Author Topic: No Brainer? Use my HELOC to pay off my mortgage?  (Read 36329 times)

fmzip

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No Brainer? Use my HELOC to pay off my mortgage?
« on: December 07, 2013, 05:32:12 PM »
So I've been making extra principal payments to pay off my mortgage in 47 months (balance $44,791). The interest rate is 4.93 fixed%

I also have a HELOC of $47,000 with zero balance and an interest rate of 3.63% (Prime 3.25% + ?)  Would it be wise to tie up my equity line and use it to pay off my mortgage? We have a net worth of $858K and our savings rate is around 40%.  I've liked the idea of having a HELOC available and not sure I want to tie it all up.

The house is worth $225k. Would it make more sense to get a bigger HELOC and pay off the mortgage that way? Quick look tells me I can get a $100K HELOC at 3.62%

At a glance, using my HELOC to pay off the mortgage puts $1000+ in our pockets over a 47 month period.

Thoughts? What to do?

I realize the other option is to pay it off with cash we already have but with rates still so low, I am on the fence if this makes sense with our AGI at $178K
« Last Edit: December 07, 2013, 05:40:29 PM by fmzip »

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #1 on: December 07, 2013, 05:47:41 PM »
Why do you want to keep a big possible HELOC available?  Are you anticipating a big disaster you haven't saved for?  Do you have available savings in case of disaster?  Do you have any other debt?

There seem to be two schools of thought -- those who like to leverage debt to try to get higher returns elsewhere, and those who like the freedom of having no debt, even if that means less cash in the bank.  I'm with the second group, myself.  There's a wonderful freedom of not having that monthly bill come around.  But from the way you're looking at your options, it sounds as if you may be in the first group.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #2 on: December 07, 2013, 06:01:17 PM »
I am self employed and my income can fluctuate.

In the event of "some major unknown" I view the HELOC as a no cost safety net with tax benefits to boot. If I lost my job or a couple of my very large customers ( I am in sales), getting a loan when you need it is next to impossible.

I don't want to leverage the line, I just like the feeling of having it available.

We have $500K invested (half in retirement accounts), $25K in cash, we have zero debt, never have had any debt. We are 47/50.

The market returns far more than what I pay in interest particularly after the tax benefits. However, I do want it gone and have been paying it down in what was my 7 year plan with 47 months to go

I'm in both camps I think ;) I also see I can get a 60 month HEL for 2.99%, maybe I should consider that? IF so would I lose the HELOC?
« Last Edit: December 07, 2013, 06:11:56 PM by fmzip »

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #3 on: December 07, 2013, 06:15:00 PM »
So if you went a long spell without work, you could use your HELOC to keep paying your mortgage.  But if you had already paid off your mortgage, you wouldn't need to use your HELOC to keep paying your mortgage...

I think it probably boils down to your tolerance for risk.  For me, the fact of having uncertain employment would already use up my tolerance for risk, and I wouldn't take on any more risk by keeping the debt outstanding.  But everybody's tolerance is different.  When I paid off my house, I was practically dancing in the streets, I was so overjoyed.   There's a lot of freedom with having low monthly bills!   Other people may not feel the same and may prefer to maximize the chance of higher returns.

Just to make clear, I personally would pay the whole mortgage off, not transfer it to the HELOC.  But I'm sure others will be along to argue the advantages of the other options.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #4 on: December 07, 2013, 06:23:24 PM »
Thanks for the input.

My thought is I want to become FI sooner rather than later and I am willing to take the chance that investing will get me there faster. Paying off the mortgage in tandem with investing balances my risk a bit which is why I am slowly paying it off. I am dollar cost averaging my mortgage pay down as I am with my monthly investing. :)

I'll be happy when I retire. Paying off the balance of the mortgage will be nice but it won't complete me by any means. In fact, it could make me work for a few more years if I missed out on sizable market gains during like the past few years for example.

Based on my investing lack of success during my lifetime, I can stop the stock market in it's tracks by paying off my mortgage today, guaranteed to go bear market as soon as I do ;)
« Last Edit: December 07, 2013, 06:28:46 PM by fmzip »

FIreDrill

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #5 on: December 07, 2013, 06:29:42 PM »
What about taking 20k of the 25K and dumping it into the mortgage while keeping your HELOC untouched?  This would accelerate your mortgage payoff, leave you a small 5k buffer, and you would have the HELOC available if bigger emergencies arise.   That 20k in cash would then be earning you 4.93%, not too shabby.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #6 on: December 07, 2013, 06:35:45 PM »
^^^^

That would be cutting it too close for me but as you said, I could use the HELOC as my safety net. Hmmmmm

Monthly expenses are around $5K, $10K is my comfort level in the checking account.

Being self employed, I can bring in $20K one month and 10K the next with no warning.

« Last Edit: December 07, 2013, 06:38:09 PM by fmzip »

AccidentalMiser

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #7 on: December 07, 2013, 06:58:16 PM »
I would not take a variable rate HELOC to pay off a fixed rate mortgage to save 1% on 44k,  Hell of a lot of additional risk to save $440 a year.


fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #8 on: December 07, 2013, 07:34:07 PM »
I would not take a variable rate HELOC to pay off a fixed rate mortgage to save 1% on 44k,  Hell of a lot of additional risk to save $440 a year.

That's what I am trying to understand better, what type of risk? Please expand on this because I do not clearly understand the risk.

Is it that interest rates could soar over the next 47 months? Well then wouldn't it be better to the get a Home equity loan for 60 months at a fixed 2.49% for example today?

https://www.penfed.org/home-equity-loan/
« Last Edit: December 07, 2013, 08:08:31 PM by fmzip »

AccidentalMiser

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #9 on: December 07, 2013, 08:27:53 PM »
There's a difference between a HELOC and a Home Equity Loan.  If you can get a fixed 2.49 for 60 mos and pay off your mortgage, that sounds like a great idea.

Yes, the risk is that interest rates will rise over the next four years and erase your good deal.

The bottom line is that you have great savings, a good income and a good plan.  Whatever you do, it's all going to work out.  If eliminating the mortgage is really important to you, I'd get the 5 year HEL at 2.49 so long as the closing costs aren't ridiculous.

Best of luck!

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #10 on: December 07, 2013, 08:38:00 PM »
I understand the difference between the loan versus line. Seeing the risk side of the variable line, the loan seems to be the no-brainer. But would I lose my HELOC or could the HEL payoff the mortgage and become the first lien holder and leave the HELOC in place? Not sure how this would work. Worst case, I'd likely have to get another HELOC

However, I do see that I could pay off this mortgage this year based on previous year non-mustacian living standards. Geez, last year we spent 15K on a honeymoon, $6K on new entry doors, $3K on painting my car. The previous year $40K on a rock wall, the previous year on a $20K engagement ring.
« Last Edit: December 07, 2013, 08:40:44 PM by fmzip »

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #11 on: December 07, 2013, 10:35:01 PM »
$40K on a rock wall?  And you painted your car for $3K?  $6K on doors?  Are you serious? ... Sorry to be facepunchy, but I feel as if I'm in the "Overheard at Work" thread.

You could have paid everything off long since and have a huge safety net for unemployment periods if you had reined in the spending.  The mortgage would be history, you'd still have the HELOC, and you'd have $$40,000 in the bank (or invested) making more money for you.  But maybe you've done a 180 and this is the new thriftiness?   I'm kind of stunned that someone who's concerned about periods of unemployment would spend $40,000 on a rock wall.  But maybe you're joking, or maybe that was the bad old days, or maybe there's a part I've missed and don't understand.

lbdance

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #12 on: December 08, 2013, 01:13:56 AM »
Searching through previous posts
"last year I did not know MMM. I spent $18K on the ring, $12K on the honeymoon and spent $50K on a stone wall on the property. I called it the "year of the rocks" had some rocks in my head too ;)"

I think it depends what is important to you. You have provided a little information about yourself and your situation. If your monthly expenses are 5k, and you are bringing in 10-20k per month. I would say you are doing very well. If being debt free is important, then target the mortgage with your spare cash each month. I assume this would then reduce your monthly expenses also significantly and allow you to further invest. You might also want to read some of the other threads about checking account balances. If you are holding 25k (some sort of emergency fund??) then do you really need a large HELOC also?

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #13 on: December 08, 2013, 03:11:59 AM »
Fmzip, sorry, I didn't see you'd already been facepunched.  Good for you for turning it around!  I now return you to your regularly scheduled discussion...

chasesfish

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #14 on: December 08, 2013, 05:32:33 AM »
So I've been making extra principal payments to pay off my mortgage in 47 months (balance $44,791). The interest rate is 4.93 fixed%

I also have a HELOC of $47,000 with zero balance and an interest rate of 3.63% (Prime 3.25% + ?)  Would it be wise to tie up my equity line and use it to pay off my mortgage? We have a net worth of $858K and our savings rate is around 40%.  I've liked the idea of having a HELOC available and not sure I want to tie it all up.

The house is worth $225k. Would it make more sense to get a bigger HELOC and pay off the mortgage that way? Quick look tells me I can get a $100K HELOC at 3.62%

At a glance, using my HELOC to pay off the mortgage puts $1000+ in our pockets over a 47 month period.

Thoughts? What to do?

I realize the other option is to pay it off with cash we already have but with rates still so low, I am on the fence if this makes sense with our AGI at $178K

Do it

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #15 on: December 08, 2013, 08:11:56 AM »
No problem on the continued face punches :)

That is why I am here, trying to do as much as I can as quickly as possible.

When I see how much money I've burned in any given year, I can also can see how quickly we can get to where we are going. We have a home which is exactly how we want it, it now needs nothing. My wife has a ring which brings joy to both her and I. The stone retaining wall that needed to be replaced around our property will stand for the next 200 years. I have no children so that's my mark on this planet ;)

I have no regrets but I do see that being more present with finances now, going forward my approach would be much more frugal for sure! Just this morning my wife said she was making Christmas cookies to give away again. I asked her what she was putting them in, she said the same tins as last year. I told her to ask for them back from the people she gave them to or put them in foil or plastic bags. She says $10 worth of tins isn't going to kill us......

I need help folks! But I do know this, I am the one who spends the big dollars in this household not her ;)
« Last Edit: December 08, 2013, 08:17:21 AM by fmzip »

_JT

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #16 on: December 08, 2013, 08:55:08 AM »
She needs to change her mindset. Everyone on this forum, I imagine, can spend ten bucks without risking being homeless, but that's not really the point. There's actually an MMM article about getting rich ten dollars at a time she should maybe read.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #17 on: December 08, 2013, 10:10:52 AM »
She needs to change her mindset. Everyone on this forum, I imagine, can spend ten bucks without risking being homeless, but that's not really the point. There's actually an MMM article about getting rich ten dollars at a time she should maybe read.

I need a link to that article! I agree, every penny sent affects how far away the finish line actually is.

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #18 on: December 08, 2013, 10:39:44 AM »
Tins do circulate generally -- there are often plenty at Goodwill, or you may have gotten some with cookies in them last year.  That is, you can get cheap tins without asking the gift recipient for half their gift back!  (They often like getting the tin as much as getting the cookies.)  Or since your wife is making cheap gifts (cookies) for people, maybe you could do 50% (actually maybe 20%) of the effort and be the one to scout around for cheap tins to put them in.

arebelspy

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #19 on: December 08, 2013, 10:41:07 AM »
She needs to change her mindset. Everyone on this forum, I imagine, can spend ten bucks without risking being homeless, but that's not really the point. There's actually an MMM article about getting rich ten dollars at a time she should maybe read.

I need a link to that article! I agree, every penny sent affects how far away the finish line actually is.

Here: http://www.mrmoneymustache.com/2011/08/01/a-millionaire-is-made-ten-bucks-at-a-time/
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

tomsang

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #20 on: December 08, 2013, 11:34:09 AM »
If or when it hits the fan, most people get screwed on liquidity vs. net worth. Paying down a fixed loan with available investments, cash, or lines of credits does not increase your networth it just removes your liquidity with no premium return for taking on the risk. Therefore, you are taking on more risk. Those who are advocating making extra payments on mortgages are taking on more risk until the whole mortgage is paid off when your monthly payment will decrease.

If you have a $200k mortgage and then decide to make extra payments of a $50k over a two year period.  Then a crisis hits. You still owe the bank the monthly payment. You can't just tell them that you prepaid $50k, so you are good. They will force you to pay up, sell, or turn the keys over. You are in an illiquid situation.

If instead you invested the money and a crisis occurred, you could liquidate some or all of your investments to get you through the crisis paying your monthly mortgage payment and other bills on time. Even if you have to liquidate at a loss, you are safer having liquidity than if you paid down your loan.

With rates at sub 4%, I think you are taking on a ton of risk for a psychological reason vs. a logic reason.

If paying down your mortgage helps you spend less money because your net worth is tied up in your house, than that may be a tool so you don't blow your money. You are creating an illiquid environment to protect against yourself vs. creating a safer environment based on real world concerns.

If you don't think that your investments will out perform your mortgage rate of 4 or 5 percent, then make sure you don't FIRE until your Safe Withdrawal Rate is lower than 2% because all of the models showing a 4% SWR are based on past history which was investments earning greater than these levels over a thirty period of time. If you don't think that will occur in the future plan your portfolio and SWR accordingly.

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #21 on: December 08, 2013, 12:56:24 PM »
Simply, I would recast your debt structure.  Go refi the mortgage to the Pen Fed 5 year home equity loan.  They will do the loan with no or minimal closing costs and just keep paying according to schedule and the thing is done in 5 years.  Then redo your HELOC.  Get the biggest one you can without paying up.  Some places will do a 70%LTV HELOC at a very good rate.  Hanscom Federal Credit Union will go to 85% LTV at non-punitive rates.  But pay attention: you want a HELOC with an interest only payment.  Some lenders (including pen fed) want a minimum payment of 2% of the monthly balance per month.  When you are setting up a HELOC as part of your liquidity plan you don't want one that will strain your liquidity in a crisis.

Dicey

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #22 on: December 08, 2013, 02:02:13 PM »
If it sounds too good to be true...

I just hopped over to the PenFed site to check this out. There are several plans that looked good until I found the following:

"Variable rate changes once every 5 years."

This does not mean that the rate will not change for five years. It could change next week. I can't tell from the info on the website on this specific loan, but they do show less-than-36-month prepayment penalties on other loans. Which could mean you could be stuck paying 2% more until the 5-year waiting period elapses. And then they could raise it another 2% at five years and one day from origination.

Not sayin' I'm right, just a caution to read and understand all the fine print. There ain't no free lunch, but there are good deals if you exercise due dilligence.

Note to fmzip: There is a world of difference between a rock wall and a retaining wall. One could be frivolous and the other could be a complete necessity to protect your property. Clarity is key.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #23 on: December 08, 2013, 03:10:11 PM »
Thanks Diane. I came across Penfed HEL's from the boglehead forums. They look to be okay as several have done this already. I would certainly read the fine print before proceeding

As far as the mortgage, there is never a guarantee if the investments will outperform the mortgage rate as been the case over the last decade with the stock market. Who knows?

And yes, retaining walls. The 60 year old ones were falling down in the front and had to be replaced. The rear of the house was a mud pit and needed a retaining wall.

 I am a firm believer in do it once, do it right. I've done things half-assed when I was younger and re did them again. Same thing with the front and rear doors of the house, I could have spent less and I could have spent a whole lot more. Our home is complete now, it needs nothing. Just another piece of the puzzle completed for a very long time.

We get an awful lot of fulfillment in the park-like settings of our home. I am a big DIY'r but this was not a project I could tackle on my own. Each piece of granite was cut/chiseled by hand. Yes, I could have put in railroad ties instead but that would not be to my liking one bit.

To me it's a balance of necessity/desires/wants out of life. To each their own.  I certainly appreciate everyone's opinions that have contributed to this thread to help me gather ideas on the topic. I am glad I am older now and don't succumb to peer pressure as once did. My life, my way :) 







« Last Edit: December 08, 2013, 03:34:52 PM by fmzip »

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #24 on: December 08, 2013, 05:04:34 PM »
If it sounds too good to be true...

I just hopped over to the PenFed site to check this out. There are several plans that looked good until I found the following:

"Variable rate changes once every 5 years."

This does not mean that the rate will not change for five years. It could change next week. I can't tell from the info on the website on this specific loan, but they do show less-than-36-month prepayment penalties on other loans. Which could mean you could be stuck paying 2% more until the 5-year waiting period elapses. And then they could raise it another 2% at five years and one day from origination.

Not sayin' I'm right, just a caution to read and understand all the fine print. There ain't no free lunch, but there are good deals if you exercise due dilligence.

I have had Pen Fed's 5/5 ARM in the past and I think its a very good deal.  However, that is not what OP was talking about.  He was referring to a fixed 5 year term home equity loan done in a first lien position.  The rate is fixed for the life of the loan and the loan is fully paid off (amortized) after 5 years.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #25 on: December 08, 2013, 05:21:53 PM »
If it sounds too good to be true...

I just hopped over to the PenFed site to check this out. There are several plans that looked good until I found the following:

"Variable rate changes once every 5 years."

This does not mean that the rate will not change for five years. It could change next week. I can't tell from the info on the website on this specific loan, but they do show less-than-36-month prepayment penalties on other loans. Which could mean you could be stuck paying 2% more until the 5-year waiting period elapses. And then they could raise it another 2% at five years and one day from origination.

Not sayin' I'm right, just a caution to read and understand all the fine print. There ain't no free lunch, but there are good deals if you exercise due dilligence.

I have had Pen Fed's 5/5 ARM in the past and I think its a very good deal.  However, that is not what OP was talking about.  He was referring to a fixed 5 year term home equity loan done in a first lien position.  The rate is fixed for the life of the loan and the loan is fully paid off (amortized) after 5 years.

Correct.

I would just need to make sure there is no prepayment penalty with PenFed

Argyle

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #26 on: December 08, 2013, 05:30:59 PM »
Your house and yard look immaculate and obviously display what real estate agents call "pride of ownership."  I wish you'd come over and take care of mine...

It's really all about the balance between present desires and FIRE or FU money or whatever you want the savings/investments for.  We all have our desired balance and if your future is on course, then whatever you do with the extra money is your choice.  (Well, it's always your choice, but you get my drift.)  Sometimes it helps to do the math precisely: "If I spend X on this, how much longer will I be working -- 1 year?  5 years?  6 months?"  Sometimes it's not worth it, sometimes it absolutely is.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #27 on: December 08, 2013, 05:56:28 PM »
Your house and yard look immaculate and obviously display what real estate agents call "pride of ownership."  I wish you'd come over and take care of mine...

It's really all about the balance between present desires and FIRE or FU money or whatever you want the savings/investments for.  We all have our desired balance and if your future is on course, then whatever you do with the extra money is your choice.  (Well, it's always your choice, but you get my drift.)  Sometimes it helps to do the math precisely: "If I spend X on this, how much longer will I be working -- 1 year?  5 years?  6 months?"  Sometimes it's not worth it, sometimes it absolutely is.

Thanks for the compliment.

My mindset is just that, how much longer will we need to work based on what we spend.  I've been blessed to have a high paying career that is unstable at times. It forced me to live well within my means. I thought I was doing pretty well (before I found this forum a few months back).

I got a chuckle about the comment on painting the car for "how much"??? Years ago, I would have bought a new Benz. Instead, I still drive my 2001 BMW 530 with 200K on it and expect this car to last me until I am FI. Again, pride of ownership. I absolutely love this car and am not drawn in to the new shiny ones, I'll keep my old shiny one for another 10 years. This paint job in fact saved me what used to be a $900 a month car payment back in 2005 when I bought a new Benz. Progress yes, perfection to Mustacian standards, no.  Frugal is relative to one's own perception as well.
« Last Edit: December 08, 2013, 06:01:05 PM by fmzip »

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #28 on: December 10, 2013, 11:37:09 AM »
Here's what I decided to do.

I sent in $5K of my $25K to make an extra principle payment. Next month, I will do the same.

That puts the mortgage balance $34,791. I am going to apply for the PenFed HEL for 60 months @ 2.49% today. That would then make the monthly payment $617.30, versus the $596.41 on my current 4.93 fixed mortgage.

I figure this way I can keep my mortgage payment in line to what it was. I will continue with my extra $650 per month toward toward the principle as I have been doing. In the event I can't make an extra principal payment, this plan keeps me exactly with the same numbers.

Going with this, payoff date on the mortgage is only 28 months and approximately $2700 in interest.

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #29 on: December 10, 2013, 12:24:29 PM »
What about the HELOC?

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #30 on: December 10, 2013, 12:28:38 PM »
Didn't make sense to use a variable rate Heloc when I could get a small HEL @ 2.49% for 60 months
« Last Edit: December 10, 2013, 01:26:53 PM by fmzip »

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #31 on: December 10, 2013, 01:41:51 PM »
Didn't make sense to use a variable rate Heloc when I could get a small HEL @ 2.49% for 60 months

Of course, but will you keep the existing one in place for liquidity, drop it entirely, get a new one?

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #32 on: December 10, 2013, 01:58:31 PM »
Oh, I am keeping it.

As soon as the HEL is paid off, I will kill my existing HELOC and get an even larger one.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #33 on: December 14, 2013, 09:08:26 AM »
Got a reply from PenFED:

Thank you for your recent application for credit. We are unable to offer you credit on the terms that you requested
for the following reason(s):
 
Excessive obligations in relation to income (overextended).
 
We can, however, offer you credit on the following terms:
 
EQUITY LINE OF CREDIT NOT TO EXCEED $35000.00 AT 3.75% APR, SUBJECT TO
CHANGE QUARTERLY. THIS IS A VARIABLE RATE THAT WILL CHANGE QUARTERLY B
ASED ON THE PRIME RATE PLUS 0%. THE MINIMUM MONTHLY PAYMENT WILL BE TH
E FINANCE CHARGE DUE.
 
If this offer is acceptable to you, please notify us before 12/23/2013. You can notify us by phone at 800-247-
5626, by mail at the address listed on the top of this letter, by visiting a branch or by contacting us at our web site
WWW.PENFED.ORG.
 
Our credit decision on your application was based in whole or in part on information obtained in a report from the
consumer reporting agency listed below. You also have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting agency. The reporting agency played no part in
our decision and is unable to supply specific reasons why we have denied credit to you. You also have a right to
a free copy of your report from the reporting agency, if you request it no later than 60 days after you receive this
notice. In addition, if you find that any information contained in the report you receive is inaccurate or incomplete,
you have the right to dispute the matter with the reporting agency.
 
Equifax
P.O. BOX 740241
ATLANTA, GA 30374
PH: 1-800-685-1111
 
We also obtained your credit score from this consumer reporting agency and used it in making our credit
decision. Your credit score is a number that reflects the information in your consumer report. Your credit score
can change, depending on how the information in your consumer report changes.
 
Your credit score: 876
 
Date: 12/10/2013


I am a bit confused on the reply. I pulled my credit report from Experian and it looks flawless. I have three big credit cards that I pay in full ever month (didn't do that before I read up on cash back here). Is that what they are concerned about?

I have years of perfect payment history. I even included a bank statement showing $160K available as backup and $180K of equity in the house with a $39K balance. How should I handle this? Should I simply walk away? Is this a bait and switch tactic?
« Last Edit: December 14, 2013, 09:12:22 AM by fmzip »

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #34 on: December 14, 2013, 09:18:29 AM »
what is your income?  What is your monthly debt service divided by your income?  Unless you look super leveraged, I would call them and have a chat.  Offer to substantiate your income, etc.  This sort of thing is usually automated so if you don't "fit inside the box" for automated underwriting you may get a blanket rejection and need to talk to an actual person.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #35 on: December 14, 2013, 09:34:22 AM »
Income stated is 130K. I didn't include my wife on the app. $178AGI on last years tax return, should be similar this year

One card says recent balance $2900, paid in full
There is one loan I cosigned for my step son for $3828 that he is paying $113 a month on
I have $3800 on my equity line which he also pays $100 a month on
Mortgage is $1046 a month with taxes
Lowes had a balance of $543 last month, paid in full
PC Richard balance $523, pay $71 a month zero interest


I would have thought that showing them a bank statement  and home equity with 10X the loan request amount that it would have flown through. I even stated the loan would be used to pay of the first mortgage as well!


« Last Edit: December 14, 2013, 09:38:39 AM by fmzip »

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #36 on: December 14, 2013, 10:01:46 AM »
I would give them a call.  PenFed has always been super to work with. 

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #37 on: December 14, 2013, 10:29:04 AM »
is my credit score of 876 good?

brewer12345

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #38 on: December 14, 2013, 12:49:49 PM »
is my credit score of 876 good?

Top shelf.

I would call them.  You should be a no-brainer credit.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #39 on: December 18, 2013, 06:17:48 PM »
Update:

Making some headway with PenFed. Sent in $10K of principal since I started this thread, feeling good regardless of if they give me the loan or not.

What I did find out, before applying for a loan, make sure your credit card debt is paid down (regardless if you pay it in full every month). Also, I applied for a $35K HEL but confused them because my mortgage that they would have to pay off was at $44K when I applied for the loan..

What still confuses me though is the statement that my debt to income ratio was too high.....

Nevertheless, showing them my bank statement depicting the massive payoff in CC debt and $10K on the mortgage in the last 20 days, they should be changing their tune. All they've asked for is payoff statement once the mortgage dips below $35K which I expect will be on Friday or Monday

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #40 on: December 19, 2013, 05:39:28 PM »
And the PENFED saga continues......

After resubmittal to underwriting, I was denied again. They continue to state that my debt to income ratio is too high even though I gross about $10K a month+ and my debt on the credit report is no more than $1300 a month.

As they reiterate my debt to income is too high, my blood is boiling. I've conveyed numerous times that something is wrong to no avail. Finally today, a new person (everything I call you have to speak with someone new) delves further into it and says the gross monthly income on file is $2200 a month. The kicker, underwriting has re-verified and confirmed this amount is correct. I ask, where did that come? They cannot answer as they can't seem to find my paysubs I submitted the very same day I applied for the loan ....

Then the gentleman finds my paystubs and confirms my base pay of $4800+ every two weeks and states the obvious, DUH! I've must have wasted 4 hours so far talking to this company to no avail, finally it appears this may be resolved....

However, I have very little faith. It seems they are inundated and the left doesn't know what the right is doing. You aren't allowed to talk to the underwriter nor are you allow to talk to the person corresponding with you and handling your account. Every time you call in you have to begin the whole conversation with someone else and they make notations on the app which are then emailed to the person who is handling your account, not the underwriter. It seems there is a 3 day delay between direct email correspondence with the account manager and they don't even look at the notes on the account.

VERY frustrating.....



« Last Edit: December 19, 2013, 05:53:52 PM by fmzip »

Exflyboy

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #41 on: December 19, 2013, 07:17:59 PM »
If it were me.. I'd pull some money out of after tax retirement accounts, savings etc and pay off ALL my debt.

Then have a potluck with your friends to celebrate home ownership and give all your debters the middle finger..:)


Frank

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #42 on: December 19, 2013, 07:30:47 PM »
If it were me.. I'd pull some money out of after tax retirement accounts, savings etc and pay off ALL my debt.

Then have a potluck with your friends to celebrate home ownership and give all your debters the middle finger..:)


Frank

I hear ya Frank! I was inches away of cutting the cord today.

I was so pissed off. What I learned was this, regardless of how much cash you have on hand, it doesn't matter.  If your income appears too low in regards to your expenses, too bad. Even with my situation that I owe less than 1/10 of what I have on a bank statement, they aren't interested. Odd part, they would give me another home equity line of an additional $35K instead to go on top of the $47K line I already have. The logic in that?? I don't know.

All the more reason to have a huge home equity line in place before I call it quits.....

Exflyboy

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #43 on: December 19, 2013, 07:39:20 PM »
If you have had your savings in Stock market ETF's you have done VERY well this year.. You may do more well in 2014 or there maybe a 20% pull back.. Nobody knows.

Wouldn't it be a good time to lock in some of those gains and to own the roof over your head outright?

Just saying..:)

Frank

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #44 on: December 19, 2013, 07:59:39 PM »
That's exactly why I plunked down $10K on the mortgage over the past few weeks.

I'm up around 12% this year, nothing crazy. However, I do feel it makes more sense to get rid of the mortgage than to throw $40K into the stock market right now.

fmzip

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #45 on: December 20, 2013, 02:09:28 PM »
Just got notification, I am approved!

No closing costs, only caveat is that the loan needs to be open for 24 months otherwise they charge back for the closing costs.

arebelspy

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #46 on: December 20, 2013, 02:42:07 PM »
Nice!  Way to stick with it through the hassles.  :D
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Dicey

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #47 on: January 28, 2014, 10:48:20 PM »
Sorry to be so slow to comment, fmzip. Since retiring, I get wa-a-a-ay behind on my blog reading, because, well, I'm out having fun...

First, your house is awesome, thanks for posting the worth-a-thousand-words pictures. Your pride of ownership is readily apparent and will be richly rewarded. Next, good for you for sticking it out with Penfed and getting the loan you want. More kudos for reading and understanding the fine print. I enjoyed following the arc of your story, even if I did miss the wrap party.

Related thought: it's nice to hear from folks who believe it's okay to live in a beautiful house and drive a nice (if not new) vehicle. If you can afford these things comfortably thanks to wise choices and superior needs vs. wants control, why not?

prophei

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #48 on: August 30, 2017, 05:01:14 PM »
I came across this post while searching around for some information to back (or counter) an idea a buddy of mine and I have been throwing around regarding the use of a HELOC to pay down a mortgage. Our idea is a little different than the above, so I wanted to share in case it is helpful... or generates a needed face punch back at me!

The idea is to simply use the HELOC to pay down 10k of principal every 6 months. You pay your mortgage, then pay down 10k from your HELOC. Then you dump your paychecks into your HELOC. You do all of your spending on a cash-back / flight points credit card, and pay that out of the HELOC. This means that you won't be paying interest on the 10k for most of the time. You need to make enough money to pay it down by just under 2k a month, so you are only ever paying the HELOC interest in small chunks for 6 months. Rinse and repeat every 6 months. Thats 20k a year to principal... gone.

The impact of those 2 10k principal payments a year (on top of what you are paying with your regular mortgage payment) cut out a massive amount of the interest you will pay on that loan... and the years you will have to pay in general. You end up way ahead, even considering the small bits of interest you pay on the HELOC.

When I read about this idea online, people seem to make the mistake of paying off their entire mortgage this way, or doing it in much bigger chunks of 25k+, so the advice is usually to avoid doing it. You are way to exposed to the various risks that can come into play, the variable interest rate being one of them. If you are more conservative, and do this in 10k chunks at a time, your exposure is relatively low, so if something unexpected goes wrong, paying that sum off relatively fast isn't a problem.

I am talking about decade+ of payments vanishing and 100k+ type savings. I am no financial wizard, but this seems like a solid way to approach the general idea in the thread. Am I crazy? Do I deserve a punch to the face??

Dicey

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Re: No Brainer? Use my HELOC to pay off my mortgage?
« Reply #49 on: August 31, 2017, 12:15:39 AM »
You might want to check out the DON'T pay off your mortgage thread.

You are essentially trying to hack paying off your mortgage, but some mustachians posit there are better things to do with your money than prepay a cheap mortgage or even a mortgage/heloc combo.

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/