Heloc Equity Acceleration Program?

Off Topic
1

My little brother is all over this and bugging me about jumping in too. On the surface it sounds pretty good. You take out a heloc and pay off your mortgage with it, then have your paycheck deposited into the heloc account and pay your bills out of that account.

The sales pitch is that because the interest on the heloc is calculated on the average daily balance, by depositing your check you reduce the principal by that amount, thus paying off the loan faster. None of these pitches seem to factor in the fact that 80-90% of my paycheck deposit goes right back out the door to pay bills, savings, etc.

Not to mention that I’d be trading a 4.875% fixed rate loan for a 4% adjustable rate heloc, that I can lock at ~7.5%, and it’s just not adding up for me. The site my brother pointed me to is truthinequity.com, and their calculator says I could pay off my mortgage in ~3 years.

Call me a skeptic, but I have some reservations. Any financial gurus here that have looked at this? Anyone already doing it? Supposedly it’s pretty popular in other countries but hasn’t caught on here yet. Just looking for feedback.

2

You have a 4.875% fixed and you are trading for an adjustable? Are you fucking stupid? If you want to get rid of your mortgage just pay an extra $100 a month towards it. Unless you are going to be using your equity to earn you interest of more than 10% what is the point?

BTW if you use your HELOC to get rid of your mortgage you still have debt it is just by a different name. So in the end it isn’t like you are freeing yourself at all.

3

Personally I would never trade a <5% fixed for a variable. The interest rates will go back up, and that may come hella sooner than you are ready for. Honestly, they need to start moving the fuck back up soon too.

I would never give someone else that kind of control over my money, but that is just me.

It sounds like a great deal for the lender…

I wouldn’t do it. Shit you have a mint rate, and wouldn’t fuck with that…

But I’m not the most tolerant to risk. I’m also not one of the guys on this board that were telling people to BUY gold at a record high price a few months ago. (which has subsequently fallen, btw.) So take what I say as you will.

4

^ what he said. nuts to trade a below 5 for a variable no matter how good the teaser rate is. no matter the level of risk your comfortable with either. In most cases, the more bells and whistles to the sales pitch, the more bullshit it is. i would know i sell stock for a living

5

I think you guys are missing the point of the OP’s post. The gist of the idea is to use your deposited paycheck to drop the average daily balance on the HELOC…the arguement of fixed v. variable (while valid) isn’t the point of what the OP’s brother is talking about.

6

Thanks Dr. Yeah I’m not really looking for reinforcement of my own skepticism, I was hoping for some actual insight into the whole mortgage acceleration play.

Here’s an article from a few years ago on bankrate.com that compares a couple options: Mortgage Calculator | Bankrate

Like I said in the OP the calculator at truthinequity.com has me debt free in ~3 years, vs paying another couple hundred k in interest on my current 30 year fixed loan. So I’m looking for actual insight and experience with mortgage acceleration.

7

I have put a number of my clients in this program and they are happy as shit with it. What stinks in the scenario that you gave is that you mentioned a 4% interest rate. What that tells me is that the person you are talking to is trying to FUCK you with the margin.

An interest rate on any kind of HELOC (even with this accelerator program) is comprised of the Index to which it is pegged, such as the LIBOR, MTA, COFI, etc… which can fluctuate with changing economic conditions. Right now the one month LIBOR (London Interbank Offering Rate) is only .23% (yes, that is only 23 basis points) as well as the margin, which is a set amount that doesn’t vary (1.5%, for example is what I have always charged my clients with). So INDEX + MARGIN = RATE.

Most of these types of programs are pegged to the 1 month LIBOR, so if your loan officer is telling you that your rate is going to be 4%, he is charging you a 3.75% margin! That’s called bending you over and fucking you in the ass with no Vaseline in my book! He doesn’t have to charge you that much. He makes more in the YSP (Yield Spread Premium) if he charges you a higher margin. That’s also why the rate is so high if you chose to lock it in. Just as an example, the last client I put in this program was a 1.5 margin and .23 index, so their effective interest rate is less than 2%! AND they are paying their house off quick as shit! So it is not a bad program if you have a stomach for the inherent risk and stay on top of things so you can adjust if you have to.

Essentially, the more money you run through the account, the quicker you pay it off. I had a guy who owned his own business and he ran his accounts receivables through his HELOC (I’m not saying that’s ethical, I’m only saying what he did) He was putting about 100K a month through the account. He paid off a ~500K house in less than three years. No shit. So the concept of it is very sound. It is a little on the sophisticated side, and as CB mentioned above, rates WILL go up soon. That is the risk. But you can lock it OR refinance out of it (make sure the Loan officer doesn’t fuck you with a pre payment penalty). Depending upon your state, (I have never done a loan in Wyoming) the recording taxes on a rate and term refinance may be minimal, justifying the loan. I don’t know, you’ll have to do the math.

To reiterate: RATES WILL GO UP. They have to in order to protect the dollar, but it will most likely be a gradual climb, not an instant hike, and there is always all kinds of speculation every time the FED meets and what not. So it would be prudent to be responsible and pay attention to what’s going on if you decided to go through with it.

But make sure you call the guy on the carpet who is trying to fuck you with the margin. Ask to see his rate sheet and if you don’t understand it PM me and I’ll have you email it to me so I can explain it to you. If he is unwilling to show you his rate sheet, RUN. I fucking hate shady loan officers - they give the rest of us a bad name.

8

Thanks AC, that’s the kind of info I was looking for.

Just to be clear the 4% isn’t a quote from a loan officer, it’s what my bank is getting right now on a heloc. 3.99% adjustable, 7.29% lock, but that’s just the bank where I currently have my checking account.

I expect rates to rise, probably soon, so I’d want to make sure I have a max and lock option. The site I mentioned says they factor in a rate increase of 1% per year in their payment calculation.

9

[quote]tme wrote:
Thanks AC, that’s the kind of info I was looking for.

Just to be clear the 4% isn’t a quote from a loan officer, it’s what my bank is getting right now on a heloc. 3.99% adjustable, 7.29% lock, but that’s just the bank where I currently have my checking account.

I expect rates to rise, probably soon, so I’d want to make sure I have a max and lock option. The site I mentioned says they factor in a rate increase of 1% per year in their payment calculation.[/quote]

No problem. I hope you know that 3.99% for a HELOC right now is high. What’s the LTV on your home (how much do you owe total, and how much is your home worth)? If it’s not to high, you may be able to refinance that second. That sounds like a rate you got three years ago or so (it may not be, but that’s where it was then). FYI: your bank is making a SHITLOAD of money off your HELOC at the moment. Call them and ask them to lower the interest “because you are having trouble making the payment”. Most Loss Mitigation departments are authorized to CHOP rates to avoid adding a bad loan to their balance sheet. It won’t affect your credit at all. Just a suggestion. Hit me up if you need more info.

10

Yeah, I don’t have a second at this time, I just started looking into the concept and am still in the research phase. I’d like to figure out how to do it myself without paying one of the mortgage acceleration companies a fee to do it for me. I don’t know if that’s possible or not.

The easiest route would be to get a heloc at the same bank where my checking and bill pay service is, then I could link it and transfer money between accounts, etc.

So is it something a guy can do on his own? Or is there a lot more to it than appears on the surface? I’d value a professional opinion on that more than anything at this point.

If the Truth in Equity calculator is anywhere even remotely close then my payoff is short enough that an interest rate adjustment isn’t going to hurt me too bad. The rate I have now is from last May, I caught a brief dip below 5 and took it. I’m paying enough extra principal now to pay off in 20 years anyway, but if I can pay a marginally higher rate and pay it off in 3-5 years instead I’d still save tens of thousands of dollars in interest.

11

[quote]tme wrote:
Yeah, I don’t have a second at this time, I just started looking into the concept and am still in the research phase. I’d like to figure out how to do it myself without paying one of the mortgage acceleration companies a fee to do it for me. I don’t know if that’s possible or not.

The easiest route would be to get a heloc at the same bank where my checking and bill pay service is, then I could link it and transfer money between accounts, etc.

So is it something a guy can do on his own? Or is there a lot more to it than appears on the surface? I’d value a professional opinion on that more than anything at this point.

If the Truth in Equity calculator is anywhere even remotely close then my payoff is short enough that an interest rate adjustment isn’t going to hurt me too bad. The rate I have now is from last May, I caught a brief dip below 5 and took it. I’m paying enough extra principal now to pay off in 20 years anyway, but if I can pay a marginally higher rate and pay it off in 3-5 years instead I’d still save tens of thousands of dollars in interest.
[/quote]

Well anything is possible to do on one’s own. Being in the industry, I know for certain that I would NOT try to do it on my own. If you decide to go forward with it, pay the fee. It is a small price to pay so that you don’t have to reinvent the wheel. I’m not sure what you do for a living, but IF you were a mechanic, and one of your customers told you that he’d rather rebuild his transmission himself so that he wouldn’t have to pay some damn garage, what advice would you give him? See my point? There is nothing wrong with paying a fair price for a service that you don’t have the time or energy to acquire skills for. Best of luck. If you (or anyone else in the tnation community) ever need any mortgage advice, hit me up.

12

AC, what is the advantage of this program over say, something as simple as making principal only payments when your income allows?

13

[quote]TheBodyGuard wrote:
AC, what is the advantage of this program over say, something as simple as making principal only payments when your income allows?[/quote]

There isn’t. Which is why I didn’t go into great detail in my post. Double check your loan for prepayment penalties, 90% of home loans in the US don’t have a prepayment penalty, and just start paying more each month. There are a few other things you could do like bi-weekly payments instead of monthly which equates to 13 monthly payments each year instead of 12.

If you really want more unbiased information go to www.reiclub.com the forums are free and awesome.

14

Most likely if the rate you are being offered is 4%, and its from a major national or regional bank, the index is most likely based off of prime, which is 3.25%. Prime will most likely start to increase as the economy improves, but I would imagine at a very slow rate. I would also look into all the laws specific to your state, and to the specific guidelines to the HELOC.

For example, minimum amount you can advance from the HELOC, prepayment penalties, annual fees, # of locks you can have on the HELOC…etc

Just do the math, but lean on the side of “it sounds too good to be true”