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??