The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: nobodyspecial on June 12, 2016, 02:50:34 PM
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Listening to "listen money matters" podcast where they were describing the great mortgage interest savings to be made by:
Take out the maximum Home Equity Loan on the mortgaged property. Pay the Heloc amount onto the mortgage, put every spare penny into paying off the Heloc as quickly as possible, as soon as it is paid off - repeat.
Obviously paying as much as possible against a mortgage, especially at the start, lowers the total interest costs.
But I don't understand how this has an advantage over just making extra mortgage payments, unless the Heloc had a lower interest rate than the mortgage - which seems unlikely.
Is there some particular feature of US 30year mortgages that makes this viable or even necessary?
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Taking out a higher interest loan to pay off a lower interest loan? Sounds like someone on your podcast is selling Helocs
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Not to mention if you itemize any mortgage interest you can't even just directly compare rates.
Maybe this was in the context of if you can get a HELOC for cheaper than a mortgage refinance?
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It did say the heloc interest was tax deductable.
I thought perhaps that you couldn't make extra payments on a US mortgage as you can here.
There was a fashion in the UK for a linked bank account where any balance in your current/savings accounts was deducted from your mortgage, so you were charged less interest. Always suspicious that the idea was really to get you to think of your mortgage as a giant overdraft and borrow+spend more and so pay it off more slowly
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Was it a recent or old episode? I ask because there was a time in the mid 2000s where heloc rates were quite a bit lower than first mortgage rates, even fixed rates. At that time this strategy would have made sense. Well for a few years.
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From time to time, you can get 1.99% for 1 year on a HELOC. Maybe this is what they have in mind.