HELOC uses to Pay Down Mortgage

[tripods68]

Anyone uses HELOC to pay down their mortgage? I've only heard this on a podcast but don't know anyone personally. With HELOC you can use it with a debit card, or write a check. You can also have a direct payroll deposit.

[disneysteve]

I guess that could make sense if the HELOC rate was lower than the first mortgage rate. However the HELOC is variable so there that risk to consider.

[TexasHusker]

Wouldn't that be like doing a cash out refinance from your home, then taking all the proceeds to pay down your note to what it was before the refi?

[amarowsky]

I have a heloc I'm closing on this wednesday.

I'm using it to pay off my mom's house (investment property loan @ 4.625%).

Heloc is currently @ 4%.

My reason is kind of unique though. My brother and I both have 1/2 ownership of the property, but it is only financed in my name. By us both taking out HELOC's on our primary, we can effectively pay off the remaining balance on the house 50/50.

So we will split our rent from the house and both be able to pay down the house at our own rates. It just seemed like a pragmatic way to split the house w/o paying several grand in closing costs + fee's to get a 2-person mortgage.

After the house is paid off, I will keep the HELOC line open, to allow me more flexibility in my emergency fund. As I don't ever imagine the HELOC prime rate to immediately jump to a significantly high interest rate.

If it does... I'll just choose not to use it and go back to typical emergency fund plan.

[amarowsky]

Anyone uses HELOC to pay down their mortgage? I've only heard this on a podcast but don't know anyone personally. With HELOC you can use it with a debit card, or write a check. You can also have a direct payroll deposit.

I looked into some super long threads on biggerpockets referring to this strategy. If interest rates are the same or worse, there is no benefit.

You get the exact same benefit (at = interest rates) you would if you just made additional principle payments to your mortgage.

The only benefit you could achieve is by being able to use a portion of your EF at additional payment to principle. But this comes at the cost of risk you are willing to tolerate should an emergency happen.

Example, if you have a 10k emergency fund, and choose to drop down to 5k (use the other 5K towards principle). AND a 10k emergency rises, you will have to pay the HELOC interest rate of that 5k until paid off. Most helocs are near prime rate of 4% right now. So 5K * .04/365 = $0.54 in simple interest you will be charged every day for having leveraged that $5,000 (until paid off, and adjusted for average daily balance every month). ~$16.75 a month.