MoneyWise | November 21, 2020

Using HELOC To Speed Up Mortgage Payoff

Show Notes

Have you ever heard of a “Rube Goldberg Contraption”? It’s a machine that performs a simple task in a very complicated way—not exactly what you want to pay off your mortgage more quickly! Nevertheless, there are oodles of systems out there that claim you can be mortgage free in just a few years. Kingdom Advisors President Rob West explains what’s behind the idea.

  • I remember as a kid seeing cartoons of Rube Goldberg contraptions where you need a soup ladle, a bird, a clock, and a skyrocket all working in sequence just to dab your face with a napkin. Are we saying that these speedy mortgage payoff systems are like that? No, but it’s still pretty complicated, while relying upon things to go perfectly as planned. If one link in the chain doesn’t work, the whole thing falls apart.
  • There are variations, but for any of them to work you have to have a healthy, positive cash flow. That means a significant amount of money left over at the end of the month. So, if you’re struggling to meet your obligations now, this definitely isn’t for you. The idea works like this: To start, you need a credit card that gives you a grace period of around 45 days to make a payment without hurting your credit score. Then you need to take out a home equity line of credit or HELOC. Then, in certain months, you put your entire paycheck towards your mortgage. The amount above your normal payment goes against the principal, of course. Meanwhile, you use the credit card to pay for all your other expenses, running up a tab there. Then, when that card’s grace period is about to end, you pay off the entire credit card balance with the HELOC. (You still with me?)
  • Then, instead of your mortgage, you use your next paycheck to pay off the HELOC balance. And you do that over and over again.
  • So unless you’re awfully good at staying on a budget, you’ll end up just borrowing even more and racking up more interest. So, yes, a scheme like this looks great on paper if everything works perfectly. But in practice, that’s another matter.
  • What does the Bible have to say about this? Generally, I think that borrowing to save is hardly biblical stewardship. Proverbs 22:7 warns that “the borrower is slave to the lender.” You’re always borrowing from two lenders to pay off a third, in a sense, floating your debt around in a circle.
  • Our advice? Take whatever discretionary income you have and put it directly on your mortgage principal. Skip the credit card and HELOC idea. It’s a lot simpler, and you don’t have to pay anyone $2,500 to get started.

Here are some questions we answered from our callers on this program:

  • I have some money both in checking and savings. What do you think about investing in physical metals like silver and gold?
  • What do you think about additions to homes—sunrooms, extra rooms, etc.?

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