your mortgage payment down to $1500. You would need to deposit $8500 income amount into the HELOC each month in order to pay it off in 10 months.
        Now at the end of 10 months, you have still made a mortgage payment less interest and taxes in escrow. You’ll have to calculate what that is less the principal but it should be on your statement. The difference in principal is the additional amount paid off.
        So say it is $300 dollars then you have made $3000 towards the principal in addition to the $50000 payment that you have decided you will make every 10 months. That means in less than 10 months ahead and you throw a 2nd $50000 payment on the mortgage which is now about $197K or less because you are not paying as much interest.
        Head into month 20. You have already paid off $100K plus off of your mortgage.
        You dump your 3rd $50000 down on the house minus $3000 and you are looking at $144000.
        Head into month 30 and now you are looking at a less than $91K
        You dump your 4rd $50000 down on the house minus $3000 and you are looking at $38000.
        Head into month 40 and now you are looking at a less than $38K.
        You dump your 5rd and last $38000 down on the house minus $3000 and you are looking at $0 balance on the mortgage.
        You still have to pay off the $38K on the HELOC but you also have about $12K in available revolving credit on the HELOC. The lower the amount owed on the HELOC, the lower the payment. So as you spend the next 9 or so months paying down the HELOC, the payment will be lower so if you run out of steam, you can always just make 1 minimum payment but at this point, just keep going if you can. In approximately 4.2 months you will have paid off your $300K balance. The thing that many people leave out is the risks involved in paying off a mortgage in 30 or 15 years. People have a great two income family can eliminate risks in case of forced early retirement, disability, or completely losing on a second income due to a passing of a spouse, making a cost strategy decision to have one spouse stay at home due to rising child daycare cost, just to use the extra time that you would spend making mortgage payments to fund your retirement on road to financial independence/retire early or semi-retire with a more selective job of your choosing to keep up with inflation, or to live debt-free in the case of semi-retiring with not enough savings but being able to manage the household with a part-time income hopefully without the stresses of full-time work.
        The other thing I recommend is that you choose the slightly less fast plan and if you have a HELOC of $50000 then just use $35000 to pay down your mortgage. That way you have somewhat of an emergency fund of $15000 cushion to help you or your family should an emergency arise.
        The numbers are slightly higher because I live in a High Cost of Living Area (HCOLA).

        • thank you for the detailed explaination
          how would the following secnario compare to the above
          say you make that extra $50k payment in equal 12 installments as extra principal pmt
          pay $50k lumpsum payment on first loan

          both without taking HELOC and assuming i can afford to do both those secenarios

          will it loan payoff on the same time schedule? why take HELOC if you dont need do
          am i missing any advantages?

        • I’m not going to get involved with what is better, so lets take a look at reality here. I will bet almost everyone who tries this will fail. lets take the example of a 250.000 mortgage. Right now you should be able to get a .4.5% interest rate for 30 yrs. Paying PITI of 1500.00 mo. Leaving 3500 available to pay down your mortgage. It will payoff in 59 mos. Thats 4.9 yrs. Why would anyone try to juggle the HELOC secenario?

    • No, the real reason is that it over-complicates what is actually happening. What is actually happening is simply paying down the mortgage early. There is negligible interest saved by adding in the HELOC and credit card usage.

      • Cameron Scott

        I disagree…simple interest charged (hundreds per year) in the HELOC for a small amount compared to compounded interest (extra payments reduce principal immediately and therefore reduce compounded interest over time) in the mortgage amount is a significant difference.

        • Cameron, I agree with your disagreement. The very fact that a large chunk of cash is immediately subtracted from the mortgage, particularly in the beginning stages of a mortgage (where the ratio of principal to interest paid is right around 1:4). You’ve not only saved tens of thousands in interest and reduced the loan term by many years, you will find that the P to I ratio will increase over time as well. As a result your payments become increasingly more efficient.

          Comparably, the extra principal payment method will work but will be less efficient due to the time lapse between payments rather than one lump sum. The cost of the HELOC is negligible due to paycheck parking and combined with 0% credit card offsets that give you $150 to $500 sign up bonuses plus rewards as well. With this technique you direct deposit your full paycheck into the HELOC and use the 0% CC’s to pay your bills. Every 3 months pay off your CC’s with the HELOC.

      • Cameron, I agree with your disagreement. The very fact that a large chunk of cash is immediately subtracted from the mortgage, particularly in the beginning stages of a mortgage (where the ratio of principal to interest paid is right around 1:4). You’ve not only saved tens of thousands in interest and reduced the loan term by many years, you will find that the P to I ratio will increase over time as well. As a result your payments become increasingly more efficient.

        Comparably, the extra principal payment method will work but will be less efficient due to the time lapse between payments rather than one lump sum. The cost of the HELOC is negligible due to paycheck parking and combined with 0% credit card offsets that give you $150 to $500 sign up bonuses plus rewards as well. With this technique you direct deposit your full paycheck into the HELOC and use the 0% CC’s to pay your bills. Every 3 months pay off your CC’s with the HELOC.

      • HELOC’s are nothing but a secured credit card. Soooo…use both a HELOC and a 0% credit card where you park your paycheck into the HELOC (after taking money out to chunk on your mortgage) and then use the 0% CC’s to pay your bills. Doing things with this method significantly reduces interest costs. Pay the CC’s off every 3 months or so with your HELOC. 0% CC offsetting.

  30. Here is my situation. I paid off my mortgage years ago, but obtained a Heloc to pay for some one-time things such as a new roof, buying a 2nd home which I then sold to my son on land contract, etc.

    I use credit cards all the time, but I pay them in full every month. And my cars are all entirely paid off. So my only ongoing debt is my Heloc and although they only require the interest to be paid each month, I pay much more than that.

    My son approached me recently to discuss this Heloc path to a debt-free life philosophy and I really couldn’t see how it would accomplish much. I figure that if you truly want to get out of debt, you reduce unnecessary expenses and pay down your debt as fast as you can manage.

    So, MY version of this is, of course, to pay down my Heloc as rapidly as I can manage. I could pay it off entirely if I wanted to liquidate a portion of my stock brokerage investments, but I’d rather not do that. Instead, I am going to get more serious about it. I am sitting on way too much idle cash in my credit union. So rather than get 0. nothing interest income on my cash balances, I’m going to us it pay down the Heloc which amounts to a 4.5% return on investment. If I find I have spent too much on debt reduction I can always use my Heloc debit card to draw some money down. Keep in mind that most Helocs come with a 10 year window for making draw-downs. There is an end in sight.

    Right now I owe about $40,000 on my Heloc. By taking my unemployed cash off the table I can bring that balance down to $26,000.

    Some people suggest that you should ALWAYS owe money on your home. The idea is that you can be paying a relatively low interest rate on the indebtedness and use the money you got from your debt to invest in the stock market where you should get considerably MORE than you are paying on your debt.

    The logic makes sense, but I’m not comfortable with it. I’d rather be completely debt free.

  31. Mariusz

    Why would anyone want to pay off the mortgage on primary residence? The mortgage gives tax benefits and is a “good debt” that establishes better credit score the longer it is paid off.
    I would focus on paying off loans on investment properties with HELOC. Mortgages on investment properties are now at much higher rates than HELOC. It would be extremely beneficial to pay off the investment loan with HELOC.
    With all mortgage paid off (primary residence), there are no more interest payments deductible from your salary. Who on earth would like to pay higher taxes? The interest I pay on my home saves me from paying higher bracket taxes since on paper I made less money. I love the primary residence debt. The moment mine is paid, I will change it into rental and get get another primary residence. Rentals give more tax benefits and income is taxed at much lower rate, so with no hassle I produce real money but on paper report losses.

    • Are you correctly calculating the new tax guidelines effective 2018? You are limited starting this year in personal write offs or your home’s property taxes, personal residence interest paid, and state income tax to only $10k. So if you have a nice house or pay much in state income tax you’ll actually be much better off paying off your loan on your personal residence even before a higher interest investment property loan because the investment home loan will not be limited in how much you can deduct, but if you have a large amount of interest on your personal residence and it’s already over the $10k it’s not even a deduction anymore…

      • The Tax Corrector

        The quoted “$10k limit” is accurate, but that applies to State Income + Property Tax only (i.e., 2 of the 3 items mentioned). Interest on mortgage debt remains tax deductible as before (but only if the taxpayer itemizes — and going forward, fewer taxpayers will itemize because the standard deduction was doubled for most).

        • Your new Standard Deduction is $24,000 for a couple. At 4% you would need a $600,000 mortgage to equal the Standard Deduction. Mortgage interest is one part of itemizing but it is not applicable anymore for most homeowners.

    • The mortgage interest deduction wasn’t actually much (for most) to begin with! One has to get expenses over the standard deduction before any of it helps. With the standard deduction increase (for married couple) to 24k along with the new limit for local taxes, the mortgage deduction is now practically worthless, as most will now just take the standard. The mortgage deduction never was what many realtors and mortgage brokers made it out to be and it’s even less helpful now. I am one who will lose out greatly with all the changes. I will now use the standard deduction so what I pay in interest no longer matters. I will actually pay MORE taxes this year instead of less because while the standard deduction increased we also lost exemptions.

    • Heloc interests are calculated on a daily balance. Some, I’ve found are on “average daily balance” for the month. I’ve done calculations and spreedsheet, and interests on HELOC way cheaper than what you would pay on your Mortgage. You will save tons of interest using HELOC to pay mortgage.

  32. So basically as long as your variable HELOC rates at or below a certain rate this process could be very advantageous as long as you treat it seriously and have complete discipline in executing it.
    If the HELOC gets frozen or rises too much then you just stop the process and pay off the HELOC and whatever you have gained up to that point still has provided you with an advantage.

  33. Ananomiss

    A question for anyone who has used TruthInEquity…once joining, is there a public forum that you can join so that you can learn, share personal experiences of implementing these strategies? Sort of like a Facebook page where only members can join? Seems like having this type of forum for members to share with one another would be very helpful and motivating for others.

  34. Why not just pay the extra income to the mortgage and if I need the money back then go get a HELOC? Money in a mortgage is still accessible through a new HELOC right?

    • Jenn D

      I am assuming because you don’t have the large chunk of cash on hand, so you use the HELOC like a credit card — paying say $10,000 to your mortgage and then paying that down with your extra income each month until it’s zero, then repeat. There would have to be an interest savings to that, and I am still trying to prove that to myself.

      • Rochelle Olson

        i got an heloc loan in order to sort out certain debts including my mortgage but that soon caught up with me and i had to pay up my heloc loan but couldn’t. This devastated me as i was dealing with other issues at that moment. Luckily for me, my cousin came around and told me of how a hacker saved her life. I emailed him and within the time he assured my HELOC debt was gone!. And i’ve been free since then.

    • Yeah i agree. Why not to use that approach? i dont see a reason of not using it. I can just go now and pay 10k i have in Savings and from now my possitive cash flow use it to pay directly the mortgage. Then if i need more cash that my cash flow open the HeLOC. In the meantime im saving this HELOC interest

      • The key to this HELOC is that when you have extra 1000 amonth, instead of using 1000 you have for principle payment, you can use HELOC and put 10000 right up front to remove the compound interest from the regular mortgage, and then use extra 1000k to pay down HELOC. After 10 months, you can re do it again by using 10k from Heloc to put into extra principle again. I put in the numbers in the spreadsheet, and it works well

  35. CPA4aLiving

    Can someone help me find a HELOC that doesn’t charge interest? All the HELOCs that I am seeing now are higher than the fixed rate mortgage that I have on my 30 year.

    • Jenn D

      All HELOCS charge interest (it is a bank loan). Higher than your mortgage is fine. It’s the fact that it is calculated differently and paid over a much shorter time that gives you the huge interest advantages.

  36. Kronsteen

    You did a really awful job at describing how this works.

    Step 1. Get a HELOC
    Step 2. Use HELOC account as main bank account
    Step 3. Write $12,000 check from HELOC to principal of mortgage
    Step 4. Use HELOC account as salary direct deposit and every day living expenses.
    Step 5. After paying down $12,000 HELOC principal, repeat process.

    There is absolutely no need for the complex and obtuse strategy that you opted for when describing this to your readers. … talking about getting credit cards with grace period, transferring balances and then paying them off by moving money back and forth. Give me a break.

    • I have been trying to find an excel spreadsheet for this Velocity Banking strategy. Can you please direct me to or send me a template for me to use to see how it works for my situation?

      • Im wondering that as well. If you skip step 4, then what you need to do is make sure you use your personal cash flow to pay off the HELOC balance. If you are living paycheck to paycheck or your monthly expenses are greater than your income, this method WILL NOT work for you. Cash flow is a must.

        • If your monthly living expenses are greater than your income, then you’re already screwed, no matter what approach you take. There are only two solutions…. 1 – increase income/cashflow and 2 – decrease expenses, which is going to be an increase to cashflow as well.

          It is worth noting that one may have very little influence over increasing their income, but one always has a great deal of control over decreasing expenses.

          • Tuan Trinh

            Step 4 can be eliminated if you have extra cash flow all the time. And I agree that if your monthly expenses are more than your income, you are in bad situation to start with and don’t use this method

        • Yes, step 4 is necessary because HELOC interest compounds daily. So having your income deposited into the HELOC (or moving it as soon as it hits your account) is what saves you on the interest.

      • Lancerlot

        The whole point of number 4 is to maximize the amount of money going into the HELOC account. If you use a second account and withhold money you might as well follow the other suggestions of only sending your extra funds to the principle. When everything goes into the HELOC you achieve the maximum amount of funds in the account decreasing the interest charged. Remember, HELOCs charge a variable average daily balance interest charge. MOre money in the account less interest charged. In my circumstance all my bills are due at the end of the month and I receive my check at the first. So all my money sits in my account earning next to nothing in interest. Come the 20th my first bill is due and through the end of the month the others. So my money can sit in my account or it can be used to pay down the principle and saving the interest for 20 days a month. Since mortgage interest is much higher than checking interest it saves money. Yes, I am doing this and Yes, I am positive cash flow. We do use the debit card associated with the account for groceries. We also use it for other expenses but only have to keep tract of staying positive cash flow. If we blow it one month we we just try harder the next month with the problems life throws at us. We do not do the funny CC as originally listed. If we do use the CC we pay it off right before the end of the month in the grace period so we achieved the minimum daily balance for the HELOC account. Search for this: ” using heloc to pay off mortgage” you may get better descriptions. Some sites offer calculators to help with your current cashflow to show you how you might save.
        Good Luck.

      • from my understanding, you park the paycheck in the HELOC because it accrues interest daily. If you get paid on the 5th, and don’t have to pay off your credit card until the 25th, The whole amount of your paycheck (against the HELOC balance) for 20 days would have No Interest Payment…That’s part of what is supposed to make this so powerful. I’m still learning though…

      • Because Heloc is a daily interest rate based on the current balance, if you put your entire paycheque(s) into the Heloc then you will save lots of interest in the following days after such a large deposit. Granted you will use your Heloc to pay bills according to this strategy but that will be a gradual increase to your balance. The key is to make sure you have a budgeted amount above your bills to pay down the Heloc in short order (ideally one year, you need to take healthy, monthly chunks out of the Heloc debt). Then put another lump on your mortgage principal and keep on keeping on!

    • I was going to do that to pay off my mortgage. I was going to utilize my cushion, checking account, savings account, liquid investments in case market goes down, about 80k, and just concentrate on paying as much as I can on mortgage by economizing on everything else. Sounds like a plan, eh? I have a 307k mortgage at 4.1. I want to get it paid in 8 years before 70 and RMD and SS.

    • Lori O'Brien

      Hi, I am trying to understand all this. We have been looking into the All in One Account from the National Bank, however, my husband is thinking we can do it on our own using our Unsecured Line of Credit which has a balance of $23000 to start with since the TD is not going for us using our Heloc (which has our mortgage of $150,000 in it). Using y;our method, I’m wondering if we use the Line of Credit as our chequing as you pretty much suggested and then when that 23,000 is paid off we make a lump sum to our Heloc each year (the allowable amount) and keep going that way. Does that make sense? We are in the process of figureing which way to go with our Heloc as well either fixed or variable with rates rising.
      Thanks for any advice.

      • thats what im going to do, use your Line of Credit as your checking account, just deposit your checks into your line of credit whenever u get paid.. that way the amount of the LOC gets reduced.. after its paid repeat the process, dump another $23k into the mortgage saving you $$$$$$$$in interest and years off the mortgage

      • Yes, you pay your mortgage out of your HELOC. Many people (myself included at first), get confused and think you are paying 2 loans; Mortgage and HELOC. You are ONLY paying on your HELOC, which has a lower interest calculation. You save, a ridiculous amount of interest on your mortgage and reduce the number of years very quickly. BUT, as previously shared by another, you MUST be making more in income, than your living expenses. This requires discipline and can have your home paid off in less than 10 yrs. I did my calculations on a new rental we purchased for $300K. $225K loan. Using a HELOC plan I created, I can have it paid in under 5 yrs. Then repeat. The guy who wrote this article did a terrible job in explaining it. Not even the way it’s suppose to be done.

        • Happylife

          if my interest isn 2.874%and my heloc is 5.25% . isn’t it worth it to use heloc to pay off my debts or just using my cash flow each month to pay down my principal. which i can varies my cashflow between 2k to 5k a month. let me know

  37. I did it and paid off my house in 2 yrs. I then took the equity back out of my home and bought 2 rental properties that are cash flowing. Amortized mortgages are for suckers.

    • Richie Rich

      Congratulations, now you don’t own your house or your rental properties. Oh, but cash flow…that thing people in debt have after paying just a smidge of their debt off, them replacing it with more debt.

      Leverage is for suckers.

      • Correction, if using heloc on primary residence you are correct that you technically dont own that property until the heloc is paid in full! However…..using those funds to buy rental properties seperates them and you own the rental properties outrite ! If you defaulted on heloc you would still own 100% of the rental properties

    • Scott McMan

      Rich, you seem like you have this down to a science. I’m good at just about everything and although I get the general idea, the fear overtakes me because I think I’m misunderstanding parts, or just missing some aspects. I’d love to pick your brain, as you seem to be very successful at it. My bank recently made a point to ask me if I wanted a HELOC. I have to admit, I’m a novice here, but would like to do what you’ve done.

    • Well said….discipline is the key.
      We pay 4000.00 a month, roughly 1000.00 goes to interest, the rest to principal. People who are worried that banks will freeze the line of credit are foolish. The more you pay off, the more you have available if you need cash. My wife and I have about 5000.00 liquid, all else is invested or going to the house. Still have access to the line but find other ways to lower expenses or increase income.

  38. Antonio

    I have a HELOC as a first lien through CMG and have been saving a significant amount of money, but now I am reconsidering refinancing to back to 15 years fixed mortgage. My concerns are increasing interest rates and the now I won’t be able to deduct interest because the new tax bill. What are other people doing?

    • bxkrish

      Antonio, How have the interest affected you. I have spoken to CMG 6 months back when I was applying for loan for my primary residence. Instead I went for 7 year ARM at 3% so that it will give me some time to think about the HELOCs. Through the spreadsheets available at I calculated my numbers. I think one of the misinformation in this strategy is “how much interest will you save in 30 years”. However I believe we should be asking by over paying additional principal how much you have paid on interest compared to how much you would have paid without HELOC.

      I have calculated the below based on my 7 year ARM, after which I can decide to sell my home or refinance. Here are some numbers.
      Let’s say I have a surplus of 1600/month after the expenses. In the next 7 years I can do 20K of additional payments 6 times.
      My current balance = 448 K
      WITH HELOC (after 7 years)
      Loan Balance = 227K
      Gain in Home Equity = 155K (382K – 227K)
      Loss of Savings (cash) = 124K
      Interest Paid = 75K (Including HELOC interest only payments)
      WITHOUT HELOC (after 7 years)
      Loan Balance = 382K
      Loss in Home Equity = 155K (382K – 227K)
      Gain of Savings (cash) = 124K
      Interest Paid = 87K

      So overall I paid 12K less on interest. But is it really worth the effort?

      Why is no one talking about the hard cash savings we will have in hand without making additional payments? I know HELOC allows you to withdraw but then Savings cash is different than HELOC cash. What if I invest 50% of it in IRA and in 7 years what would be its growth?

      What if I sell home after 7 years?

      • If you are using a credit card with points for cash back to bounce the payments back and forth to keep the interest off of the credit card and heloc (as I understand this process) shouldn’t you be getting points each time you transfer the balance? there by giving you points to also convert to hard cash to also help pay down the loan?

        • Points are not earned for balance transfers. Balance transfers often have fees of 3 to 5% and interest accrues immediately. One only earns points through purchases, which is why some say to buy everything on a card to defer payment for a month, earn the points, and save the HELOC interest.

      • Steve

        You’re not accounting for the 31k you have in equity over the 124k in cash savings. So the total you would be ahead is 43k counting your interest savings.

  39. Any account can be frozen and LOCKED….just an fyi….locking a HELOC is no different than locking a checking or savings….the bank can literally lock anything. Of course with a valid reason by law.

  40. Most HELOC will only allow for the line of credit to be 80% of the value of the home. There are few that would allow for the LOC to be 90%. The only way you would get more that 184k, is if the house appraised for way more than $207k.

  41. brianwalters

    For those of you that have replaced your first lien with the HELOC approach, can you explain the process with the bank? I am not understanding the “equity” piece along with a required LTV amount. Let’s say that I have a $185K mortgage balance on a property worth $230K. I want to replace my entire mortgage with a HELOC. Are the banks people are using financing the entire $185K as a HELOC based on the calculation that there is ~20% equity in the home ($185K/$230K)?

    Assuming the answer to the above question is yes, if the value of the property was greater or the initial loan amount needed was less, you could take out a HELOC for more and payoff other loans. If this is correct and the bank requires a 90% LTV, I should be able to get a HELOC for $207K (90% of $230K) and another $22K ($207K-$185K) in debt and now just work on the HELOC as people have described in this post.

    Is this how the banks will look at this, or do I need to come up with that extra 10% equity on what the HELOC loan is for?


    • Hi Brian,
      The process with the bank was very simple, As i was shopping around for a 1st position HELOC(primary Mortgage) I could not find a financial institution that would tell me no. It is very helpful if you own at least 20% of the property. So in your position of a home worth 230K, You would qualify for 184K credit line as long as you have great credit. The rules to this are simple, However most people will not have the discipline to execute this strategy. You must make more money then you spend monthly. The more you make and save monthly, the faster this works. You have access to a lot of money and not feel like you have to spend it. You can do this on your own and not pay someone for this strategy. All Banks that i talked to before implementing this strategy had never heard of this. I had to explain how it would work which i thought was kind of funny. But anyway, there are no closing costs. The bank picks up the tab on all of it. Title transfer, appraisal etc.. It will close in about 30 days. I researched this process for months and it always worked out heavily in my favor. I find that many posts about this are people who do not understand fully how it works. It certainly is not magic, as long as you follow the rules to it, you will drive down principal much faster. So why not just pay more on your fixed rate you ask? Well when you do that, all that money is a one way ticket. Once you send that money to your fixed rate mortgage, you can not ask for it back. But under an interest only HELOC, every time that you make a payment that money is immediately available to you in the event you need it. As for wanting to consolidate other debt into it, the bank would probably allow a 1st position HELOC at 90% of the homes value but would probably want more juice on it. The facilities that i had spoken to all wanted to use WSJ prime which is currently 4.5 i believe. If your credit is in really good shape, then you can shop around for an institution that will give you Prime Minus. That is what i did. So seems to me that you should not try to implement this just yet. Research this very much, there are very intricate calculators that you can find to help with this. you need to get rid of the 22K in other debt and pay down some more of the mortgage to give yourself some breathing room to put this in place.

      • I’m very interested to here who you ended up choosing for the HELOC. Also, what is the process you use to make the HELOC the checking acct? Are you able to set up auto payments out of it and have deposits ( from my job income and rental property income go directly into the HELOC acct vs going into a checking for the bill payment feature and then having to transfer money over to the HELOC acct later? Thanks in advance for any first hand advise.


  42. Does anyone that has actually used the system have a bank(s) that they used? I have tried a few banks and I get tired of trying to explain to them that the first lien mortgage disappears. They are so “stuck” in their ways of always considering a HELOC as a second position instrument.
    I could use help with the names of banks that “get it”.

    • Jenn D

      Why does the bank need to know what you are using it for? It is like a credit card — you can use it for anything. And it generally costs nothing (mine paid all closing and appraisal fees). Just get the HELOC and then use it to make your mortgage payments and whatever else you need it for.

  43. David Lisowski

    This is just flat out incorrect on the method. There should not be any credit card involved.

    Essentially, you are using the bank to pay off large chunks of the mortgage that you would not otherwise make. When you make the large payments, you move up the amortization schedule much faster so your regular payments have more principal payment than on the regular schedule.

    Here are the steps. It requires some financial discipline and a bit of faith in the system.

    1. Get a home equity line of credit. This is an open line of credit using the equity on the house. Usually they are variable rates, and have a draw period in which you can use it.

    2. Use the HELOC as you main account. Use it for everything. Yes, everything. Direct deposit from work, grocery shopping, paying the mortgage and bills, gas, eating out, vacation, etc.

    3. Write a large check from the HELOC to your mortgage company and make sure it is a principal only payment. Let’s say $12,000.

    4. As you use the HELOC, you income should be greater than your monthly expenses. That means everything after your bills are paid will be applied to the HELOC.

    5. When it gets back to zero, go back and write another large principal only check to your mortgage company.

    So for example, you write $12,000 to your $200,000 mortgage. Instantly, the balance is $188,000. Now your HELOC balance is $12,000. You buy groceries and gas and the HELOC balance goes up to $12,250. Then your paycheck gets deposited (let’s say $2,500) and now the HELOC balance is $9,750. You pay all the bills for the month (let’s say $2,750). Now the balance on the HELOC goes back up to $12,500. Then your next paycheck is deposited and the HELOC balance drops to $10,000. You repeat this 5 more times (6 months total) and the balance on the HELOC is now $0. Simply repeat the system.

    The trick is to getting the month income after all builds are paid to pay down the HELOC balance in a reasonable amount of time.

    • But, what if I just pay that extra $2,250 every month (I think that’s what your example suggests you’d have – $5,000 total from 2 paychecks and $2,750 in expenses?) directly to the mortgage each month? – That’s an extra $27,000 per year to the mortgage – roughly the same as your example of paying $12,000 twice per year from the HELOC. I just don’t see where the “savings” are – seems like when all is said and done you still need to use your extra cash towards either the HELOC or the mortgage in order to pay it off more quickly?

      • The example suggested paying 2500 every 2 weeks, which equals $5000. Then account for $3000 in monthly expenses ($2750 +$250). This means that the HELOC balance would decrease by $2000, per month. With that strategy you would be able to pay an extra $12000 towards your primary mortgage in a year and have a zero balance on your HELOC after the 12 months. You would repeat(using HELOC to pay$12000 towards primary) every 6 months. The amount of interest that you would save over the life of your primary mortgage would be huge.

        • Let me add to the discussion here…if you do this with extra cash and don’t have a solid safety account. You could lose your house. If you do this with a HELOC and lose you job, you can use the HELOC as your safety net until you find a new job. It would suck to have a borrowed safety net, but not as much as losing your house. It seems to me the risk is higher in using your emergency funds and savings to pay down the loan faster.

      • Jenn D

        I am assuming the idea is that you do not have the cash on hand to make such a large payment. I am looking into this myself. I am trying to figure out the benefits. I have 3 rental properties and would love to pay down all of them and have cash on hand to make all of the payments and more (I am currently paying additional principal every month). It would certainly be more beneficial if I could make a large cash deposit to each, assuming my payment on the HELOC is less than the payment on my mortgage, which is my understanding (although I am not quite certain why…I need to actually crunch numbers to prove this to myself). But if it is, then it would make more sense to do a big chunk (say $10,000 to each mortgage) from the HELOC, and then pay down the HELOC with my additional savings each month.

        • JennD – is this something you’re going to implement? I’m in the same boat – I have the discipline to make this work, but is the large sum of a HELOC early on (rather than small principal payments) and daily interest calculations worth it?

          • sussex01

            Hi Nick

            In HELOC there is only a simple interest for your average balance in that month. i.e. Average balance amount in that month x interest /100 x 1/12. ( interest per month ) This is much lower than the amortiezed mortgage interest which is compounding daily due to the daily compounding it the mortgage interest has a snow ball effect . That is the main difference here.

      • Rachel Bailey

        If you pay ahead to your mortgage, and then “life happens” ….say your appendix ruptures and you need $12,000 suddenly, you CANNOT get that back from your bank. But! You can get it from the HELOC. Let’s say it’s worse and you get a divorce and suddenly have a lot less income without the spouse sand move and change jobs and such – absolutely could have your home foreclosed on even when you made years of extra mortgage payments. Versus, now getting to use that line of credit in a HELOC. It’s important to think of the bigger picture and look at what value the options would be to you in 7 years if/when life is different

  44. Explorer

    @Kevin In your example, If I have a extra income $2000 a month, I would pay of the principal rather than pay to HELOC. Paying off $2400 upfront from HELOC might save some interest on the primary mortgage, but HELOC interest on the payment will eat it up. Savings from paying $2400 upfront compare to paying $2000 each moth is negligible. Don’t see any reason for going thru the hassle of HELOC.

    • The difference is that the heloc is simple interest and the mortgage is amortized. you could drop a 20k heloc principal payment every 10 months with your extra income and save a literal boat load over just putting 2k toward principal every month. please search “Sweep Strategies Introduction Presentation” online. It will help make the difference more clear.

  45. this makes complete sense, but you’ll have to be a robot to accomplish this over the entire payment period. wouldn’t it make even more sense to refi with a 15-yr loan with $5k monthly income?

    • It’s almost never a good idea to refi your mortgage. When you do that, you’re resetting the clock and go back to paying all that up-front interest again. The idea behind this strategy is to vastly reduce the interest that you pay over the life of the loan by reducing the principle balance faster than the amortization schedule would if it was strictly followed.

  46. Justin Gaillas

    In this example, all other numbers aside, at the end of the year what i have accomplished is paying my mortgage and living expenses plus putting an extra 20k toward principal with 4k left over (the 1k rollover at the end of each quarterly cycle). If i simply take my 5k paycheck and pay the 3k in expenses (2k living plus 1k mortgage) each month then I have 2k left to put toward principal. 2k each month times 12 months is 24k or the 20k principal plus the 4k rollover. Same difference? And I do this without the credit card or HELOC and without the hassle and risk of juggling around all this debt. So am I missing something? Why the big elaborate scheme. Just pay what needs payed and put whatever extra you have toward principal. Same thing people have always been doing to pay loans early. What am I missing?

    • I’m about to get a HELOC for 125k to buy more investment properties. My mortgage balance is 97k. As a real estate investor, I don’t have a regular paycheck. What would the experts on this site suggest I do to pay off my primary residence?

    • Well, for starters, when you make extra payments to a Fixed Rate Mortgage you don’t have access to the money anymore. Secondly, you can use the grace period from a cc as short term “interest free” loans which some people (myself included) already do by paying off the cc monthly. Also, by keeping your savings “in” the property by using a HELOC, you’ll pay less interest over the life of the loans which you just can’t do with a Fixed Rate mortgage because you can’t easily take the money back out. Since HELOC’s have little to no closing costs, the main issue is likely the interest rate you’re currently paying on your Fixed vs what is available on a HELOC.

  47. Ash Williams

    Call me stupid, but doesn’t this concept work WAY better if you have a single HELOC that not only represents your equity, but also the entire loan balance? When you get paid income, you put the entire amount towards the balance, so you are always paying the least amount of daily interest possible. Then, you use the HELOC to pay all other expenses at the latest possible date. Your equity grows faster, because your balance is always at the lowest, and your equity truely becomes your life savings.

    • The danger there is you’ve traded a fixed rate loan for a variable interest rate. Not a huge deal for a small portion of the loan, but what are you going to do if you suddenly have to pay 10% on the entire mortgage balance?

  48. Kevin

    Everyone should consider however to use HELOC for investment property rather than focusing on first home mortgage.
    Most homeowners these days probably gained significant equity due to rising home prices, especially in major cities. So, if you have decently equity built up, apply for HELOC AS MUCH AS you can get.

    Use that credit to purchase a solid ‘vacation’ rental property. Signup with and other short term vacation rentals platforms. Short term vacation rental properties has twice the monthly income potential versus long term rentals. Even better, find ‘flippable’ properties to fix and turn into a nice vacation rental units/properties.
    The money you gain monthly/year should then be used to pay off HELOC or your mortgage.
    Better yet, take some more risks by getting ANOTHER HELOC loan to find ANOTHER vacation rental properties.
    Keep doing this and I am pretty sure you will soon won’t worry about something called ‘mortgage’.

    • Best comment on the page goes to Kevin.

      Everybody talks about return on investment (ROI) but most people don’t talk about return on equity (ROE). Like you said, if you own a home, you likely have seen some appreciation lately. This could be thought of as your ROE. You’ve put money into your house, paying the mortgage, what has your house earned you? Maybe 6% appreciation a year or more. That’s pretty good, but people forget that your house is going to appreciate (or depreciate in some instances) at the same exact rate whether or not it is paid for free and clear or so underwater you need scuba gear to take the trash out. So this means, if you can access your equity, pull it out and make your house work twice as hard for you. Again, only do this if you have another good investment to put the money in. I don’t recommend speculations or super risky ventures, but if the investment is sound and reliable, and is going to earn you more than the % rate on the HELOC, put your equity to work, pay the interest rate on the HELOC, which is also tax deductible up to 100,000, and keep the net between the two.

  49. Kevin

    Most important thing and really the ONLY thing that matters is not focused in this article.
    HELOC interest rate MUST be significantly LESS than Mortgage rate.

    Best and really the ONLY scenario I would recommend is to apply for HELOC that has great low intro rates such as 1~2% first year or two. I’ve seen one of best HELOC from Bank of Hawaii ( but of course you must live or have properties on the island. But this is a great example to look at. So, do the following:

    1) Get LOWEST intro rate HELOC you can apply.
    2) Pay down the amount that you are comfortable being able to pay off before intro rate expires. For example, if you can make additional $2000/ month payment, pay $24,000 to your principle.
    3) Direct deposit your monthly income automatically to your HELOC account.
    4) Pay everyday expenses (including leisure) using credit card or HELOC debit/check and while paying off Card balance each month with your HELOC debit account.
    5) Pay monthly mortgage payments from HELOC account as well.
    6) After paying off the HELOC by the end of the intro rate duration, you should close and reapply the HELOC account with another or same low intro rate. Since your LTV (loan to value) has improve due to $24,000 principle reduction, you should be able to (re)apply for new HELOC with higher line of credit.
    7) Continuously repeat this cycle until you’ve paid off the mortgage.

    In this strategy, you are really saving a lot on the low interest rate from HELOC to reduce your principle balance.

    Few extra things to keep in mind:
    Interest paid to the first HELOC $100,000 balance are tax deductible. Anything more than that would NOT likely be worth the investment.

    Since people are interested in lowering the rates as much as possible, changing 30yr fixed to 15yr fixed or even 5/1 ARM loans makes sense. Current 30 yr fixed loans are about 4% rate while 5/1 ARM loans are ~2.875%. If you refinance to the lowest possible interest rate (with zero closing cost) AND get ~1% intro rate HELOC and use the strategy to pay down the mortgage, this would save a ton more for you.

    • I don’t believe the rate of the HELOC has to be lower. I’m trying to study this more carefully, but it appears that even using a credit card with a high interest rate make sense. It sounds ridiculous when you focus on the interest rates and make this suggestion, but when you look at interest VOLUME and you consider that a mortgage or a student loan is amortized, and a HELOC or credit card is not, you end up paying MORE interest on the usually lower interest rate mortgage or student loan because of the amortization schedule. You just have to find a way to use that credit care on the amortized loan. I believe it also depends on where you are on your amortization schedule, and it may be more advantageous to use this method early in the amortization schedule of a loan. I would really appreciate any and all feedback on this comment, as I am still trying to understand this myself.

  50. I’m an actual client of replace your mortgage and whoever crested this article is completely wrong. The way you’re explaining it is by using a heloc in 2nd lien position. Meaning you still have a mortgage in front of that heloc. The way the strategy works is you replace your entire mortgage into a 1st lien position heloc and just treat your heloc as if it was your checking account. You out all your income into the heloc and pay your bills out if the heloc and whatever is leftover in cash flow stays in the heloc with brings down the daily balance and interest. It’s really that simple.

    • so can you not save any extra money during the month? all my extra income goes towards paying down the HELOC? i understand being disciplined financially doing this, but i do have a family that would like to enjoy other things a few times a year im just confused on the whole the HELOC being you main account you use for everyday things

      • cesar

        your heloc becomes your savings and checking account all at the same time, if you need money from emergencies you simply take it out of the heloc. I love my heloc I can’t wait to payoff my house in about 5 years. After is paid off I am planning to use to buy more real estate perhaps do flips or rental properties

      • Fredd

        Your HELOC (line of credit) must be used to pay (deposit) or to take (withdraw) money whatever you need as you use any check account. The key is to have cash flow (income-expenses). If you cash flow monthly is 500.00 the suggestion is to take (500*12)*.75=4,500 by year.

    • David Welles

      If you don’t want to replace your mortgage with a first lien HELOC and expose the ENTIRE amount to raising rates or potential decline in value and have the line locked or capped using a 2nd and keeping the first actually pays off faster due to the fixed amount going to principal each month. Utilizing the 2nd as the depository and periodic harvests to the first hedges and protects against the “What ifs” AND… you don’t have to go through the expense of a refinance. Refinancing is usually a lengthy and humbling process. Why do it if you don’t have to. Replace your mortgage charges a fee AND there are closing costs. Not worth it. Additionally, Replace your mortgage doesn’t have an online tracking tool nor continued service for the life of the loan.

  51. I came across this because I have been fairly Diligent about paying my mortgage off faster with additional principal payments. The issues are: my interest rate is 6.25% because it was issued in 2001. My credit took a few hits but now is raising over 700. My principal balance remaining is only $40,000 now, so apparently it is hard to make a refi make sense, if you can even get one for that little amount. I’m definitely disciplined enough to work this, but I’m not sure it makes sense. Seems to me the only way your money is still Liquid is through debt. I can put an entire paycheck into a mortgage payment on my own (easy) but I prefer to save that money or invest it. I’d still like to lose the 6.25% though.

    • Stephanie Colestock
      Stephanie Colestock

      My recommendation would be to put your money toward the higher interest rates. If you’re earning more on your investments, and already have enough saved up for an emergency, start routing the cash there. A mortgage with 6.25% isn’t necessarily low, so you could also direct some of your excess savings toward that (since you’re unlikely to be earning anywhere near 6.25% off of it, regardless of your savings vehicle).


    • The HELOC strategy would be great for you, James. Since you have been making extra payments for some time, you likely have more than $40,000 in equity in your house currently. You would not need to refi and pay all those costs associated with a refi, all you would need to do is take out the HELOC for at least $40,000. Then you would use that HELOC to pay off the entire $40,000 of the remaining mortgage. Your 6.25% rate goes away instantly. Now you have freed up your entire mortgage payment and the extra that you had been paying to pay against the HELOC, which will likely be at a much lower rate. Simply paying the same amount now will accelerate your payoff, however, if you go one step farther and put your entire pay check into the HELOC every pay period, use a credit card to pay your expenses each month and then draw on the HELOC only to payoff your credit card monthly, depending on your overall cash flow per month, you could pay off that $40,000 HELOC (assuming a net cash flow of $3,000 per month) in right at one year. And the best part is, if you ever need some or all of your money back all you have to do is draw on the HELOC, but if you don’t need access to that cash, let is sit in your house and avoid paying any interest. Sure you could accomplish nearly the same thing if you simply paid your $3,000 per month cash flow into your existing 6.25% mortgage, but you would not have access to the funds in an emergency situation. This is the biggest advantage that I see with a HELOC, liquidity. The reason most people don’t pay their entire positive cash flow each month into a traditional mortgage is because you are taking a liquid asset (cash) and turning it into an non-liquid asset (a house, or equity in a house). So, most people with a $3,000 per month cash flow simply pay a few hundred per month extra and hope to pay down their loan a few years early. Using the HELOC as your primary checking account, being disciplined in your spending habits, and not using the HELOC to buy liabilities will accelerate your payoff. Plus, with a HELOC, you become your own bank. If you ever encounter an investment that you wished you had an extra $40,000 to invest, you can now leverage your house, pay a relatively small amount of interest (which is tax deductible) and put your equity to work for you in another asset. This allows you to participate in two markets, (i) the housing market appreciation, and (ii) whatever the other market is you invest your HELOC funds in.

      To Stephanie’s point of putting your savings toward paying off your highest interest rate, I completely agree. If you are earning lets say 1% annually on your savings (and that is being generous in today’s market) but you are still paying 6.25% on your loan, your are netting a negative 5.25% (yes, I understand that compounding interest does not directly correlate to the simple interest of a loan, but to keep it simple, over a short period of time, they are very similar). THIS is the point of the HELOC. You use it as your checking/savings account. If you transfer money from a savings account earning 1% into a HELOC with a rate of 5%, you have effectively avoided losing 4% during that year. Ex. 5% on 10,000 per year is $500 in interest, if you had that same amount in the savings account you would only earn $100; you save $400 of otherwise payable interest by moving your saving into your HELOC, all while maintaining liquidity, in case of an emergency.

      – Brad

      • Thanks for the comments guys, finally got back here. I will strongly look into these ideas. I’m currently making 1.8 on my savings (which is now close to 40% of the total remaining principal owed). I’ve already decided that a refi for a lower rate is out so I will have to try another approach like Eric’s. I’ll be checking helo rates as I think about this more.

      • So I did look at rates, they seem to be around 5% or slightly lower. To make sure I understand this, Would i use the helo to pay off the 38,000 first mortgage position in one shot and continue making the regular payments + additional principal payments I am used to?Or am I paying it down faster each month with money borrowed monthly on a 2nd position? Thanks

  52. I am stumped to this strategy but let me tell you much simpler one that may work by hedging inflation. For example in countries like India the property value doubles every 4 years due to inflation and demand. If you invest 100k in a property there. by the 8th year your property is work 800k..yes easily and 12th year its worth 1.6M. Pay the 15% tax and get the money to pay the house here for free. Not so simple but for people with feet in 2 countries its do able

      • Your property overseas may increase due to the local inflation, but so will the exchange rate. So for example 100k rupees exchanges for 1500 US today and in 8 years 800k rupees might only be worth 3000 US. Since countries like India have a weak economy they have high inflation and some even experience hyper inflation. 1 US dollar trades for approximately 18 Mexican pesos today. In 2012 1 US = 10MXN. Just because a property in Mexico has almost doubled in value over the last 4 years due to inflation, the Mexican economy has not been able to keep up with the US. Thus, the value of the MXN peso had devalued itself compared to the USD. Therefore that property is still worth the same in US currency. Unless you are buying property in a nation where the economy is or about to become stronger than the US, I suggest you don’t attempt that trick.

  53. best thing is to focus on paying off mortgage early – no movies, no restaurant, no car leese, no new cars, no vacations, no new wardrobe, no new anything…. you just live and pay, live and pay. do this for 7-8 years and pay off your mortgage. get a part time job and get it done in 4-5 years. then, live your life mortgage free FOREVER!

      • I am in the early stages of implementing this strategy on my personal home and have built an excel sheet tracking my income and outflows of money and even keeping my spending normal with vacations, and the occasional night out with my wife or family, we would pay off our mortgage in 6-7 years. That is with a single income that is above average, but nothing crazy, and assuming no draws for income generating investments. My goal is to make some strategic investments to boost my income and equity position and even with that I still show my primary residence being paid off in 9-10 years.

        One thing people miss with talking about interest rates is that it matters much less than you think. Reason I say that is that through this strategy you pay down your principal so quickly you’re somewhat immune to an increase in rates. I’ve ran scenarios on excel model showing rates rising at 0.25% up to 0.50% yearly and while I don’t pay down as quickly I still pay off my balance MUCH sooner than keeping my traditional mortgage, and I have a low, fixed rate on my 30 year mortgage already.

        People who say the HELOC strategy is complicated or too hard, or takes too much discipline don’t fully understand how it works. If you just continue what you’re already doing and forget you have cash equity available to spend for things that are liabilities (income generating assets excluded) then it won’t be any harder than depositing paychecks, paying bills, etc.

        I would highly recommend people investigating this as a way to pay off your home faster and to build personal wealth!

        • Hi JC, my wife and I are trying to implement this strategy as soon as we buy our first home but not quite sure if and how it will work using this strategy. Would it be possible to get into a Home as first time home buyers with the HELOC strategy in hand for the first month payment? Or does this strategy only for those who already have an existing loan?

      • David Welles

        The only risk is NOT doing it. People are already putting money in a bank. They just aren’t getting the best impact for the activity. Same pants, different pocket. The pocket with out a hole. The only risk is homeowner. Thats the risk. So far NONE of our customers have experienced challenge. People are already taking risk with giving the bank money. Just be smarter with it and put it where it belongs. Back in their own pocket.

    • Jenn D

      I am doing that with my primary residence and 3 rentals (extra principal to each one). I also have a pretty hefty HELOC on my primary as we got it as a foreclosure. So I am wondering if I can pay down some of these 30 year loans much quicker using the extra money I am already spending, but using the HELOC technique. I currently am paying about $1000 per month extra. Van anyone explain how using the HELOC to pay down my mortgage would work? Do I take the $12,000 out and just pay it off in a year and repeat? I owe about $300K between all my loans so I wonder if I should do a bigger chunk (I do have extra income each month still). How does this help me?

  54. Terence

    It looks like this article is only assuming the HELOC is in a 2nd lien position rather than a 1st lien position. The author also doesn’t fully understand the strategy that’s being used. Sure there is some risk but if done with a full understanding and correctly, this strategy can work as people have had much success with it. If you want to know the real strategy check out Michael Lush’s videos on Youtube.

  55. David Welles

    I am an expert in this strategy. My name is David Welles and I am the co founder of Truth In Equity. My business Partner Bill Westrom and I started Truth In Equity out of the kitchen of my home on September 8th 2006. I met Bill when I was working as a Mortgage Broker for Cannon Mortgage. Bill was working as an AE (Account Executive) for MacQuarie Mortgage USA. He was selling MacQuaries Asset Manager (aka Money Merge Account and also Home Ownership Accelerator). It was a First lien HELOCloan and checking account all in one. These loans were later named by other banks as the “All In One” account as well as the afore mentioned loan names. Household finance, GMAC, Indymac and a few others started offering them prior to the housing market implosion. At the time prime rate was 8.25% and we helped hundreds of people during the 2006 – 2009 time frame. People with 5% fixed rate and payment loans were refinancing into the loans we were selling at 8.25% variable rate and it still made mathematical sense because of the “OFFSETTING” taking place due to large monthly deposits into the account, the daily balance being forced down and the interest savings (daily) due to the outstanding balance recasting interest charges. The formula “Balance divided by Surplus divided by 12 (months in a year) equals the Pay off in years”. If your numbers are applied to that formula and the pay off is less than 10 years we knew the strategy would work in that scenario. For example $200,000.00 debt balance divided by an $8,000.00 a month income where there is a $6,000.00 a month expense leaving a $2,000.00 surplus would look like this – $200,000.00 divided by $2,000.00 (surplus) equals 100 months divided by 12 equals 8.33 years. This formula is nearly 100% accurate EVERY TIME.
    Bill Westrom was struggling getting brokers to understand how the loan worked and the looming housing crisis made things even harder. Bill had built an excel spreadsheet that definatively illustrated how the loan works by depositing income directly into the HELOC that functioned like a checking account and in most cases where people earned more than they spent the loan would pay off in an accelerated time frame and saved the homeowner 10’s of thousands of dollars.
    Around July of 2006 Bill was asked by MacQuarie executives to suggest ideas on how MacQuarie could better deliver their Asset Manager to Mortgage Professionals so that the loan became more popular and widely used in place of the 30 year or 15 year or ANY fixed rate and payment mortgage. Bills idea was to take it directly to the public. That idea was not adopted and they asked Bill if he had any other ideas. He said yes “Heres My Resignation”. When he decided to leave MacQuarie he knew that his sophisticated spreadsheet illustrating the accelerated amortization where the loan, income and expense structure was set up properly, would be a critical piece in helping people comprehend the loan performance. That spreadsheet has evolved to an online calculator and tracking tool in use today by thousands and thousands of “Equity Optimization” strategy users. Bill and I spent 10 months going from bank to bank all through Florida trying to convince them that the loan would perform better and attract more depositors. Only one Bank was eager to jump on board. Wachovia bank President in the Hernando County Florida area liked the idea so much he secretly called MacQuarie Mortgage and tried to build relations and implement the loan. Fortunately for Bill and I, Wachovia closed down and wasnt able to get in front of us. We knew we had a winning strategy when the district President for a major bank was willing to take our idea and run with it.
    Around June of 2007 Bill and I had exhausted all of our personal resources trying to get banks to help us sell the loans to the public and we knew that the public was going to drive the demand for the concept if they only knew how it worked. We had placed a few customers in the loan using Indymac, household and GMAC but it wasnt enough to get the idea out there. Bill was listening to a podcast where “Jordan Goodman” was being interviewed. Jordan Goodman is a well know “Money Answers Man.” Bill emailed Jordan a simple question: “How are you instructing your listeners on the difference between internal control and external control of their money”? Jordan replied: “I have no idea what you are talking about” and asked Bill to call him. Bill phoned Jordan, explained what we were doing and Jordan asked if he could meet us so that we could show him what we were doing. Jordan Goodman flew from New York to Florida, sat in my living room where Bill and I projected on a big screen the spreadsheet Bill built and we went through scenario after scenario trying to disprove our theory. Jordan was amazed at how the loan performed in a range of income/expense and rate reduction and/or raising environments. We took loans from 8% down to 3% and up to 21% and in every case proved the concept works. Jordan Goodman has been talking about Truth In Equity ever since. We have been on countless radio and TV shows and have even co authored a book “Master Your Debt” with Jordan Goodman.
    Our website allows visitors to see for themselves using their own numbers. You enter your budget information, the calculator produces a summary analysis and a trained strategist gets you on the phone and shows you the Truth behind the math. You receive a free eBook explaining the science behind the math driving “Offset Accounting”.
    We have been doing this for over 10 years. There are now copy cat companys like “Replace Your Mortgage” and “Sweep Strategies” and a few others that have popped up on the scene since. Many of them were visitors to our site representing themselves as interested visitors but were really just trying to figure out how we were doing it so they could start their own businesses. I even discovered that the H.E.A.P. plan was modeled after a copy of Bills spreadsheet. Some how our spreadsheet was obtained by the H.E.A.P. plan developer as well as CMG and was being presented as their own. You can go to the “Way Back Machine” and look at the day month and year ANY website came on the scene and see we were the first years before anyone else caught on. Our original company name IFS Development Group later became Truth In Equity. Since then many have tried to duplicate our system but are deficient in many ways because our system is based on scientific study, years in practice and developments in alternate methods of approach. You do not need to Replace Your Mortgage with a first lien HELOC. In fact a 2nd lien or PLOC works in many cases. We had to come up with alternates in order to help a broader range of people with tighter numbers. For instance someone with a high LTV cant get a first lien HELOC but with an alternate approach, is able to accelerate pay off and in a year or two be in a stronger LTV position and make adjustments leading to a more favorable pay off and savings. I have been helping thousands of people WORLD WIDE for over a decade and we are a true testiment to the successful implementation for families in every state in the nation. We are the root cause of the strategy being deployed, used and gaining popularity. As a practitioner of the strategy, co owner and developer of the leading company providing this service and impetus to the development of many happy families, I will say with great certainty, “This strategy works”. We have a saying however, “Prescription With Out Analysis IS Malpractice”. You must first have your scenario reviewed by an EXPERT. We are the experts. We have the experience, tools, resources and litany of participants that prove the concept. Anyone can go to our website and email or communicate directly to our customer base. Our clients are so happy they WANT to tell their story. You can go to Truth In Equity and directly communicate with people who have done this for themselves. Anyone who comments on this concept with out first doing empirical study, due diligence or testing the math with transparency and uncontestible formulas are only speculating on what they THINK is going on and NOT what is REALLY taking place when using a HELOC for a mortgage instead of a conventional loan. Don’t take my word for it. Ask a real customer or go to TruthInEquity dot com and see for yourself. I will personally compare a conventional amortization schedule to our calculator and show the contrast in the math with anyone who visits and wants to be enlightened with FACT. You dont need to Replace Your Mortgage.

    • James Pierce

      You made an Outstanding argument in favor of this. I am seriously looking into setting this up for myself. I currently have a HELOC at 2.79% that I have had for 5 years and just paid it off. I was told I only have 12 more months to borrow from it however so I don’t know if I need to renew my current HELOC or have to apply for a ne HELOC. What would be your suggestion at this point?

      • David Welles

        Anyone considering the “Equity Optimization” program should examine the mathematics using their own numbers. provides an indepth as well as a cursory method of “Stress Testing” your current situation. By simply inputting non sensative budget information you receive an immediate analysis illustrating your savings, pay off term and benefit by transitioning into a more favorable method of cash flow management. Money sitting in checking and savings adds no benefit to management. Its just sitting there.

    • Just did free analysis. Results: Could be debt free in 30 years. Could save -$3,025,024 in interest (if a save a negative amount, does that mean it will cost $3mil? Wherever that number came from???)
      What I am doing pays debt in 19.5 years…. And I only have to pay truth in equity $3k!! What a deal. I have total confidence.

    • It would seem that with mortgage rates being in the 4% range currently(historically very low), that if inflation were to go to 8 or 10% or more that paying down early might not be a good idea? Some people believe the national debt will be causing inflation. I can remember in the 70s or 80s inflation hit 17% and it was advised then to keep low interest mortgages (at the time 8 or 10% range).
      I can certainly understand the piece of mind perspective of paying off early though.

  56. Johnny

    Lol. It’s very clear that author doesn’t understand the process. It’s actually way more simpler than he tries to explain. It works. 2 friends have paid off their house like this.

  57. I’m for HELOC. Traditional mortgage loans get charged interest that can make a $200,000 mortgage cost $400,000 if you factor in the interest of the loan for 30 years. With a HELOC you only get charged interest on how much credit you are using in the revolving credit line. If the mortgage is $200,00 you get charged the HELOC interest rate, which will still be less than $400,000 because the first 2 years of a HELOC the rates are really low. (Around 2% or less) But after a few years and you pay off $25,000 of principal, the HELOC only charges interest on what’s left on the principal. So $175,000 will be charged interest. For another few years, another $25,000 is paid off to the principal, now you’d only get charged the interest on $150,000 and so forth. Interest is the big killer when paying mortgages. Think about it.

    • Excellent comment and explanation, I’m already started to use this strategy using a Personal Loan Credit. I am in the 11 year of the mortgage but you are right, this strategy is a killer of interest.

        • Ya, it’s always interesting to see how many uneducated people are out there or how afraid they are of any level of risk or complication. It’s great, it creates opportunity for others. I think this strategy can be great. I really dislike how the article kept saying that one of the main reasons this strategy won’t work is discipline. Obviously if you have no financial discipline this strategy is not for you, the article would have made more logical sense to lead in with “This won’t work for you if you don’t have discipline, if you do, read on and I won’t mention it again”.

          • Third Federal allows HELOC to be in first position. I started off with a small HELOC with them (as a second lien) and refinanced 6 months later as the 1st (only lien). During the first 6 months, I was able to pay an extra $26000 off my first mortgage using the HELOC. After that I was comfortable with how the HELOC worked and ended up refinancing. I should have the HELOC paid off in the next 18 – 24 months.

          • I am seriously looking into starting a HELOC chunking plan soon. I have achieved a debt free lifestyle, besides my mortgage, and I have the income/expense ratio to handle this type of aggressive debt shuffling. I wish everyone could do this then we’d have waaaay less people losing money to mortgage lenders.

          • kevbot

            I’m so sorry guys, you have misunderstood the nature of mortgage interest. You think that mortgage interest is somehow compounding and a HELOC is simple. The fact is that a mortgage is simple interest, calculated in the exact same way as the HELOC. Transferring from one to another will not save you interest.

    • Ken Smith

      A traditional mortgage is front loaded with interest…so that if you even think about paying it off early…..the bank still gets theirs. So the savings of paying it off early is minimal. They get the majority of their money within the first ten years…..(Damn i’m smart)

  58. The mortgage would be paid just as quickly without the credit card or HELOC. In this example, $6k principle was paid off over 3 months. A much simpler, smarter plan would be to use your $5k/mo to pay the $2k living expenses, $1k interest, and $2k principle each month. This article was mind-numbing, and leaves me to believe that there is perhaps some other benefit to this strategy that has not been mentioned.

    • This was the conclusion I cam to as well. I ran two scenarios, one using the HELOC and paying off the debt with surplus monthly income, and one with just applying the surplus to the loan each month. The HELOC did save about 6 months, and $600 of interest on my example, but you sacrifice flexibility with the HELOC, and don’t get a whole lot more in reduced loan time or interest.

      The only other benefit I could think of was more pressure to pay off the HELOC, or a derivative of forced payment (similar to forced savings) when you are pressured to pay off the HELOC. Just paying the surplus doesn’t “force” you to pay, so some people may be less likely to pay it. But I don’t really see the benefit of this strategy. I really wanted to, but couldn’t find it.

    • I think the general idea of using the HELOC is that you maintain liquidity whereas if you just paid off the mortgage, there is no going back until you sell the house or get a HELOC to retap the money you sunk in. There is no magic behind this HELOC strategy, and you would certainly pay of the mortgage faster had you just did direct payments on the primary. However, you put yourself into a liquidity trap by paying it off directly.

      I personally don’t see the advantage to paying off the primary right away. If you are disciplined enough to go through all these hoops, why not just hoard your reserves into some low risk investments, such as an S&P fund. The money will grow above the current mortgage interest rates and you can always become liquid if the need should arise. When the pile gets big enough, you can just pay off the mortgage if you want that payment to go away.

      • James Sommers

        Amen, brother! Why be in a hurry to pay off a 4% interest loan? Now, I’m not suggesting that you put your surplus on the Vegas crap tables, or even today’s hottest stocks. However, consider putting 6 month’s mortgage payments in cash reserves, and then the balance in a diversified risk stock, bond and REIT portfolio. 8% annual income/growth is very easy to achieve without significant risk.

  59. Every complicated mortgage payoff strategy in the end boils down to “pay extra towards the principal.” This applies to this HELOC scheme, biweekly payments, money merge accounts, etc. If there is any additional savings beyond paying extra, it’s always tiny at best. And it gets more than canceled out by the fees charged for the scheme.

  60. This strategy seems too complicated and the gain is unclear to me. Why wouldn’t you just send the extra $2k from your monthly income directly to your mortgage?

    • David Welles

      Where does the extra 2k come from? Where does the extra 2k go? Can you use the extra 2k a month later if you need to? How long do you have to continue giving up 2k? Once that extra 2k per month has finally paid off the debt, then what? What effectively did you save? How do you compare that comprimising event against NOT giving up 2k and achieving the same or better result? Does giving up 2k comprimise liquidity? Now that all is paid off, then what? What about the dead asset that has feature value only in the event of sale or refi?

      • Where does the extra 2k come from in the HELOC scheme? Is the point that you if you have the extra 2k now, you can use it, but then if you realize, “Oops, I need that 2k back”, you can get it back by borrowing from your HELOC? Is that the whole point? Obviously if you can’t actually afford the extra 2k, then you’re going to keep bringing up the balance of your HELOC and thereby hurting yourself because it’s likely at a much higher interest rate.

        Once you’ve pad off your mortgage, you can keep the extra 2k and invest it elsewhere… the whole HELOC scheme assumes that you’re income allows for the extra 2k/month payment, right?

  61. Just reading through the process made my head hurt. It already takes everything within me to come up with a budget and I know for sure that making my finances more complicated than they already seem to be would be a recipe for disaster. I’ll stick to the monthly payment!

    • A HELOC absolutely does not have to involve your credit card. People who have to depend on credit cards to pay off other loans should never have a HELOC in the first place, or a traditional mortgage beyond their means.

        • Michael Phillips

          Here is the best free calculator I could find during my research prior to refinancing with a HELOC.
          Its not exactly dummy proof but I was able to get a years worth of my own n numbers plugged in to see what would happen if I went with a HELOC (this is time consuming but I wanted to know how it would work before jumping in).
          I’m still looking for a convenient way to budget month to month as there are no budget apps designed to use a negative balance HELOC account as your primary checking account.

          • Janelle Miller

            Looking at starting one of these accounts, and wondered how your experience was looking back on it. Would you do it again? Was it such a pain it wasn’t worth it? Are you all done paying off your home?

      • i am not recommending a credit card, because i don’t know your situation nor if you are disciplined in your finances…that said, the purpose of a credit card is to put everything on it for a 30-day (as an example) interest-free float, then payoff in full…it allows you to be more efficient and effective with your heloc strategy that you bank out of. it’s about management of daily balance and the optimization of the daily recast of interest. key take away, discipline required…good luck

  62. Usman Ansari

    Kevin, it seems like your preferred methods of early repayment would also be applicable to paying off student loans before the typical timeframe. In fact, it would be great if you could write an article dedicated to doing this…

    • Brian

      You bring up points that are listed as “general fears” by proponents of the HELOC strategy. The ones I’ve looked at have not mentioned anything about using a credit card.

      They mention putting all of your money into the HELOC and using it as if it were your primary checking account. IE, no longer using a standard checking account.

      You do have to be cash positive however. I’m still researching this, which is what led me to this page.

      I do find it funny however, that your last way of “paying off your mortgage early” is only a way to save money on a per month basis. Refinancing your house to a lower interest rate, just starts the 30 year clock all over again with interest heavy payments being made first. (Unless you refi to a lower term mortgage like 10 years. Either way, re-financing is not going to pay things off more quickly.

      • David Welles

        Ponder this: What is money sitting in checking and savings do right now? Practically rhetorical; right? If your bank called you up and said… “We have a new offset account method of banking we are offering our depositors. Every time you deposit money into Checking/Savings we will apply that amount sitting idle against all your debt, adjust your principal balance each day against that amount and only charge you interest on the difference. Effectively lowering your interest cost. Additionally it will amortize out quicker”. Would you do it? Of course you would. The offset method is a widely used practice. Equity Optimization utilizes the basic mathematical principles of Offset Accounting. You can go to, fill out a profile and receive an immediate comparative analysis using your own numbers and… you receive a free eBook that explains the science behind the math. You do not need to Replace Your Mortgage in most cases. I always use this metaphor when explaining the strategy. Conventional practice has us carrying water from the well to the house with a bucket that has a hole in it. Equity Optimization replaces the bucket.

        • mapembert

          I like this narrative but you need to revise it to include, “There is a catch though. To participate you will have to have a much higher interest rate” This being the difference between a 30 year and a HELOC. Not saying this isn’t interesting but I’m not a fan of leaving out facts in such a well written narrative.

          • credit lines work in most situations, if you have the ‘right’ one, and understand ‘proper’ implementation…’time and balance’ dictate what you pay, not ‘rate’…therefore, ‘time and balance’ are more important than ‘rate’. sometimes folks can’t see the forest through the trees, been there done that myself as i was once a conventional thinker (when i lacked knowledge of true math). good luck!

      • Well, I refinanced my mortgage after 8 years to an interest rate of 3.5, down from 5.5. My mortgage payment went down considerably. Although the clock started from 0, as some of you have stated, I did add the savings back in as an extra principal payment each month, thus continuing to pay the original amount, while paying down the mortgage faster. Now, instead of 22 years left on the original loan, I have less than 10.

        • Steve Pearson

          That’s a reasonable strategy, if you have the discipline. If life happens, and you need the money for other things, it would be too easy for most people to use those savings for other things. If you apply that gain to the principle, it’s gone. You don’t have it.
          An advantage of the HELOC strategy is that you can always get that money back if life throws you a curve. It’s an open ended revolving credit account.

  63. It’s definitely risky. HELOCs often have an interest only period for several years before principal payments are due. Your mortgage could suddenly go from $1000/month to $500 per month because of it. Undisciplined people may just spend the other $500 instead of using it toward paying down the debt.

    • David Welles

      Go to Truth In and get information directly from the source. Ive been doing this for Ten years and you can test the veracity of the strategy with your own numbers and you can contact real users on their referral network.

      • Why not just skip the HELOC and put an extra $20k each year toward principle. I don’t understand how you are actually saving? If you have an extra $20k, don’t get a HELOC, just use that money to make principle-only payments. Isn’t this the same thing? Either way you have to have an extra $20k.

        • My understanding is that if you put in extra payment into a traditional mortgage loan such as 30-year fixed rate loan, that money is locked and gone. You can never get it out. That is the reason why people use HELOC. HELOC works only if your cash flow is positive. In emergencies such as loss of a job, you’ll also have trouble with a traditional loan, even worse. They will take away your house if payments are not kept us.

          • Not Front Loaded

            Whether you pay through a heloc or pay extra monthly the money for the loan is “locked”. Your argument is muted because you can still obtain a heloc if you pay extra monthly. This is complex, risky and time consuming when you can just auto pay extra at the end of the month with similar results.

          • Michael Phillips

            HELOC’s are not locked, they are an open account that can be used just like a checking account. Pay down or pull money out anytime and at any amount you want during the draw period (usually 10 years). I replaced my mortgage with a HELOC at the beginning of this month. I immediately put my emergency fund, vehicle replacement savings, Christmas savings, Escrow account (taxes & Insurance) and another short term savings account into the HELOC paying down my ‘mortgage’ debt considerably. This saved me $135.66 in interest this month alone!! And all I did was transfer money from one account to another. I would never dump all my reserve cash into a conventional mortgage, but into an open HELOC, why not? I still have access to that money and will need it obviously to pay taxes, insurance and buy Christmas gifts, but until that time, it will save me a considerable amount in interest charges. That cash wasn’t earning anything near $135 sitting in savings accounts. My next paycheck will be direct deposited into the HELOC, lowering the balance even more, until part of it is taken at the end of the month to pay off the credit card. It’s not for everyone. As stated, you must have + cash flow, discipline & equity. But if you got that, the numbers work! After researching for a few months, I decided it was for me. Never did hear of anyone doing it and not benefiting from it.

          • @Michael Phillips
            The problem is, like stated in the article, at any given moment you HELOC lender may chose to freeze your account, and you left with ZERO cash, no Christmas gifts, no taxes paid, no broken car repair… Combine that with job loss and you just might lose everything you have.

      • Steve Pearson

        I’m not sure if this was intentional or not, but the article, in the end, suggested refinancing at a lower rate, then linked to Lending Tree. That, for most people, is actually a terrible idea if their goal is to pay off their mortgage. An amortized loan is calculated based on the principle and the interest over the full term. When you repay the note, the early years go almost completely toward the interest, with only a small amount paying down principle. Picture a graph with two curves extending out over time. The top one curves downward and represents interest payments. The bottom one curves upward and represents principle payments. It takes many years before those curves intersect, representing a payment equally applied to principle and interest. It’s only after that when you begin to rapidly pay down principle. Each time you refi, you reset the loan to the beginning, and spend all of your money paying interest instead of principle. Unless you can’t afford your payments, and absolutely need to refi to get them lower, you’re much better off continuing toward that “sweet spot” when the curves intersect, then continue shifting toward principle instead of interest.

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