Author Topic: Replace your mortgage with HELOC?  (Read 8264 times)

Ms.Fortuna

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Replace your mortgage with HELOC?
« on: May 23, 2016, 07:44:49 PM »
Has anybody used this strategy where you have HELOC and checking all in one - direct deposit income in there and withdraw monthly expenses from that account. You save on interest because HELOCs are simple interest based - interest is based on daily balance (like a credit card) and as long as there is more money coming in than out, you drive the balance down, hence less interest accrued. Assuming you pay same amount as you would pay for mortgage, more is applied to the principle each month decreasing the pay off time. Another advantage is cash freely flowing in and out whereas a mortgage is a locked contract.
I crunched numbers and it seems to work. Just wondering if someone could share their experiences..
« Last Edit: May 23, 2016, 07:51:06 PM by Ms.Fortuna »

MrFrugalChicago

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Re: Replace your mortgage with HELOC?
« Reply #1 on: May 25, 2016, 03:33:52 PM »
Do you get HELOC for as low of APR as a mortgage? Most HELOCs I see are a fair bit higher APR than my house.

RedmondStash

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Re: Replace your mortgage with HELOC?
« Reply #2 on: May 29, 2016, 09:34:05 AM »
We recently got a ~3.5% APR HELOC to pay off our 5.5% fixed-rate mortgage. We also took extra cash out to invest, taking the gamble that the money will earn more than ~3.5%.

Our HELOC is with our bank, so the payments are drawn directly from our checking account. We got discounts on the interest rate because of those things.

But we don't pay other bills with our HELOC; we're still just paying those in cash, from checking. The remaining balance we can borrow is basically a hedge against a flat stock market over the next few years. I like knowing we could pay our bills from it if we wanted to, or if we had some kind of financial emergency.

If we wanted to, we could pull more money out of the HELOC now, but my cautious nature seeks a balance between debt and investments (I kind of hate debt), so where we are now works for us. It's also easier to calculate monthly expenses with a relatively fixed HELOC payment, although that can fluctuate with interest rates.

mlush013

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Re: Replace your mortgage with HELOC?
« Reply #3 on: February 20, 2017, 02:55:30 PM »
One of the misconceptions about HELOCs is that they are only 2nd lien loans. That is not true. In fact, almost every bank will allow the HELOC to be in first lien position which reduces your risk of having it frozen immensely. No different than the risks of mortgages. In fact, there are now dozens of Hedge Funds lined up to buy HELOC paper from banks because they have noticed over the last 5 years to be 115 times less default than a mortgage. Especially those in first lien position.

Also, the concern about the lender terminating your credit is no different than the "Acceleration Clause" everyone signs when they get a mortgage. It's the same verbiage, but you greatly reduce your risk of this if you allow the bank to take first lien as opposed to 2nd lien. Basically, just a normal refinance.

Paying extra on your mortgage is definitely one way to get out of debt faster. However, the HELOC is an open-end line of credit that allows money to move in and out 24/7. A Mortgage is closed-end. This means you can put all your income into the simple interest HELOC and when bills are due, you can use the HELOC to pay your bills. Essentially no different than your checking account. This allows all of your money to reduce the "Average Daily Principal Balance" as opposed to just paying a little more each month.

We have to remember that a mortgage was never designed to be consumer friendly. It's a debt tool used by banks to segregate income. Ever wondered why car loans, student loans, mortgages, and personal loans are all structured as installment loans? It's because they are closed-end. Money can only go in and not out. This forces the consumer to only put some of their money towards the debt, instead of all of it thus staying in debt longer and paying more interest. But the #1 goal for banks is to get your deposits for Fractional Reserve Lending purposes! So, since they are segregating your income where are you leaving the portion you don't put towards your mortgage? IN THE BANK where they want it!

So, I don't think the HELOC strategy is for everyone but I don't know too many smart wealthy individuals that finance real estate with a mortgage. For the same purposes businesses don't usually get loans...they get lines!

RosePetal23

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Re: Replace your mortgage with HELOC?
« Reply #4 on: February 23, 2017, 10:07:12 AM »

So, I don't think the HELOC strategy is for everyone but I don't know too many smart wealthy individuals that finance real estate with a mortgage. For the same purposes businesses don't usually get loans...they get lines!

Thanks for your post! I'm very interested in this topic and considering refinancing my mortgage to get a HELOC in first lien position. Do you have any recommendations for the best banks from which to get the HELOC? Any national entities? State-specific to Illinois?

Are there specific aspects of the HELOC that need to be in place to optimize it?

I originally read about this strategy on replaceyourmortgage.com and they do not give any of this information, but rather receive commission based on your savings (once you get rid of the mortgage).

K-ice

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Re: Replace your mortgage with HELOC?
« Reply #5 on: February 23, 2017, 10:30:10 AM »
Yes we've been doing this on a rental property for over a year now.
(I keep the rental stuff seperate & still have a personal checking account.)

Rate is 3.2% (variable)  versus 2.8% locked on a mortgage.

But because the HELOC is so flexible we have paid off much more this past year than we would have saved with the slightly lower rate.

Overall we are happy.

A few things to watch out for:

You must be cash flow positive or you can easily, slowly, dig yourself in to a big HELOC hole.

Never use the HELOC for consumer purchases or vacations.






tomtom

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Re: Replace your mortgage with HELOC?
« Reply #6 on: February 28, 2017, 08:27:01 AM »
K-Ice who do you have your HELOC with?

K-ice

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Re: Replace your mortgage with HELOC?
« Reply #7 on: February 28, 2017, 10:25:28 AM »
K-Ice who do you have your HELOC with?

TD

Rate was prime +1 for a while and we never used it.

Then when we knew needed to borrow to cover our soon to be renewed mtg on our rental property we negotiated a better rate.

It is now prime +0.5.  It took some begging.


 

tomtom

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Re: Replace your mortgage with HELOC?
« Reply #8 on: March 01, 2017, 07:51:32 AM »
K-Ice wow I'm impressed you were able to successfully negotiate with TD.  I have had zero luck negotiating with TD or Franklin Mint.  I don't know how you did it, good job!

K-ice

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Re: Replace your mortgage with HELOC?
« Reply #9 on: March 02, 2017, 09:09:43 AM »
We had a rental property mortgage at CIBC & tried to renew early and get one of their posted advertised rates but those were for new customers only.

At the same time we had a TD HELOC on our house with enough borrowing power to take over the rental mortgage.

We had 3 meetings with our CIBC  "advisor" over 6 months and there was no movement on locking in again for 5y at a good rate. There was no way we would auto renew at the crap rates they were sending in the mail. She literally told us we would have to leave CIBC and come back to get the rate. Goodbye!

In the meantime we spoke to one young woman consistently at our TD bank. She promised to get us a good rate, & was all talk at first, but eventually lowered our HELOC.

CIBC must have thought we were bluffing because they were surprised we "paid off" our mortgage once it renewed.

I hate the  mortgage renewal process. But we have been home owners for 12y now. The first time I felt like we were begging to get money.

The second time was more smooth but still not simple.

By the third time we are like "we're in control and some bank is going to make about $10K per year interest off of us so who wants it?"

I'm still tempted to lock in part of our HELOC or maybe get another HELOC actually on the rental so we can have more instant borrowing power at another bank if we need it.

I've never tried credit unions or alternate lenders but our banks are usually able to match the best rate I find on Ratehub.



Enough

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Re: Replace your mortgage with HELOC?
« Reply #10 on: April 05, 2018, 01:12:46 PM »
Anyone else think its odd that the following three posters only have one post each on the forums and they seem to be coordinating to get traffic for an outside website?




So, I don't think the HELOC strategy is for everyone but I don't know too many smart wealthy individuals that finance real estate with a mortgage. For the same purposes businesses don't usually get loans...they get lines!

Thanks for your post! I'm very interested in this topic and considering refinancing my mortgage to get a HELOC in first lien position. Do you have any recommendations for the best banks from which to get the HELOC? Any national entities? State-specific to Illinois?

Are there specific aspects of the HELOC that need to be in place to optimize it?

I originally read about this strategy on [spam link deleted] and they do not give any of this information, but rather receive commission based on your savings (once you get rid of the mortgage).

Michael Lush (since 2015??)
Book: "Replace Your Mortgage"
Website: [spam link removed]
Cost: $2000 - $4000 plus ... closing cost to refinance your fixed rate mortgage into a 1st lien HELOC = upwards of $5,000+


On the actual topic. Dont replace your mortgage with a HELOC.  Bad idea to switch from a low fixed long term rate where you're getting loaned money near the inflationary rate to a variable rate loan. 
« Last Edit: April 06, 2018, 06:52:22 AM by FrugalToque »

K-ice

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Re: Replace your mortgage with HELOC?
« Reply #11 on: April 07, 2018, 03:21:38 PM »
I was being genuine in my positive  experience. I think it may be different as am Canadian and our mortgages are usually only locked in for 5 years & our advanced payments are quite restrictive on a regular mortgage.

I first heard about replacing my mortgage & checking account with a HELOC   from an account who was also doing it.

Iím happy to keep up a discussion & I have nothing to gain click bait wise.