[‎‎‎‎Sheela]

I’m exploring ways to accelerate the payoff of my mortgage and recently came across the idea of using a Home Equity Line of Credit (HELOC) as part of a strategy to do this more efficiently.

The concept seems promising—using the HELOC to make larger payments on the mortgage, then funneling income into the HELOC to reduce its balance, effectively leveraging the difference in interest rates and payment flexibility.

Has anyone actually tried this in real life? If so, how did it work out for you? Were there any unexpected challenges, fees, or drawbacks you encountered? Did it save you money or time in the long run?

I’m especially interested in hearing from people who have done this in the U.S. housing market, but insights from anywhere are welcome.

Looking to learn from real experiences before making any decisions—any thoughts or lessons learned would be greatly appreciated!

[Jule]

You mean for me to take out a HELOC at 7.5% to pay off my 2.3% mortgage?

Oh boy! Please don’t fall for this. Velocity banking is a scam.

[Julie]

Yes! I did in 2010 when the rates were very different. As I recall our Mortgage rate was around 5% and HELOCS were close to 3.25% At the time you could still write off HELOC interest so we “paid off” with the HELOC, accelerated payments and wrote the interest of for 3 additional years until it was truly paid off.

I also used a HELOC to purchase a condo in 2014 at 3.25 and negotiated the deal as a cash deal.

Although I had the cash to close, it allowed us the flexibility to pay it over a couple of years and still write off the interest.

I don’t think you can write off interest today, which stinks.

A very different landscape today.

[Marcus]

Don’t hate on the OP too much.
I’ve seen a couple videos pop up on YouTube recently talking about this very thing.

I don’t remember her name or the name of her channel but I think she called it velocity.

Of course if you watch one video a bunch more show up.

Sounded strange and too good to be true but she made it sound easy to do.

[Jasmine]

How would taking out an additional loan pay off the first loan faster?

[Ben]

I seriously doubt it’d make sense.
Joshua Sheats of Radical Personal Finance interviewed/grilled a guy who advocated for it.

Good overview. Episode 315

And for Admins worrying about podcast links RPF Is where I first heard about ChooseFI 10 years ago.

[Callie]

What?! The HELOC interest rate is going to be more than your mortgage, so I’m not following why anyone would do this?

[Michelle]

I’m guessing this is referring to Velocity Banking but it never made much sense to me.

Even much less so now that HELOC rates are high and your mortgage is probably low.

[Wayne]

Right around when Covid hit and tenants were being told they didn’t have to pay rents, I used my Heloc (when the rates were lower) to make larger payments to my principal balance on investment properties.

I then recast the mortgages (low to no cost to do instead of refinancing).

That made my monthly cashflow increase and the monthly payment low enough to where if one tenant wasn’t paying I could cover the mortgage with the other rents.

I did it with two properties and I am glad I did it when I did it but in today’s higher rate Heloc environment I would not do it now.

I am however currently chunking at some mortgages with a 0% interest credit card that allows cash advances.

The plan will be to recast again after a minimum of 10k paid to principal, this will lower my monthly again, increase total cashflow and once the 0% period ends I have other cards I can balance transfer them to again at 0% charging only a 4-5% fee on the balance amount.

For those skeptical or not interested do yourself a favor and look at a the actual cost of your mortgage over the life of the loan, if that interest amount doesn’t make you want to puke then I don’t know what will.

For those of you saying just invest your money, I am still as an independent contractor maxing out my solo 401k (not SEP) every year, contributing to a non retirement brokerage account, and able to travel often.

For me it was the peace of mind knowing that if I have investment properties close to being paid off I would not run the risk of losing one or two if the tenants were able to stop all payments like they were.

Everyone’s journey is different in investing but I am very happy so far with how things have turned out.

Cashflow is solid, equity is higher and it has allowed me and my wife to make different decisions with our careers than we probably would have.

[Pedro]

It’s possible but you have to be able to swing both payments and at these rates it’s probably not a great idea

[Barry]

Just pay down principal on your first mortgage and ask for the amortization to be refigured.

You can make principal only payments while also making your regular payment.

[Kevin]

Yes, we paid off our mortgage with a heloc because the interest rate was better.

Then we paid off the heloc of course.

[Author]

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