Equity Optimization/Mortgage Acceleration?

[hightower]

So, I read through the transcript of the WCI podcast this morning.  Jordan Goodman from Money Answers talked about this concept of Equity Optimization/Mortgage Acceleration.  I don't quite follow how this would help pay off a mortgage?

From what I understand he's suggesting that you open a HELOC on your mortgage and pay down your principle with this balance?  I don't see how shifting debt around like that will help anything?  He says basically to open a new heloc, write a check for the entire balance of the HELOC and use it to pay down the mortgage balance.  Then, start paying off your HELOC over the next 9-12 months or whatever?  From what I remember, HELOC rates are usually a fair bit higher than mortgage rates, so how will this help you?  Why not just spend a year making 50k in extra payments to your first mortgage from your checking account?  Am I missing something?  Forgive me if I am.

Seems like he's just trying to sell us on his affiliate's product.

This concept seems pretty much the same as opening up a credit card that offers 18-21 months of zero interest, using it to pay something off (like high interest student loans) and slowly pay off that balance over the interest free term?  That's what I did with my remaining 6.8% student loans last year.  I guess the only downside to using credit cards is you can only have so many and it's kind of a one time thing (they don't let you repeat the interest free period again later).

[q-school]

star trek doc posted about this a little while back.  his heloc was like 1.5.

I suggested he pay off his mortgage with it.  his heloc had 3-4 mo limit (roughly from memory).

so some heloc have very low rates.  if you can keep getting the super low rates, I guess it makes sense.

 

 

[hightower]

q-school wrote:

star trek doc posted about this a little while back.  his heloc was like 1.5.

I suggested he pay off his mortgage with it.  his heloc had 3-4 mo limit (roughly from memory).

so some heloc have very low rates.  if you can keep getting the super low rates, I guess it makes sense.

 

 

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Wow, well yeah with a 1.5% rate, that would make sense.  What's this 3-4 month limit?  3-4 months before you have to make any payments?

[q-school]

hightower wrote:

q-school wrote:

star trek doc posted about this a little while back.  his heloc was like 1.5.

I suggested he pay off his mortgage with it.  his heloc had 3-4 mo limit (roughly from memory).

so some heloc have very low rates.  if you can keep getting the super low rates, I guess it makes sense.

 

 

Click to expand…

Wow, well yeah with a 1.5% rate, that would make sense.  What’s this 3-4 month limit?  3-4 months before you have to make any payments?

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had to be paid off in 3-4 mo

that's why he couldn't do it.  (i'm continuing to assume star trek doc is a he)

 

 

[WallStreetPhysician]

hightower wrote:

So, I read through the transcript of the WCI podcast this morning.  Jordan Goodman from Money Answers talked about this concept of Equity Optimization/Mortgage Acceleration.  I don’t quite follow how this would help pay off a mortgage?

From what I understand he’s suggesting that you open a HELOC on your mortgage and pay down your principle with this balance?  I don’t see how shifting debt around like that will help anything?  He says basically to open a new heloc, write a check for the entire balance of the HELOC and use it to pay down the mortgage balance.  Then, start paying off your HELOC over the next 9-12 months or whatever?  From what I remember, HELOC rates are usually a fair bit higher than mortgage rates, so how will this help you?  Why not just spend a year making 50k in extra payments to your first mortgage from your checking account?  Am I missing something?  Forgive me if I am.

Seems like he’s just trying to sell us on his affiliate’s product.

This concept seems pretty much the same as opening up a credit card that offers 18-21 months of zero interest, using it to pay something off (like high interest student loans) and slowly pay off that balance over the interest free term?  That’s what I did with my remaining 6.8% student loans last year.  I guess the only downside to using credit cards is you can only have so many and it’s kind of a one time thing (they don’t let you repeat the interest free period again later).

Click to expand...

You're not missing anything. The trick is that you use your HELOC as a checking account where you send your paycheck into the HELOC and pay your bills out of the HELOC. That way, all extra savings goes to the HELOC/paying off the mortgage instead of other things (investing in taxable, paying off student loans). Some people may want to do that, others may want to split their money manually (send a little bit of extra money to mortgage, a little extra money to student loans, a little bit into VTSAX in taxable, etc.)

Jordan isn't the first person to talk about mortgage accelerators. I heard it on another personal finance podcast probably a year ago at this point, and had to investigate it further because it sounded too good to be true. I wrote up a description and my criticisms of the mortgage accelerator in a blog post about 2 months back:

http://www.wallstreetphysician.com/debunking-mortgage-accelerator-program/

Looks like WCI will be giving his take on the subject in a few weeks based on his comments in the main blog post.

-WSP

[rmecc001]

WallStreetPhysician wrote:

 

http://www.wallstreetphysician.com/debunking-mortgage-accelerator-program/

 

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Thank you for that link. Great post!

 

I was intrigued when he talked about it but I think I agree with your talk.

 

Jordan was an interesting guest but I can't help but feel that he was too focused on promoting his affiliate companies.

[Zaphod]

Someone on here talked about it once, sounded fishy and didnt make any sense compared to just dumping all your cash into your mortgage. Not ideal for a doctor to worry about their mortgage anyway. You lose some of the imputed rent income value by what amounts to basically prepaying your living arrangements years in advance. Also lose your currency short, etc...

[Zaphod]

rmecc001 wrote:

WallStreetPhysician wrote:

 

http://www.wallstreetphysician.com/debunking-mortgage-accelerator-program/

 

Click to expand…

Thank you for that link. Great post!

 

I was intrigued when he talked about it but I think I agree with your talk.

 

Jordan was an interesting guest but I can’t help but feel that he was too focused on promoting his affiliate companies.

Click to expand...

Really? Was it the truth in equity dot com?

[Lithium]

I wish I'd known about this.  Took me about half an hour to figure out how with a HELOC you're paying less interest and more principal than a regular mortgage payment would dictate.  I paid off my mortgage pretty aggressively anyway, so not sure how much this would have saved me in interest charges.  I'll probably try it with my next mortgage though.

[Hatton]

Good article on Wsp.  I just made extra payments.  I see no advantage to using a heloc if you are disciplined.

[StarTrekDoc]

He most days

our HELOC offers teaser rates x1-2 a year lasting 3-4 months at below market rates.  The most recent was 1.9% until April.  No fees.   Less enticing with the reform on HELOC, but still great way to use as a short term float -- just like the teaser 0% credit cards when they offer zero loads--usualy Discover Card.

This helps around the edges, but mostly with the holiday cashflow surge as we talked about in the other thread.

You can do this with mortgage flux overall if one wants to pay off the mortgage early anyways -- it's just a cheaper way of doing it on the floating a portion of it.    One can really make fun by rotating ~400k through different brokerages and get bonus dollars off those every 4-6 months and earn some free dollars for kicks and giggles.

[Ryan]

StarTrekDoc wrote:

He most days

our HELOC offers teaser rates x1-2 a year lasting 3-4 months at below market rates.  The most recent was 1.9% until April.  No fees.   Less enticing with the reform on HELOC, but still great way to use as a short term float — just like the teaser 0% credit cards when they offer zero loads–usualy Discover Card.

This helps around the edges, but mostly with the holiday cashflow surge as we talked about in the other thread.

You can do this with mortgage flux overall if one wants to pay off the mortgage early anyways — it’s just a cheaper way of doing it on the floating a portion of it.

Click to expand...

Heh. This post reminds me of the now closed fatwallet finance forums. Those were fond memories.

[Overlap12]

I was intrigued enough to get the free eBook and read a few other forums on this subject.  The only way this can work is if the interest on the HELOC is calculated differently than the interest on the mortgage, so that when you make a payment on your HELOC it is paying down principal faster than when you make that same payment (in dollars) on your mortgage.  I actually have a $200k, unsecured business LOC @ 4% and this sounds intriguing to me with a $950k mortgage.

[StarTrekDoc]

Ryan wrote:

StarTrekDoc wrote:

He most days

our HELOC offers teaser rates x1-2 a year lasting 3-4 months at below market rates.  The most recent was 1.9% until April.  No fees.   Less enticing with the reform on HELOC, but still great way to use as a short term float — just like the teaser 0% credit cards when they offer zero loads–usualy Discover Card.

This helps around the edges, but mostly with the holiday cashflow surge as we talked about in the other thread.

You can do this with mortgage flux overall if one wants to pay off the mortgage early anyways — it’s just a cheaper way of doing it on the floating a portion of it.

Click to expand…

Heh. This post reminds me of the now closed fatwallet finance forums. Those were fond memories.

Click to expand...

Totally.   SIS was my hero.   Off to Slickdeals now which is a totally different flavor from FW-FF.

[mmorris1986]

I'm interested to hear WCI chime in on this as I just learned about this method from a podcast and I was intrigued.  They claim you can pay off your mortgage in 5-7 years, using their HELOC (of course).  I agree with the lot here that it would only make sense if you get a really low rate on the HELOC - I have a doctor mortgage with 3.7% fixed interest rate with no PMI and no HELOC rates I could find in a quick search come even close to that...  Also, why bother with the fuss, why not just make additional principal payments?  Lastly, I can find other places to throw my money at the current time, like my 6 figure 4% variable rate refinanced student loans on which I can't deduct the interest (at least they aren't 6%! thanks WCI!!) So I guess I'm not paying off my mortgage until thats gone. Overall it seems like a sales pitch for them to sell their HELOC product...

This is my first post!  I can't end it without leaving a huge thank you to Jim Dahle.  WCI has been a godsend to me since I found it in residency: I scour the website all the time, I've read your book and many you've recommended, I listen to the podcast- I can't get enough!

I've recommended WCI to everyone I know. Thanks so much!!!