Author Topic: first time homebuyer. should I use a HELOC to pay down my mortgage?  (Read 1057 times)

mrtimo

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Should I use a Home Equity Line of Credit to pay down my mortgage?
I have a 10-year 3.0% rate. I'm planning to be aggressive and pay off my mortgage in 3 years.
If I get a HELOC for say, 50,000, and use that to immediately pay-down my mortgage and then pay that off as quick as I can... will this make much of a difference? I've never got an HELOC before, so I don't know what good terms are or if this works. My brother gave me this crazy idea today, curious what you all think.

plainjane

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Re: first time homebuyer. should I use a HELOC to pay down my mortgage?
« Reply #1 on: July 30, 2015, 06:13:36 PM »
It only makes sense if you can get a rate on the HELOC lower than the mortgage, you don't have any pre-payment penalties on the mortgage, and there aren't any fees to set up the HELOC.

If you're planning on paying off the mortgage in 3 years anyways, it probably won't save you much at all, but you'd need to run the actual numbers.
Using procrastination to my advantage since 2001.

mrtimo

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Re: first time homebuyer. should I use a HELOC to pay down my mortgage?
« Reply #2 on: July 30, 2015, 09:58:32 PM »
Thanks. Makes Sense. Are there any places that will give a LOC for 2% or less?

ShoulderThingThatGoesUp

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Re: first time homebuyer. should I use a HELOC to pay down my mortgage?
« Reply #3 on: July 31, 2015, 05:35:24 AM »
Why do you want to pay down debt that's at 3%?

K-ice

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Re: first time homebuyer. should I use a HELOC to pay down my mortgage?
« Reply #4 on: August 01, 2015, 05:40:57 PM »
What plainjane said he right:

It only makes sense if you can get a rate on the HELOC lower than the mortgage, you don't have any pre-payment penalties on the mortgage, and there aren't any fees to set up the HELOC.

If you're planning on paying off the mortgage in 3 years anyways, it probably won't save you much at all, but you'd need to run the actual numbers.


I got a promotional LOC at 1% for a year upto 20K.

After 1y I think it jumped upto 6% but I never had to worry about that.

So don't bite off more than you can chew so to speak.

I used the LOC to pay off the very end of my mortgage instead of renewing a small amount. I technically had no "mortgage" at that point but saved the Champagne until the LOC was zero.

But generally, I would be cautions using HELOC with a variable rate.

The whole mortgage HELOC thing has almost merged into one thing (at least in Canada). Both use your house as collateral.

The difference is the HELOC is usually at a variable rate but it can be paid off with no penalty and they you can reborrow the money.  It is good "springy debt".

The mortgage on my house was technically a HELOC with a fixed, closed 5y mortgage inside. At the start we could borrow nothing but with every payment we could borrow from the growing portion of paid principle.

The HELOC rate was lower but I never trusted that it wouldn't jump up over night. But it was a reassuring emergency cushion to have. MMM has a whole post on that.






forummm

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Re: first time homebuyer. should I use a HELOC to pay down my mortgage?
« Reply #5 on: August 01, 2015, 07:26:40 PM »
It's widely argued that you shouldn't pay off your mortgage if it's 3%. You should invest the money instead.

http://forum.mrmoneymustache.com/real-estate-and-landlording/the-great-'pay-off-mortage'-vs-'invest-in-stocks'-debate-possible-solution/