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The more I look into this, I think the link to the Mortgage professor states it best. The savings from the differences in the interests from HELOC vs traditional mortgage is small. The real savings comes from applying all your monthly cash flow toward the mortgage. I have decided I may take our left over monthly cash flow (about 3000-4000) and split it up - 2/3 taxable investment account (already taking out max 401k, Roth IRA) and 1/3 toward mortgage. If Market tanks I at least have some of it paid into Mortgage but have enough of the money working harder for me than the 4.125 my mortgage is costing. Putting into a mortgage calculator program if I average 1000 dollars extra toward mortgage per month, I pay it off in 17 years. If I average 1500 extra per month, I pay it off in 14 years. I also am putting 1000 dollars to remaining student loan of 47,000 dollars (required payment is 750), rate is 3.2 percent but is variable. Any thoughts?
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The more I look into this, I think the link to the Mortgage professor states it best. The savings from the differences in the interests from HELOC vs traditional mortgage is small. The real savings comes from applying all your monthly cash flow toward the mortgage. I have decided I may take our left over monthly cash flow (about 3000-4000) and split it up – 2/3 taxable investment account (already taking out max 401k, Roth IRA) and 1/3 toward mortgage. If Market tanks I at least have some of it paid into Mortgage but have enough of the money working harder for me than the 4.125 my mortgage is costing. Putting into a mortgage calculator program if I average 1000 dollars extra toward mortgage per month, I pay it off in 17 years. If I average 1500 extra per month, I pay it off in 14 years. I also am putting 1000 dollars to remaining student loan of 47,000 dollars (required payment is 750), rate is 3.2 percent but is variable. Any thoughts?
Hmmmm. Yeah, that's prob fine. But yes, the HELOC-for-mortgage advantage is minimal, p much just flattens the monthly interest accrual curve, unless the HELOC had far better interest than the mortgage (unlikely). The biggest advantage is forcing yourself to put all your money towards your mortgage since you now have a HELOC to pay off every month or face the interest. Less mortgage principal = less mortgage interest and, assuming same monthly payment, shorter term. Doesn't matter how the principal decreases, whether it comes from a HELOC or your bank account.
Truth is, there is likely better use for your money anyway...but if you *really* want to pay your mortgage, just pay your darn mortgage. No use for all this extraneous silliness, and *especially* zero utility for you to give anyone money for it.Comment
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I literally came to the forum to start a thread and ask what peoples thoughts were after I just listened to WCIs podcast. Happy to see someone beat me to it and I can spend some time hearing others thoughts.Comment
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the mortgage professor had some nice spreadsheets to understand the numbers better... extra payments to the principal in small chunks appears equivalent to paying a large chunk of the mortgage principal with a heloc and then paying extra payments to the heloc. I didn't appreciate much of a large difference in amortize interest saved nor a difference in accelerating the mortage paydown as I was originally hoping for? there might be small difference if you're going to apply your whole monthly paycheck to the heloc as this would save on the interest accrued... heloc simple interest is accrued daily.
besides the hassle factor... perhaps the only difference between paying extra to the principal vs a heloc may be psychological? As dave ramsey says... its psychologically feels better to pay off a small debt.. and that might be motivating factor to pay off your mortgage one large heloc-chunk at a time.
Im going to stick with my current approach of paying extra funds to a taxable mutual index fund instead of the mortage and perhaps do a large payoff once its equivalent to the mortage which is mathematically better than paying extra to the principal (8-10% interest gained in a good market vs 2-3% interest saved). For now.. I don't think there's a better way.Comment
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I don’t quite get the allure to this. The only way it makes sense to me is if your HELOC rate is quite a bit lower than your mortgage interest rate. I have a 2.875% fifteen year mortgage (refinanced about a year ago 2.5 years into a 15 year 3.625% mortgage). I took the difference in mortgage payments between the 2, about $400, and pay that much extra per month to keep my same mortgage payoff date. I realize this may not be the wisest financial move mathematically, but it will coincide nicely to when my children are in college so the extra cash flow from a paid off mortgage might help cover costs in case the 529 balances aren’t large enough.Comment
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I agree, Sajimone. In my eyes and mathematically, it makes much more sense to invest extra payments into a taxable account, particularly as my mortgage interest is tax deductible with an effective interest rate of 2.125%--barely above inflation. It makes far more sense to me to invest in a taxable account until I have enoigh to just pay it off.Comment
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I signed in at Truth in Equity like previous poster. My payoff went from 27 years to 17 years but this was applying my calculated Profit/Loss (extra cash flow) of $2200/month to the mortgage payments. If I plug in extra $2200 per month on Mortgage Professor, got nearly the same thing. Okay, lesson learned: if it's too good to be true....
So, will continue as I have been.Comment
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I agree, Sajimone. In my eyes and mathematically, it makes much more sense to invest extra payments into a taxable account, particularly as my mortgage interest is tax deductible with an effective interest rate of 2.125%–barely above inflation. It makes far more sense to me to invest in a taxable account until I have enoigh to just pay it off.
mortgage interest still going to be deductible next year? if i didn't have significant charitable giving, my mortgage would not be enough to push me into itemized deductions next year.
remember taxable accounts can go down too. they just haven't in some time.
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