How to Use a Home Equity Line of Credit to Pay Down a Mortgage
If you have access to a home equity line of credit, or HELOC, you may be able to use the power of your home's equity to dramatically reduce the size of your primary mortgage. When done properly, your lifestyle will remain the same and your expenses should not increase. This technique is referred to as a Mortgage Accelerator loan and has been used for quite some time in Europe and Australia. Although it is not a very common tactic used in the United States today, it is gaining in popularity.
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Instructions
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Open an appropriately sized Home Equity Line of Credit from your bank or lender. The location of the HELOC is less important that its size and the cost of such access to equity.
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Make one large payment from the HELOC to your primary mortgage lender. This payment will be a substantial amount of the available funds in the HELOC. Typically, 75 to 80 percent of the available HELOC funds are used for the lump sums because this method assumes you have no other intentions for that money.
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Deposit your regular paychecks in full into the HELOC. These regular bi-weekly deposits will be considered payments to the HELOC, and the frequency of these payments will ensure that the majority of interest charged is minimal.
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Pay your regular monthly bills using the funds you have deposited into the HELOC. The excess funds available after you pay bills will continue to reduce the interest on the HELOC.
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Continue using the HELOC as a normal checking account until your surplus has reduced the HELOC balance to near zero. Depending on the size and amount of your bi-weekly paychecks and your monthly expenses, the time taken will vary.
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Send your primary mortgage another substantial payment from the HELOC funds. You should send your lender between 75 to 80 percent of the available money in the line of credit. The two large lump sums from the HELOC, combined with your regular monthly mortgage payments, will significantly reduce your outstanding principle balance.
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Tips & Warnings
If your monthly surplus is higher, this concept will work better and faster for you.
If your income is not stable, or if you may find yourself unemployed, this concept may not suit your situation. After you begin this process, a significant decrease in monthly income will further threaten the safety of your home due to the additional secured loan on the property.
