Should I use my Heloc to pay down my mortages faster?

Question

I was told that I could use my Heloc like a checking account. Charging everything, incluing my monthly mortage pament onto my Heloc, then paying it off and starting over again every month. How dose this work ? It cost about $3500. to use their program. Is it worth the risk?

Answer 1

It sounds like you are looking at the Money Merge Account, offered by United First Financial Services. Their fee is $3500 for the web driven software, personal coaching and customer service. Their average client owns their home, paid off free and clear in 1/3 to 1/2 the time of the usual mortgage period. This $3500 fee IS NOT for the HELOC, the Heloc fees are separate and charged by the lender that is providing the HELOC. Basically, you are spending $3500 to save probably 10s of thousands of dollars in interest. No one has access to your money but you, the program is only instructing you what to do in order to benefit most. The MMA is your "financial dashboard". I have been a United First Financial independent agent for a while and see my average client save $60,000 to $120,000 in mortgage interest. My latest client had refinanced his home just before we met. The Money Merge Account will have him free and clear of his 30 year mortgage in 8 years instead of 30 years ( the original analysis was 14 years before he signed up for the program and has been a client only several months). People in Australia use a very similar program, and own their homes in 8-12 years instead of 20-30 years. After the home is paid off early, saving over $100,000 in mortgage interest, there is now more money available to invest into retirement funds. Visit WWW.UnitedFirstFinancial.com and see Money Merge Account (MMA) video tour. Personally, my 30 yr mtge will be paid off in 10.4 yrs and save $98,000 by using the MMA. The Heloc interest is factored in, the video will elaborate on this. Until someone has seen the MMA video, they likely will not understand how this works. Currently there are thousands of American homeowners signing up for the MMA program weekly. There is no risk, as U 1st Financial offers a $$ back gaurantee if the MMA does not perform as the analysis had shown. [e-mail]

Answer 2

You won't be paying down your mortgage any faster by doing this. In fact, you most likely will not be paying it down at all!
The mortgage(s) and the heloc have the same collateral (the house), meaning that both have taken away your equity. By using money from the heloc, you are increasing the lien against your house. You may feel that it evens out, since you're paying the mortgage with that money, but it does not. Take a look at how much of your monthly mortgage payment goes to interest, and how much goes to the principle balance. If you're like most people, a lot of the money you pay each month goes to interest, and not much goes to principle.

So, when you charge something against the HELOC, you are creating a new principle balance on which you will be charged interest. When you use that money to pay your monthly mortgage payment, you are taking that new loan and mainly paying on the interest of your mortgage.

When you make a 1000 payment on your mortgage, how much of that "pays down" the principle balance? Probably somewhere around $10-30, based on a few different factors. So, when you use the HELOC, you are increasing that lien by $1000, but only decreasing the mortgage by about $10-30! You will be going more into debt, not paying it off faster!

This program will actually LOWER your equity faster than you can make two payments on it!! I would recommend not doing it, especially not if you have to pay $3500 to do it!

Answer 3

Mortgage loans are usually at a lower rate that Helocs and are tax deductible. I would not pay off your mortgage with a Heloc.

In general, pay off your highest interest rate loans first and try to get out of debt.

Are they charging you $3500 to get a Heloc? I would shop around and try to avoid fees like that.