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Using a HELOC to pay off a mortgage
Posted on 6/26/25 at 7:02 pm
Posted on 6/26/25 at 7:02 pm
Anyone ever look into this?
Premise: Using a HELOC to reduce your mortgage payment can work if you have significant equity, secure a low HELOC rate, and your lender allows recasting. However, it’s not a guaranteed cost-saver due to variable rates and fees. Run precise calculations and consider your financial stability before proceeding.
Benefits
Lower Monthly Payments: Recasting reduces mortgage payments, freeing up cash flow.
Flexibility: HELOC funds can be drawn as needed, and you only pay interest on what you borrow.
Potential Savings: If the HELOC rate is lower than the mortgage rate, you may save on interest over time.
There are several videos out there on this subject. This is not a bad oneif you get past the "InfoMercial" vibe to it. The premise is a legitimate one.
Premise: Using a HELOC to reduce your mortgage payment can work if you have significant equity, secure a low HELOC rate, and your lender allows recasting. However, it’s not a guaranteed cost-saver due to variable rates and fees. Run precise calculations and consider your financial stability before proceeding.
Benefits
Lower Monthly Payments: Recasting reduces mortgage payments, freeing up cash flow.
Flexibility: HELOC funds can be drawn as needed, and you only pay interest on what you borrow.
Potential Savings: If the HELOC rate is lower than the mortgage rate, you may save on interest over time.
There are several videos out there on this subject. This is not a bad oneif you get past the "InfoMercial" vibe to it. The premise is a legitimate one.
This post was edited on 6/26/25 at 7:12 pm
5
Posted on 6/26/25 at 7:07 pm to Nole Man
A mortgage is a mortgage no matter what you call it.
Posted on 6/26/25 at 7:21 pm to Nole Man
It’s not very common to have a HELOC with a lower rate than what your mortgage rate is or should be. But that’s not what this plan is all about.
It is about using your HELOC to advance pay down principal on your mortgage so the interest charged each month is lowered, all while having your paycheck deposited into your HELOC monthly or semi monthly to reduce that balance and lower that interest charge.
Over time, the interest charge savings and accelerated payments allow for the mortgage to be paid off faster, thus saving tens of thousands of dollars in interest.
It can work with detailed and strong discipline, but most folks will not follow through long enough for it to be worthwhile.
This program is a sales pitch by people peddling either HELOC’s for referral fees or peddling a computer guidance program that tells you when and how to make payments and on what dates, but the program costs several thousand dollars.
I think this is for the most part a scam. Just make extra payments on your mortgage when possible and this shorten your loan and reduce your total interest payments.
It is about using your HELOC to advance pay down principal on your mortgage so the interest charged each month is lowered, all while having your paycheck deposited into your HELOC monthly or semi monthly to reduce that balance and lower that interest charge.
Over time, the interest charge savings and accelerated payments allow for the mortgage to be paid off faster, thus saving tens of thousands of dollars in interest.
It can work with detailed and strong discipline, but most folks will not follow through long enough for it to be worthwhile.
This program is a sales pitch by people peddling either HELOC’s for referral fees or peddling a computer guidance program that tells you when and how to make payments and on what dates, but the program costs several thousand dollars.
I think this is for the most part a scam. Just make extra payments on your mortgage when possible and this shorten your loan and reduce your total interest payments.
Posted on 6/26/25 at 7:21 pm to La Place Mike
quote:
A mortgage is a mortgage no matter what you call it.
Obviously. And debt is debt no matter what you call it as well.
But the premise is paying off a mortgage earlier and save thousands of dollars in interest over time compared to other traditional alternatives like refinancing, making extra principal payments etc.
For example, refinancing may not be as good due to higher rates, closing costs, and loss of a low-rate mortgage, while extra principal payments don’t reduce monthly payments without recasting and tie up cash that could be used elsewhere. A HELOC can offer flexibility and immediate payment reduction if recasting is available, but it introduces variable rate risk and additional debt.
HELOC Uses
Here's a ChatGPT summary...
Using a HELOC (Home Equity Line of Credit) to pay off a fixed-rate mortgage can be beneficial in a very narrow set of circumstances, but there are big caveats. Here’s a clear, honest look at the pros and cons:
Why someone might consider it beneficial
Lower short-term interest rates — HELOCs often have rates initially lower than a traditional fixed-rate mortgage, at least during their introductory period. If you aggressively pay down principal during this window, you might save on interest.
Flexibility — HELOCs are revolving lines of credit. You can draw and repay as you wish, so you could potentially make lump-sum payments toward principal faster than a rigid mortgage schedule allows.
Interest-only payment options — Some HELOCs let you pay interest-only for a while, freeing up cash flow (though this does not reduce principal).
Why it can be risky
Variable interest rates — Unlike your fixed-rate mortgage, HELOC rates float based on prime rates or other indexes. If rates go up (as they have in recent years), your payment could rise dramatically.
Short draw periods / balloon risk — Many HELOCs have a 5–10 year “draw period” after which you must start repaying principal, often at sharply higher payments.
Loss of predictability — A fixed-rate mortgage gives you certainty: same payment, same rate, for the entire term. Using a HELOC exposes you to unpredictable rates and payments, adding financial risk.
Secured against your home — If you default on a HELOC, you still risk foreclosure.
Bottom line
In most cases, replacing a stable, predictable fixed-rate mortgage with a variable-rate HELOC is not advisable. The only time it might work is if:
You have a very high fixed-rate mortgage (say, from years ago at 7%–8% or more),
Your HELOC rate is substantially lower,
You have a disciplined plan to pay off the HELOC quickly (ideally before rates adjust),
You accept the risk that rates could go up.
If your current mortgage has a reasonably low fixed rate (for example 3–5%), it’s almost never beneficial to pay it off with a HELOC, because you’d be swapping stability for uncertainty.
This post was edited on 6/26/25 at 7:23 pm
Posted on 6/26/25 at 7:48 pm to Skippy1013
quote:
Just make extra payments on your mortgage
and can you access those payments back if needed without a refi? is there a slush fund of your "extra" payments on principal you can pull from as needed? no!
this is why you use a HELOC and employ velocity banking. It works.
Youtube Link
Posted on 6/26/25 at 8:07 pm to Fat Bastard
quote:
Secured against your home — If you default on a HELOC, you still risk foreclosure.
Imagine being the super clever guy that defaults on his HELOC, which triggers the acceleration clause on the mortgage, that results in a sheriffs auction on the property, and likely a deficiency judgment after all the fees are applied.
Posted on 6/27/25 at 5:52 am to Nole Man
I've been doing the velocity banking strategy since 2018 and have saved 6 figures worth of interest. I use it for paying off mortgages, vehicle loans, and my wife's student loans. It really just depends on what I have happening at the moment. There is the opportunity cost of investing that money else where though. However, whenever I don't have a good investment to place the money, I just take a chunk at some of my mortgage debt (primary residence or rental properties).
The basic philosophy is using simple interest to pay off amortized interest. It's all math.
The basic philosophy is using simple interest to pay off amortized interest. It's all math.
Posted on 6/27/25 at 6:55 am to Cousin
quote:
I've been doing the velocity banking strategy since 2018 and have saved 6 figures worth of interest. I use it for paying off mortgages, vehicle loans, and my wife's student loans. It really just depends on what I have happening at the moment. There is the opportunity cost of investing that money else where though. However, whenever I don't have a good investment to place the money, I just take a chunk at some of my mortgage debt (primary residence or rental properties).
The basic philosophy is using simple interest to pay off amortized interest. It's all math.
Thank you for the information.
So, "mechanically", per the above, you what? Take a slug of cash from the HELOC, pay towards the mortgage, then start putting those payments back into the HELOC account until paid back?
Posted on 6/27/25 at 9:03 am to Nole Man
i have 8 years left on my mortgage with a 2.5% rate. I dont think this is going to help me.
Posted on 6/27/25 at 12:38 pm to notsince98
quote:
i have 8 years left on my mortgage with a 2.5% rate. I dont think this is going to help me.
This, using a HELOC at 8%+ interest if you have a 4% or lower mortgage is a total waste of time
Now if you have a much higher mortgage rate like current rates, could be a strategy if you have great discipline, most people do not.
I think things like buy borrow die is a way better concept for more advanced finance ways of doing things than velocity banking. For example get an SBLOC against your brokerage account and use that to invest that will make you greater returns in something else like RE, crypto, the market, etc...This has taken a nosedive in more recent years though with interest rates on the rise greatly. You'd be hard pressed to find an SBLOC under 7% range now. With thta comes a much smaller spread unless you make an insane investment long term. The advantage to the SBLOC is you technically never have to pay it down unlike something such as a HELOC. You can also take tax deductions on the SBLOC interest outside of income that would fall under LTCG.
This post was edited on 6/27/25 at 12:44 pm
Posted on 6/27/25 at 1:19 pm to thunderbird1100
Sub 6% SBLOC should be feasible. IBKR has great published rates (startong at 5.8% and lower for balance +$100k) You can use those to negotiate w your preferred broker or switch.
Posted on 6/27/25 at 2:24 pm to Nole Man
The concept is sometimes called "velocity" banking. If you have the cash flow to do this without going broke, you would be better served - in my humble opinion - to just use that cash flow to make additional principal payments, particularly early in the mortgage's life.
This is using debt to leverage a few pennies - timing and the details are everything. The juice does not appear to be worth the squeeze - again - in my humble opinion.
This is using debt to leverage a few pennies - timing and the details are everything. The juice does not appear to be worth the squeeze - again - in my humble opinion.
Posted on 6/27/25 at 4:14 pm to Ace Midnight
This post was edited on 7/19/25 at 11:34 am
Posted on 6/28/25 at 9:29 am to Cousin
Well done
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