Author Topic: Real advice for paying down HELOC and morgage  (Read 1050 times)

JustJayMusic

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Real advice for paying down HELOC and morgage
« on: June 04, 2018, 03:02:17 PM »
Hi,

Just joined the forum and made an introduction post and I'm here already asking for some advise.

Does anyone have suggested reading or advice on the best way to pay off a HELOC and mortgage?

I've heard in the past make one extra payment a year, but there has to be some other cool solutions.

We obviously want to pay of the stupid HELOC, because it is a variable rate, but then would like to take care of the primary mortgage which is a fixed and a pretty good rate.

Unfortunately the home in question is not our primary residence, it is in another state, and currently underwater, we bought in during the bubble before it burst!! We are currently renting the house but at a loss, when you factor in both loans and taxes and insurance. We are painfully close to 20% loan to value, so close I don't want to risk the cost of an appraisal for a refi that will bundle both loans and make a more profitable investment property.

We have some extra cash from a recent estate settlement (RIP Mom)

Thanks in advanced!

Jay

AMandM

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Re: Real advice for paying down HELOC and morgage
« Reply #1 on: June 04, 2018, 03:49:29 PM »
Welcome, JustJayMusic, and my sympathy on losing your mother.

Be warned: you will probably get a lot of posts telling you not to pay down your mortgage, but instead to invest that extra money in index funds. Financially, if you can make 7% (average stock market return) on an index fund, you're better off than making 4% (or whatever your "pretty good rate" is) paying down your mortgage.

That said, I understand that sometimes maximising your expected return is not the highest priority.  Whether accelerating the payoff is a good idea would depend on a lot of factors (your situation in life, your other savings, you income and spending, etc.). You may want to post separately, or even make a case study, for detailed advice on that question.

To answer your original question, sorry but there is no cool solution. It's the same for any loan: you pay it off faster by paying more than the required payment.  Make sure you indicate that the extra payment is payment of the principal, otherwise it may get counted as an early payment (which means it will be credited against interest too, not just principal). You can add a little bit extra to each payment, make an extra payment each year, make a larger one-time payment, or any combination. You can create a sort of gimmick for yourself, and designate a particular category of money for the purpose, such as your tax refund or your year-end bonus or the amount you save using grocery coupons. There are lots of online mortgage payoff calculators that can show you how much difference this makes to your payoff date and total interest paid.


slappy

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Re: Real advice for paying down HELOC and morgage
« Reply #2 on: June 04, 2018, 03:52:31 PM »
Are you planning to refi? In my experience, rental properties require a better than 80% LTV. Mine required a 75% LTV to refi.

Dicey

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Re: Real advice for paying down HELOC and morgage
« Reply #3 on: June 04, 2018, 04:17:36 PM »
Hi Jay,
Hmm, I just might be one of those [already FIRE] people that AMandM was warning you about.

I also have rental properties and damn, @slappy is 100% right.

Here's my two cents. If you don't want to unburden yourself of this albatross, focus on the HELOC. Do NOT prepay the fixed rate mortgage before you pay off the variable HELOC. Do not re-fi the loan. Undoubtedly, the rate will be higher on a non-owner occ, and slappy's right about the higher LTV requirements.

For example, we just bought a fixer. We have excellent credit. The bank required 50% down, and a bunch of bullshit insurance. After all these hoops, guess what the rate is? 4.375%. Nuts! This was only a few weeks ago. Rates are definitely going up.*

Another option is to short sale the property to get it off your backs. Not the best option, to be sure, but I'd consider that long before I'd prepay a penny on that mortgage.

If you want any more pennies, feel free to PM me.

*Don't worry, we expected as much, given the condition of the house, so it is painful, but not a surprise. We still stand to make a good amount of money on the property, even with the higher interest rate and insurance costs.
Kind regards,
Dicey

P.S. Sorry for the loss of your mom. She probably worked hard for that money. It's a fitting tribute to her that you use it wisely. Glad you asked here for advice before doing anything irrevocable.

JustJayMusic

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Re: Real advice for paying down HELOC and morgage
« Reply #4 on: June 05, 2018, 07:51:24 AM »
Thank you Slappy, AMandM and Dicey for the advice and condolences.

It is apparent the smart move is to sell the albatross as Dicey so well stated . . . however the truth of the story is we are in love with the house, a small "historic" (historic because all of the cottages have been torn down for excessive mansions) on a canal, less than a mile from beach and bay. We always planned to retire there, but I used it for the HELOC to bail out a failing business (stupid, stupid mistake).

The rate of the primary is 4.5% (BTW) last variable rate on the HELOC was 5.10, so still lower than 7% average stock market return.

Slappy, we have thought of refi and you're right it is 80% LTV, I really burns my butt because this was our primary house at one time, we moved back home to Philly because we couldn't afford living the beach life style and there were no jobs in my field of work (IT). I love when the banks refer to the house as our vacation home or investment property, LOL, like I have a vacation property when I'm living with my wives mother for the last 8 years.

I know the solution is to sell it, we'd be able to solve all our problems, I think you replies have really hit home that I am living in a world of denial and false expectations of again living at the beach. Maybe I need to grow up some more (lol). The property values are close now, having risen these past years, but I think we are still underwater. As stated I'd hate to pay $300 bucks for an appraisal. I don't want to short-sale it for the impact on our credit, which through all this crap are still both excellent.

Jay