But you're not using a heloc. You're using a regular line of credit. The purpose is to destroy the amortization rate of the loan. Heloc goes against your house. A line of credit is a check that can be applied at one time. Not using your house as collateral. So follow me here. Your mortgage is 100k right. Your payment is 472 at let's say 4%. If you pay $500 extra every month yeah you'll slowly get there but you'll get there faster if you take a bigger piece out of the pie. Mortgage interest is compounded daily so you're paying on the remaining balance. That $100k loan will cost you an extra 70k in interest. So you're paying 170% of the purchase price. But now if the total is 90k then the interest is 63k so you're killing 7k without doing anything but moving money around.
A 10,000 loc at $450 a month with 7.5% interest will be paid off in about 24 months. Two years. A regular mortgage will take five years, double the time to pay off. So you got 450 plus 470 from the regular mortgage payment right? So now you take it down to 90k with the loc and take five years off the amortization schedule. It's gonna take you 24 months to pay it off. What's 470 times 24 you ask? Well it's 11,280. So in those 24 months, you have lowered your mortgage thru regular payments by 11,280.
Ok so you have the initial 10k line of credit plus the 11,280 from two years of normal mortgage payments. Now obviously this can't be calculated since you still have mortgage interest being added. But let's say this. You lower your mortgage by 21k in those two years like this correct? That brings it down to let's say 80k to make it an even number and just in case. Buying that 100k house starting this new year for 30 years, that 80k will be reached by.......... May 2027
9.5 years!!! And you just reached that amount in about 2 years! So now two years have passed and you're back at 0. Let's go to 70k since you're gonna take that total off right away again. That'll take you to 2031, 14 years. But then you have your two year loc payoff and another let's use 10k in regular mortgage. So you bring it down to 60k which will be reached by April 2034, sixteen and a half years, more than half the loan term and you've only been at it for about 4 years. At that rate, six years equals 40k, eight years equal 20k and ten years equal zero. Now I don't know how much interest will be charged over the length of the loan but I know it's not gonna be no 70k. They can't charge you interest if your balance is much lower.
It's like you do a credit card balance transfer. You move one balance to a card with a better rate. You still have to pay the card but you're moving your money around to work for you. You're borrowing money but at a cheaper cost than what you're borrowing it for. It takes no collateral with that line of credit and they give you a check so it's not like a credit card. Besides what mortgage let's you pay with a credit card? I hear pnc bank is excellent for this. Granted the credit score has to be great to determine the amount received and whatnot. Me, I'm close to 800 so they'll welcome me with open arms. Others may not be in the same position. But some may be. The purpose of this lesson is to show how moving money around can work for your benefit and shorten the length of your loan. Now this could work on a car payment obviously but I would recommend against it since its a depreciating asset. Cars go down in value at a quick rate. Houses don't. They may but not as fast.
Any questions?
Class dismissed.
I might try this later in the year breh
