Natali Morris Blog

January 6, 2016

How To Save Thousands On Interest With A HELOC

This month we made a $25,000 principal payment on our mortgage and that took our projected interest on this house from $127,503 to $112,776. So not only did this huge principal payment save us almost $15,000, it also cut the life of our loan down by almost a year. Which means we are one year closer to being mortgage free!

Now before you think that I am bragging about having $25,000 to put down on the loan, you must know that this money came from a Home Equity Line of Credit, or a HELOC. Listen closely if you want to kick your interest payments in the balls!

Using a HELOC to cut down your mortgage payment is many things: brilliant, economical, sensible, but it also takes discipline, management, and planning. Can you do that? Of course you can! You are the steward of your finances! So let’s do this!

A HELOC is a loan based on your equity in your home. You apply for it at a bank. Most banks do this. Say your home is worth $100,000 and your remaining mortgage balance is $50,000. That means that you have $50,000 worth of equity in that home. You can get a loan on that equity and the lender puts a note on your home saying that if something bad happens , they get paid back along with the original mortgage holder.

Most banks will loan you between 80 and 90% of the value of your equity. Let’s assume 90% in this case: 90% of $50,000 is $45,000.


So you now have $45,000 to spend as you wish. It is your equity after all! You get a checkbook, a debit card, and an online account. Do you have to pay it back? Yes you do. You have a set number of years. More about that below.

The interest on this loan is typically very low for the first year and then it varies based on the market rate of interest. Our HELOC is set at 1.99% interest for the first year. So let’s brainstorm how to use that low-interest money wisely!

Your home mortgage is amortized, meaning that the amount you pay in interest is based on what is left on the principal of the loan. Your enemy here is both TIME and RATE of interest. The longer it takes you to pay this off, the longer you are chipping away at your balance ever so slowly and racking up interest payments. But if you take big whacks at the principal, then more of your monthly payment goes to principal, and the life and amount of your interest melt away like butter. I’m not sure I’m explaining this as awesomely as this whole concept is. Lets get some help from Excel. I found a template called Loan Amortization Schedule. I shall share it with you gladly! Click here:

In this worksheet, input the terms of your loan and it will tell you how much you will be paying in interest for the proposed life of the loan. Now play with putting down more to principal in Column E and see how much of a difference it makes in the Cumulative Interest Column J! It will amaze you!

We have two mortgages because we split our time between New Jersey and the Poconos. We decided to put $25,000 from our HELOC on each mortgage and the combined savings in interest was over $30,000 and it knocked a year off of both loans.

It is amazing what you can do when you are opportunistic with your borrowing!

And now what about paying that HELOC back? So glad you asked!

You can just make payments to the HELOC with whatever is left over at the end of the month but that is not the Ninja Trick way to do it. Here is the Ninja Trick way:

You treat your HELOC like a checking account. Take your paycheck from your day job and deposit the money into the HELOC. ALL OF IT! Pay all of your family’s expenses out of the HELOC – the ones you cannot pay out of your small business, that is. Even deduct your monthly savings from the HELOC. Now pay all expenses through this account.

It used to be that you could not write checks out of the HELOC for less than $500. My bank says that is no longer the case for them but check with yours. But we don’t pay for everything with the HELOC account. Instead we use a points-based credit card and then pay it off every month with the HELOC by a simple online bank transfer. This way we are earning mileage with every purchase and not having to pay for piddly little purchases out of the HELOC.

The key is to spend LESS than you MAKE. The leftover money will build back up the HELOC until you have $45,000 to spend again and then you put another big chunk down on your mortgage and start all over.

Play with it in the worksheet and see what I mean. Put an extra chunk in Column E every year or every other year and see what happens to Column J. Write down the original interest you were planning to pay and the number of payments. Now compare when you add in those big pay-downs.

Here is an example: Say you make $10,000 per month. Your family expenses are about $8,000 (including savings!). The remaining $2,000 stays in the HELOC where you had taken out $45,000. Slowly but surely, that extra $2,000 per month builds itself back up to $45,000. Now you’re back to where you started from and you take another chunk of change and put it on your mortgage AGAIN! Rinse and repeat and you will have saved yourself so much money in interest and so many years on your loan, you will want to kiss me!

Let me attempt to illustrate with this jank graphic I built myself. In my head this helps. Does it help?


Do you see the beauty? Now every dollar you do not spend on Starbucks goes towards your home principal. You are incented to live frugally because it helps you pay down your mortgage faster!

A few of you have written about what happens with the introductory low-interest rate expires after a year. Good question! You could be paying higher interest than your original mortgage but you have a few options here: pay down other high-interest loans or re-do your HELOC loan. Since the HELOC is based on your equity and after a year of this system, you have more equity, you are eligible for a new HELOC worth more. Dig?

This system is so brilliant but please don’t give me any credit. This is something my husband has been preaching for years but when I heard Adam Carroll discuss it on this episode of the Listen Money Matters podcast recently I knew we had to pounce. If you have questions about this, download and listen to this episode! They articulate it better than I ever could and Lord knows I’m trying here.

I’m not going to lie, clicking Submit on a $25,000 payment to your mortgage feels both empowering and terrifying. I did a few fake outs with the mouse click. But then I went over to my Excel spreadsheet and saw what we had just accomplished in interest savings and I danced a little interpretive dance to the Hamilton soundtrack to celebrate. Which I will link you to in a YouTube video never!

Okay I know you have questions! What are your questions! I’ll do my best to answer them because it is a New Year and I am loaded for bear!


198 responses to “How To Save Thousands On Interest With A HELOC”

  1. Ben Topolski says:

    This works great, but the other side is with interest rates so low can you make more money with $25K through investements versus paying off the loan. For example, if you can find a stock that is yielding 5% annually and your mortgage is 3.5%, don’t you end up better off by putting that money into the stock that is yielding 5%? Especially if you reinvest some of the dividends back into the stock?

    • nmorris says:

      This is a good point from the opportunity cost stand point but what stock can you guarantee 5%? Most funds can’t do that. If you know what you’re doing, and it works for you, your way is better. For those that do not, my way is also worth considering.

      • Marc says:

        Paying down the mortgage during the earliest parts of the amortization period is important if there is a possibility that you might need to sell after just a few years from purchase. Especially true if you had credit issues that left you with a much higher interest rate than the average borrower. Every time you buy a new home with a 30 year mortgage or refinance for 30 years, you re-start the amortization clock. The end result is that if you ended up doing this for the first 20 years of an active career with four relocations, you just paid “rent” for those 20 years, and the next 10 years of your last 30-year mortgage will also be more like rent than ownership (presuming you can even be certain this will be your “last” home). In hot markets you might think that you came out on top because you sold and walked away with $10k or $20k with each sale. But do the math, factor in closing costs to buy and closing costs to sell, and the occasional roof replacement or foundation repair, and then add in the monthly payments you made all those 20 years. Sum it all up, and you might find that if you could have rented something modest during those 20 years you might have been able to set more money aside to invest and grow tax free in a Roth IRA. If just one of your sales was at a loss and you had to take money to closing then you know even more so how screwed you can be. Alternatively, what if you could have saved up a nest egg in your youth by rooming with friends or family and then bought a modest home in cash. Maybe not an option in every market or location, but if you live in an area where you can commute from the rural city outskirts you might find that an entire house with land, sometimes even acreage, can be obtained for the down payment you would need for a house deeper in the city. An acre with a mobile home can pay off if located in the path of projected development (urban sprawl). The money saved can justify a longer commute for many, even when gas prices go up if they are driving the right vehicle. Save cash, grow investments, and if you want to scale up every few years it should be doable. Most importantly you can endure financial hard times without worrying about the bank taking your home just because you fell three months behind on payments. You could even tap home equity if you have a situation worth risking your abode for.

        Little known fact is that buildings do not typically appreciate on their own, but rather they depreciate. They require constant input of cash and effort to keep them from falling apart entirely. Homes abandoned for just a couple of years often need to be razed to the ground, even 3,000 sq ft mcmansions, as the damages from neglect can quickly grow to unrepairable levels. The land, however, typically appreciates as local population grows and vacant land is filled in. Value is determined mostly by the values of neighboring properties. A neglected property can often sell for more when it is in a highly valued area than a luxurious custom home built in a decaying, blighted neighborhood. Try visiting a rough neighborhood originally built 50-100 years ago but now known for higher crime rates, crack houses, and section 8 rental homes and there is a good chance you will stumble upon a massive old estate home that would have been the glory of its day. An important reminder that no home is too good to reverse in value even regional or national values are on the rise. Likewise there have been homeowners put big bucks into modernizing the family home they bought decades earlier, installing stainless steel appliances and granite counter-tops, just to watch the new homeowners bulldoze it to build their mcmansion.

        I’ve heard financial gurus warn people to avoid mobile homes because they don’t appreciate, and saying that site-built homes do. This is only half-truth. I’ve seen rural acreage with mobile homes increase significantly in value. If you buy a new single-wide mobile home, pay transport and hookup costs, then don’t expect to profit when you sell it to someone who will have to move it and set up their own hookups. And truth is the average mobile home is not typically as well built as the average site-built home. But if you buy a site-built home for the price of the average mobile, odds are you will be stuck with a shabby built home cobbled together with inferior materials and workmanship (just like a cheap mobile home). You also have the option of paying a lot more for a mobile home and get a much better home that is built with superior materials and workmanship. If you buy a single-wide mobile home that is a few years old, move it to your land, live in it, then it will not have depreciated much more than when you bought it. Trailer parks can often be undesirable places to live, and the worst of these are known to make for bad places to try to store value (unless you’re the park lord collecting all the rents). The key is to own your own land that is not in or near such parks (though to be fair, there actually are some nice trailer communities that have almost resort-like amenities, good local schools, etc.). Used single-wides can often be bought for $5k and cost $5k to move. Many people don’t feel $5k moving cost justifies the $5k price of the home. But for $10k you have a place to live that is for most people going to be cheaper than one year of rent for the same square footage. You will have also improved raw land, increasing the value. So while one acre alone might sell for $10k, the acre plus home plus utility hookups, driveway, septic, etc. might sell for $40k-$50k. But you only paid $25k total ($10k acre, $5k home, $5k moving, and $5k site improvements). Your “bad investment” in your mobile home did not cost you loan origination fees and other closing costs associated with having a mortgage. And you won’t spend four years paying $50k only to realize that you’ve only paid down $5k in principle and appreciated only $15k in value ($15k that goes to the sales commission and seller’s closing costs if you sell at this point). So living cheap and saving up $25k to become a full owner of your modest home means that you start off life living rent and mortgage free, and scale up only by saving and investing aggressively. Best of all, if you have a career or lifestyle that has you relocating every few years you don’t become the banker’s schmuck. If you decide to hold long term then you live rent and mortgage free, low stress, amassing a fortune that grows with compound interest. Could even be living off investment interest alone without waiting until you’re 80 years old. Best of all, if you started with a cheap single-wide you can live in it while building a nicer home on the site from the ground up (considering if you are the handyman type, something I think is essential to making home-ownership pay off). Alternatively you can haul off the mobile home if you find the property could sell better as a ready-to-go homesite, or trade up to a nicer double-wide.

        Now when I talk about mobile homes there is sometimes a stigma that comes to mind with many city dwellers that have only seen run-down trailer parks, or maybe they have see a trashed mobile home sitting somewhere out in the country. Keep in mind that the site-built houses in the poorest neighborhoods and poor rural areas will be just as bad. Mobile homes are cheaper and marketed as such, so poor homeowners who could not ever afford a nice home in the city or suburbs might see a mobile home as their only option. Being poor they don’t have the cash and may be working too many hours at one or more low paying jobs. Sometimes these are single parent households or disabled or elderly people scraping by on social security. They are at a disadvantage and can’t maintain their homes so they fall into disrepair. The one negative aspect of a home built so cheaply is that it will require more maintenance and will be more susceptible to damage from weather and wear and tear. But if you are not poor and have the time and ability to take on some basic handyman challenges the homes can be maintained at a price that is ultimately going to save money over the cost of major repairs on a big, expensive $400k house. The next time you are in the country take a closer peek at the nicer homes with well kept yards. With covered porches, decks, and bricked-in sides the well maintained and improved mobile homes might not register as mobile homes at first sight.

        Again, maybe this wouldn’t work in Silicon Valley or the Eastern Sea Board, but I’ve seen this work in the rural South and Midwest. The key is that you need to save and grow your net worth regardless of how your residence is paid for. Home ownership with a 30-year mortgage is often not the panacea unless you know when you buy that you will very likely remain there 30 years later, and you are OK paying almost double in cash the price you think you are buying at. After 30 years will your home still be in a premiere neighborhood, or will you find yourself surrounded by urban decay? Or will property taxes squeeze you out when your neighborhood becomes a target for gentrification? Will you have a crisis or recurring life events that force you to constantly be tapping into your equity? Will an expensive house on a 30 year mortgage require one or several massive, multi-thousand dollar repairs? Will your wages or salary really go up enough over those years to weather the inevitable financial storms that will come along? While many recent college grads will start at relatively low pay and work up to good pay with time, many STEM grads will begin their careers with relatively high pay that will increase at only modest rates as time goes by – something to consider if you believe your salary will grow and allow you to focus on building savings after roughing home ownership the first few years.

        And finally, most important, if you believe that it is a value, perhaps for piece of mind or sense of frugality, to pay off your mortgage early so you are not paying nearly double your original purchase price, keep in mind that the amortization schedule means that you pay most of your interest in the first years and mostly principle during your last years. So if you begin to accelerate your home payoff in year 15 or year 20 you might find you are not saving as much in interest by that point and would be better off just trying to put that extra cash to work in a different investment vehicle of some sort.

        • Donna Kays says:

          I don’t know if this relates but If anyone needs to clear credit card debts then the person you should be talking to is (EAGLESEYE dot HACK at GMAIL dot COM), i read about them just like you’re doing right now and i decided to go against all odds to message them. Guess what, few months ago i was owing $17,000 in total on all my credit cards but as of right now i’m cleared of all my debts. Stop being skeptical and take the bold step to talk to them and i promise you there’s nothing like credit cards debts in your name anymore….!!

    • Roseline Wood says:

      My husband and i bought a house back in 2013 and up until a month ago, we owed $285,000 in our mortgage account. Life really was hard between trying to pay the bills and completing payment for the property, then a friend of mine told me about a very good and prolific hacker who goes by Birdeye and how he helped her hack into the account and paid off all the debt without any form of consequences. A month ago i decided to contact the hacker on his email (EAGLESEYE.HACK at GMAIL.COM) and to my greatest surprise he hacked into the account and paid off the debt for not so much money! Everyone in similar or other situations should contact him and he’s sure gonna deliver 100%!

  2. Mike says:

    Everything you are describing sounds similar to a concept called Bank on Yourself, or Infinite banking. It’s everything you are describing and even a little more. You might want to check out “Becoming your own Banker” by Nelson Nash. There are a couple of companies out there that implement his strategy from what I’ve seen. Been doing it for about a year now.

  3. James says:

    AT&T is one and GSK – I do exactly this – my home payoff money sits in T stock yielding 5.5% dividend, while my interest rate on my ARM has been 2.875 for past 5 or so years. It adjusted up to 3 this year, so next year when it adjusts (probably higher), I’ll sell T and pay off house when they are pretty close to being the same, and enjoy the extra dividends I’ve earned while I’ve been beating the bank.

  4. Chris says:

    The HELOC I had for about 10 years and the Credit Union would not let me treat it like a checking account. If I recall correctly, the checks were required to be a minimum of $500 each. There may have even been a fee if I wrote too many checks in a single month. Read the fine print carefully.

    My biggest concern is what’s the real rate on the HELOC after the teaser rate expires? I’d be totally shocked if it is not at least 2 points higher than your mortgage(s). At that point the only “advantage” is the shorter amortization period and resulting savings.

    Back when interest rates were dropping, we’d refinance at the lower rate but make 2 key changes over what most people did. 1) We’d ask for a 20-year amortization rather than start over with another 30-year schedule, and 2) We’d keep making payments at the existing monthly rate rather than use the re-fi to adjust our standard of living.

    The net result was an accelerated schedule for being mortgage free while fully taking advantage of the lower rates. Our HELOC was used to buy inventory for our home-based business and the vehicle used for it (also paid off ahead of schedule).

    • nmorris says:

      Yes but once you put that big chunk down on your mortgage, you have more equity, which means you can re-do your HELOC based on a new amount of equity after the introductory year.

      I had not been aware of the $500 minimum checks. I’ll have to check on that one. The way we decided to do it was to use a points-based credit card for all monthly expenses and then pay them off monthly out of the HELOC so we are gaining airline miles as well as only making one payment out of HELOC monthly.

      Thank you for your informed comment!!

      • Chris says:

        WOW, nice to see edits based on the feedback. That’s awesome!

        A couple more thoughts for you. First I’m a bit surprised you go for airline miles rather than a straight cash rebate on your credit card(s).

        I bought a vehicle with my HELOC because I could itemize my deductions back then. The HELOC was the only interest I was paying other than the mortgage on my house, so it was smart to do so. But I made sure I was paying a monthly payment specific to the car back to the HELOC (amortized at 48 months) so I wouldn’t lose the advantages of the lower (tax deductible) interest rate. I bet your handy amortization worksheet can do this work too.

        At a basic level it sounds like you’re doing an awesome job of not only living within your means, but trying to leverage the additional income you have into better and diversified long-term returns. Not everybody does the “living within their means” part very well, as was the case 10 years ago when folks keep doing cash-out refi’s on their homes and spending the cash as disposable income. When the market contracted, they didn’t have a buffer. A HELOC can paint someone into the same type of corner if they don’t stay within the strategy you’ve outlined. Maybe a checks-and-balances suggestion about quarterly verification that your HELOC balance is moving in the right direction would help?

        Keep up the good work.

  5. K says:

    This is a great idea!

    However, after the recent fed hike, HELOC introductory interest rates of 1.9% are a rare find. Then, after the first year, the rates jump to 4% or more, at which point, it doesn’t really compete with those who have luckily locked into low mortgage rates.

    If the math works out in you favor, this is pretty slick tip.

    • nmorris says:

      Yes but once you put that big chunk down on your mortgage, you have more equity, which means you can re-do your HELOC based on a new amount of equity.

      • Daniel says:

        This is an interesting concept. Working in the banking industry for close to twenty years, there are key elements someone looking to implement this strategy should look into.
        For starters, what is the minimum draw amount on the HELOC. In my experience, must banks set a limit ranging from $100 – $500 dollars or even greater. Even if this isn’t the case, most banks will frown on using the HELOC as a checking account. Depending on the language in the note, the bank could instruct the borrower to cease the behavior or even call the note. It is critical to read the fine print and ask questions.
        Second, even (especially) if there are no closing costs (bank pays origination charges, appraisal fee, credit report fee, etc.), most banks have implemented reimbursement charges if you close your loan within a certain time period. So your introductory rate may be good for only one year, you may have to reimburse the bank for origination fees if the loan is closed within 2/3/4/5 years. Some of the origination charges may be substantial. Again, it is critical to read the fine print and ask questions.
        Lastly, recent history has demonstrated that it is dangerous to believe that real estate prices will always go up and that you can always refinance. What happens if the value of your property declines faster than the additional principal payments made? What happens if there is a unlikely, but sudden rate spike? What happens if the lending appetite for HELOCs vanishes? Or new regulations? All I’m saying is before anyone decides he/she wants to proceed with this strategy, the individual(s) should unknown and understand the potential risks associated with this strategy.

  6. S says:

    What exactly do you mean by “re-do your HELOC”?

    From what I remember when I got my HELOC, it involves going through much of the process of getting a mortgage (fees, appraisal, closing, etc.).
    Have things changed in that there’s a more streamlined means to change a HELOC?


    • nmorris says:

      Yes, you do have to go through the same formal process as with any loan or refinance on a house: credit check, personal documents, appraisal. The fees on my HELOC were really low though. Only about $75.

  7. Jack says:

    I understand the ammoritization schedule on my mortgage, does the HELOC ammoritize the same way the mortgage does?

    • nmorris says:

      You choose the terms of your HELOC. You can have interest-only payments or interest and principal. You work that out with the bank. The way it comes to term can be different and you have to watch it. The best way is to use this direct-deposit route for a year and then re-negotiate your HELOC based on your new level of equity. Make sense?

      • joanne says:

        Do you mean direct deposit of you pay into the HELoC. Correct/ Just so I understand.
        Thank you so much of your counsel.

        • nmorris says:

          Yes, direct deposit from your company straight into the HELOC account.

          • Kazu says:

            If you set up your paychecks to go directly into your HELOC account wouldn’t you need to redo this every 1/2/3/4 years when you “redo” your HELOC? Essentially aren’t you opening a totally different account while redoing the HELOC?

          • It depends on the bank. We recently re-did our HELOC and we kept the same account number so this wasn’t necessary. Good question! Thank you for asking!

  8. […] gonna go into detail here, but my friend Natalie Morris did a fantastic job breaking down how this mortgage payoff ninja trick works. Check it out on her website […]

  9. Daniel Rizza says:

    Hi Natali, I just listened to your podcast on LMM and recall the one they did with Adam Carroll as well. I had a call with him and have done my own thinking about this quite a bit. Thank you for your post. I don’t consider myself a dummy with regard to finances but am humble enough to know I can be wrong. With regard to this strategy, I just don’t see it. I don’t see how it is different than just sending any and all extra cash toward your mortgage. Yeah, sure you are also leveraging equity (which is basically just more cash). But honestly, if I were to hand you a check equal to the balance of your mortgage and you had 20 years left until retirement, wouldn’t you just invest that money in a lump sum? Wouldn’t that be the best

    Isn’t the expected return in the market over the long term greater than the interest saved on your mortgage? My calculations show that even with modest returns of 5% or so. If not, why would anyone invest in anything other than 30 year bonds? Surely you have money in the market, right?

    Anyway, I have literally spent hours trying to convince myself this is the smartest thing to do. I just can’t come to that conclusion. If you can provide more feedback that would help, I would appreciate it!

    I loved your podcast on LMM, by the way. Better than the one with Clayton, IMO.


  10. N. says:

    The main benefit of this method *over the occasional extra principle payments* is the fast jump down the amortization schedule. In a mortgage, as principle is paid off, less interest and more principle is paid off for every normal mortgage payment. Let’s take a look:
    Every normal mortgage payment moves you one row down, resulting in a tiny tiny change in the ratio of interest to principle. (1/360 of an increment difference in the payment being full interest moving to full principle.
    With occasional lump sum payments, you move slightly faster down the amortization schedule. Once you send in enough principle payment to equal the total principle paid value in next row down, your next payment uses *that associated interest:principle* ratio instead of the one that would normally occur on the next date. The rate at which you get the new ratio depends on how quickly you can pay off *additional principle* to get to a better row. This method is great and really helps with mortgage payoff. It’s the basis for the “extra payment” biweekly mortgage payments some banks will set up for you (26 biweekly payments per year instead of 24 twice a month payments, with one whole payments worth of money going to principle), getting essentially a couple extra row moves a year or so.
    With the extra large lump sum method, you immediately jump many more rows all in one month. So every normal payment you make is at a more favorable interest:principle ratio. This means (in the example comparing it to the biweekly payment schedule I mentioned above) for the year, every one of the payments made pays off more interest, compared to a slower principle payoff. Each payment is comparatively more efficient at paying down principle. It increases the *rate* of acceleration because it gets you a much more favorable ratio when you make normal (or additional) payments. Then every normal payment is a comparatively more efficient remover of principle, and the acceleration curve toward a pur principle ratio is faster/steeper.
    It also a couple of additional effects: (1) it relies on a much lower level of willpower (and maybe benefits from human laziness as well) and (2) as Ms Morris pointed out, it changes the available equity in the home drastically which can make the HELOC potentially more liquid.
    Re (1) this method assures that whatever scraps of money happen to be left over in the budget at the end of the month are automatically applied to the additional mortgage “savings” (i.e. paying off the HELOC). You only need enough willpower to not spend everything you have. When saving traditionally (put aside extra $50 in a separate account etc), you have to have not only have to “not spend everything” but you also have to have the willpower to aggregate that money, protect it/not touch it, then turn it over to the mortgage company in an amount large enough to matter (a significant move down the amortization schedule). In this method, you get the benefit of the saving/storing/paying (I.e. the better interest:principle ratio) *before* you exercise willpower and budgeting, rather than after.

    On the downside, HELOC money isn’t free. There’s a monthly payment on it, like any loan. And that cost needs to be added to the mix when comparing situations. For the most part, the HELOC interest rates are lower than the mortgage rate, so it ends up being a wash for total monthly expenditures when compared to “save then small lump sum” or “biweekly” methods so your real gains are realized on the payoff acceleration, not the out of pocket monthly costs.

    I did the numbers on this for my situation when I first heard about it on Mr. Morris’ real estate YouTube videos, and it didn’t really work for my particular case. I’m not planning on paying off the home I’m in, and the cost to service the HELOC payment debt (I didn’t get a deal as screaming as the Morris family did on intro interest rate) on the giant lump sum was higher than the potential savings I’d get to the mortgage principle for the time horizon I’ll own the home. Maybe my next house.

    • nmorris says:

      Wow, couldn’t have said it better myself. Other than forcing you to automate your pay-downs, this also has the added benefit of striking TIME out of the equation in addition to interest. The interest alone is not the enemy. It is interest PLUS TIME. Daniel, your way works, don’t get me wrong. And it works wonders because you’re forcing yourself to have the discipline to save up the extra chunk. It is really half of one, a dozen of the other with the HELOC having a slight advantage because of the above reasons. That help?

      Also, thank you both for these comments!!

    • Ron B says:

      While this is all true, there are some things you are leaving out. Firstly, the HELOC allows you to get your money back if you change your mind due to unforeseen circumstances or just a change of heart. When you pre-pay principle on a standard mortgage, for the most part, it’s no longer accessible. When you use the HELOC to make these principle pre-payments, the money stays accessible. Second, by depositing your income into the HELOC, you effectively eliminate having to make payments.

      By the way, this entire process becomes much easier when you eliminate your regular mortgage entirely, replacing it with a first mortgage HELOC.

      • nmorris says:

        Wait, can you explain that last part? How do you replace a primary mortgage with a HELOC? Do you have to wait until your equity and mortgage are the same?

        Thanks for this Ron!

        • Ron B says:

          We offer 1st lien HELOC’s in 17 states and will be adding more by the end of June. The program is simply the best HELOC program ever created and I say that with 30 years + experience in the mortgage business. For example… rates are below prime, as low as 1.26% below prime. Credit score and loan to value are the determining factors but nearly everyone gets below prime. Payments are interest only, based off average daily balance so depositing your income accelerates pay down dramatically. One factor that people forget about when using the HELOC strategy is that back in 08 – 09, banks were closing lines of credit all over the place. It actually happened to me twice… Citi cut me off on our primary residence HELOC and Wells cut me off on a commercial line. But with a first position HELOC, this does not happen.

          We also allow borrowers to fix any portion of their balance (from $5,000 to 100% of the balance) for 5, 7 or 10 years. And we allow that 3 times (draws taken after a portion is fixed are variable so this feature can be utilized 3 separate times in the 1st 10 years). The line of credit feature remains for 10 years. After that, it will amortize for the next 20. I show people that by utilizing income deposits, they should be done with it before the 10th year anyway so…

          We offer these loans from $250k to $2mm on primary, second/vacation homes and even rental properties and we can do them as purchase money mortgages too. Crazy, right? Crazy but true. I love this loan more than any other I have done through the decades. Except maybe no income/no asset loans, lol… they were so easy!! But I don’t figure we’ll see them again in our lifetimes. Mine anyway 😉

          • Lori dent says:

            Love these ideas and am looking for a heloc at this time. Ron, who is “we?” What bank do you work for that offers helocs in 17 states? We are searching in cal? Can you direct me to a bank?
            Thank you

          • Ron B says:

            Lori, I can be reached at 727-215-7522. I’d be happy to tell you all about it.

          • Cory Jacobs says:

            Hello Ron,
            I am looking to buy a home and have been researching these 1st lien position HELOCs.. is it possible to get one even if no equity is owned? Is there a way your bank will grant a percentage say 80 to 90% if I have the other 10 to 20% to use as a down payment? If not how exactly does it work? Do you already have to have a mortgage and then the HELOC will just assume all of it leaving you with just one loan? I’m wanting to do it this way because I like the idea of using it as a checkings account in order to drive the principle down faster and would rather jump right into it if possible rather than first getting a mortgage and then having to switch to the HELOC… sorry if this is confusing lol

          • Hi there, a very belated reply but yes you do need equity to get a home equity line of credit. If you don’t have any, you can search for a personal line of credit. Harder to find but possible!

    • Mike says:

      N. – you said that “On the downside, HELOC money isn’t free. There’s a monthly payment on it, like any loan.”

      However, the deposit of your entire paycheck actually counts as that HELOC monthly payment, so there is nothing to add to the equation. If, for some reason, my bank did not consider that a payment, then I would have my paycheck direct deposited into a checking account, and then have an autopay of all but the minimum checking account balance from the checking the day after. (Maybe 2-3 days after if your paycheck date hops around when it lands on a weekend)

      • Yes but when the HELOC payment comes due, the bank usually just takes it right out of the direct deposit. I’m not sure every bank does that, our does. Good to check before executing this plan!

  11. Rolland says:

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  12. Hmm is anyone else having problems with the images on this blog loading? I’m trying to figure out if its a problem on my end or if it’s the blog. Any feed-back would be greatly appreciated.

  13. Brad B. says:

    Would a strategy like this work for someone looking to pay down a large amount of credit card debt as opposed to a mortgage?

    • nmorris says:

      It would! As long as you pay it down within the timeframe of the introductory rate of the HELOC. The problem is that you have not increased equity in the house so you can’t really re-negotiate the HELOC again if you haven’t changed your equity so you can either hope for appreciation or keep your HELOC in place, not using it when the interest rate goes up. Then pay down some principal on the house so now you have equity, and then re-negotiate your HELOC to a new amount and introductory rate. Make sense?

  14. Becky Worley says:

    Love how aggressive this is, BUT being a realtor’s daughter who lived through double digit mortgage rates in the 70’s, the one factor you don’t address is that the Heloc is adjustable. To be safe I would bite off a smaller amount of principal each time and increase the frequency as you succeed in paying it down. PS- love the idea of a goose: working on that now..

    • nmorris says:

      Good catch! The HELOC is adjustable but they do have ceilings that are thankfully not double-digit. If your credit can handle it, a prudent thing to do is re-up the HELOC once you have more equity in the home but before the introductory rate expires. If that is an option. It is aggressive, you’re right and takes A LOT more management than I had anticipated but it’s working so far for us.

  15. Jason says:

    I stumbled upon your site last night while searching for stories about hiring a child and opening a Roth. We’re having our first in a month and no, I won’t hire him the next day. Just getting ducks in a row. Anyway, I’ve been reading some other articles and found this. I’m in the camp with Daniel. Consider myself to be pretty smart, but I don’t know everything and I’m always willing to learn. There’s not much in my financial life that I won’t leverage if the math works in my favor. I could write you a book on what I know about credit card rewards and how to beat that system.

    Anyway… I do not see this working and my first thought was to move on, forget it. I don’t comment too often, but if there’s something here that I’m missing, I really want to know. I keep flawless numbers on every dollar in/out of my house. (I work in business stats so it’s my job and my hobby). I keep spreadsheets upon spreadsheets and here’s what my numbers tell me. Let’s use $24K HELOC since that’s easy.

    Option 1 (your option) = I go get the HELOC for $24K at intro rate of 1.99%. (I get mailers for this all the time so it wouldn’t be difficult to get). I immediately pay that toward mortgage principal and for the next twelve months, I now pay my regular mortgage of $907.79 and my HELOC payment of $2,021.62 for a total cash outflow of $2,929.41. At the end of the twelve months, the HELOC is paid off and I rinse/repeat by getting a new HELOC and do it again. At the end of twelve months, I have saved myself $16,665.09 in interest charges on my mortgage, BUT I lost $259.49 interest on the HELOC. Also don’t forget about the $75 to set up the HELOC. My absolute savings is $16,330.60. Of course this is assuming I have or will have the money to pay an additional $2K/month at my mortgage and that’s a HUGE if for majority of people.

    Option 2 (no HELOC, just make additional payments) = Instead of doing the HELOC, I take what I would have paid in HELOC monthly payments with interest ($2,021.62) and I pay that in additional mortgage principal each month. This will result in an absolute savings of $16,144.33 in mortgage interest.

    Results = Option 1 does win by $186.27 ($16330.60 minus $16,144.33). $186.27 is greater than zero so no doubt, your option won, but “was the juice worth the squeeze?” Will the average person do all the paperwork, jump through all the bank hoops to get the HELOC and then stick to this plan only to net $186.27? I could give you a list of perfectly legal & easier ways to make $186.27 that wouldn’t be near as difficult or take near as long.

    I desperately want you to tell me I’m wrong and I’m just not seeing it and explain it to my dumb self in 3rd grade terms so I can get it because like I said, I have no problem with leverage, but I’m just not seeing this. Thanks.

    • nmorris says:

      Okay let me try to wrap my head around your numbers here. Why is your HELOC payment so high? You can do an interest-only payment each month and then pay down principle with the left over money in your account. Am I missing something?

      Also, did you listen to the podcast I link to? I would also do that if you’re considering this.

      Also also, congrats on impending baby!!

    • Ron B says:

      Nobody is saying to pay off the HELOC in one year… that’s how you came up with those numbers. But by depositing your income into the HELOC and then using the HELOC to pay down your first mortgage & cover your living expenses, you:
      A. eliminate having to make payments on the HELOC
      B. drive down HELOC interest costs by dramatically lowering your average daily balance
      C. increase the ‘efficiency’ of future payments your first mortgage via amortization acceleration

      As you pre-pay principle on your first mortgage, future payments consist of more principle, less interest. So future pay downs have even greater effect. The speed in which you pay off the HELOC depends on the difference between your net income and your HELOC balance (and the interest rate). The lower your rate and the higher your net income as a percentage of your HELOC balance, the faster you’ll be at $0 on your HELOC. Then do it again!

  16. John says:

    Another very important part to this strategy is to use your mortgage grace period (usually 15 days) and pay your mortgage right before it. Then, ensure you rearrange all your expenses to be taken out on the 28th of the month. Then for the entire month, use a credit card to pay as many expenses as possible. This way, when you direct deposit your paycheck into your HELOC, your money sits in there for longer, thus deferring interest and lowering your HELOC average daily balance (how the bank knows how much you owe them for payment). At the end of the month, pay the credit card and all the other expenses from the HELOC. Then, on the first, your pay is deposited back. This is how you have your money working for you as much as possible and it doesn’t take much extra effort to simply rearrange your bills. Obviously you have to make more than you spend and be disciplined in this process, but it pays huge dividends. Peace, CW.

    • nmorris says:

      Woah, advanced advice here! Can you explain why you should pay the mortgage just before the grace period?

      • John says:

        You pay the mortgage right before the grace period so more of your money is sitting there for a longer period of time, thus deferring more interest. If you pay 1000.00 on the first, that is 1000.00 that wont be sitting in there (that you could have had sitting there) deferring interest for roughly 12-14 days. ( :

    • Ron B says:

      Yup, great advice. The only change to what you wrote is that you’re not “deferring interest”; you’re lowering the average daily balance. This in turn lowers the interest due for the month. This is also known as ‘float’. Banks and corporations use float to their advantage all the time. This strategy allows you to maximize float to your advantage. You leave your money where it does the most good (in the HELOC, saving interest) for as long as possible. Great points John.

  17. Tia Bond says:

    Hi everyone. I saw comments from people who already got their loan from Jenas Pedro and then I decided to apply under their recommendations and just few hours ago I confirmed in my own personal bank account a total amount of $80,000 which I requested for. This is really a great news and I am advising everyone who needs real loan to apply through their email ( ) I am happy now that i have gotten the loan I requested.

  18. Geno R says:

    Wanted to know if this is something that I should do even with a high debt in credit cards? Should I bring those down first?

    Also, I have not found a bank that will allow me to deposit my check into and use it like a checking account. Do you know of a bank that works like this? Some specifics would be appreciated.

    • nmorris says:

      I would knock out the credit cards first, yes Gino!

      Also, my bank did not know that this could be done but they allowed it. We use Lakeland Bank. The HELOC has an account number and a routing number so we tried to set it up and it worked. The people that worked at the bank actually were surprised about it! 🙂

      • Ron B says:

        This is very interesting, Natalie. I actually do these loans all the time… as a 1st position HELOC. We can even fix the interest rate and still remain open as a line of credit. I’ve been telling everyone to open a checking account with us for the direct deposit… maybe I don’t have to do that. But then again, we actually pay interest on our checking accounts so there’s less of a difference. But the main reason for the checking account is for the bill pay. If I could get my bank to offer bill pay from our HELOC’s… NOW we’d be talking!

  19. Jill Miller says:

    I took a Home Equity line of credit out about three years ago. I was able to pay off my mortgage. The interest rate was much lower. The checks the bank gave me never cleared even though there was money in the account. When I questioned the bank, the answer was to transfer the money into my checking account and write out a check from that account. Why give out checks if they don’t work anyway? When hearing at the end of last year interest rates would go up I looked into a fixed home equity loan at my credit union. Looking at my credit rating, the credit union said my interest rate with my variable Home Equity loan should have been less. The credit union gave me a fixed loan at the same interest rate. So, I can no longer borrow at my leisure against my home if I wanted, but at least the interest rate is low and fixed. Those checks were not doing me much good if they weren’t clearing.

  20. ash says:

    Sounds like a great strategy, but I’d like to clarify to make sure I’m not inferring/assuming wrongly: By “re-doing the HELOC after the first introductory year” repeatedly, would the promotional low introductory rate also be offered each time? If so, that is awesome! Also, I was wondering if you similarly employ or recommend the use of other credit cards, (such as zero interest, zero balance transfer fee?) to pay off portions of the HELOC or home mortgage. And lastly, can I still re-do the HELOC if my home value decreases and equity goes down? Any help is appreciated!

    • nmorris says:

      Okay let me see. I’m not 100% sure if the introductory fee would apply each time. You’d have to talk to your lender. My assumption is that it is like a credit card, they want to entice you to keep borrowing with the bank. But I’m not sure. And you’re right, if your home value goes down, I guess you’re hosed. I hadn’t considered that.

      As for credit cards, I would say it’s a teeter-totter game. Which ever interest rate is the best, you use! As long as you don’t max out your credit and tax your credit score.

      Did you listen to the podcast I link to in this post? Highly recommend for even more questions!

    • Ron B says:

      If you can find a bank that will let you refi a HELOC every 12 months for the low introductory rate, please share!! I tend to doubt it though.

    • mark says:


      • I don’t know Mark. I don’t have these relationships with banks. Part of the responsibility with this method is that you’ve gotta pound the pavement and shop around.

        (Also, apologies for belated response!!)

  21. April says:

    Does the HELOC have to be tied into your mortgage or will it still work if the HELOC is separate?

  22. Steve says:

    Thanks for the great post! And you’ve turned me on to another podcast that sounds interesting!

  23. Marcy says:

    I just recently stumbled on this while trying to figure out how to pay off my student loans. I’m a very disciplined person and excited about making this debt go away – fast! My question is regarding the HELOC as a checking.. Does it really matter if I have my paychecks direct deposited.. Can’t I just transfer them over on my own? (I have a checking and savings account already with the local bank I am considering for this HELOC).


    • Good for you Marcy!! And no it doesn’t matter. We just do that to make double sure that this HELOC gets paid down pronto but if you are disciplined about funneling money into the HELOC, it is really the same difference.

  24. Will says:

    This might be more effective if you spoke to the actual interest rate paid on the HELOC during the cycle.

    Example: A 10k HELOC example at 10% APR making 5k and spending 3k monthly. Income added at beginning of the month and expenses removed at the end.
    Total interest paid is $72.60. That is 0.72% interest TOTAL repayment cost at 5 TIMES the interest you are talking about.

    month balance interest computed against income expenses monthly interest rate monthly interest cost
    1 10000 5000 5000 3000 0.7974% 39.87
    2 8039.87 3039.87 5000 3000 0.7974% 24.24
    3 6064.11 1064.11 5000 3000 0.7974% 8.48
    4 4072.60 0 5000 3000 0.7974% 0
    5 2072.60 0 5000 3000 0.7974% 0
    6 72.60 0 5000 3000 0.7974% 0
    7 0 0 5000 3000 0.7974% 0

    I am early in my but current mortgage amortization efficiency (equity gained per dollar spent) looks like:
    Only regular payments: 39.8%
    With extra payments: 67%
    HELOC: 86.2%

  25. tubekeeper says:

    I suggest to overpay the monthly repayment, result below calculated from ,


    Outstanding$ Tenture Interest%
    467,800.00 360 4.85

    Payment$ Tenture Interest$
    Ori 2,468.54 360 420,875.25
    New 2,751.00 (+282.46 / +11.44%) 289 @ 24yrs 1mth (-71) 325,017.33 (-95,857.92 @ -22.78%)

    adding 11% extra monthly repayment can save 23% of total interest (-$95,857.92), it is money-effective!

    • I get what you’re saying! You’re right, overpaying is the better option. I think the point of the HELOC method is to automate what you might not otherwise do. If you listen to the podcast I link to, Adam makes this clear far better than I do! Thanks for your effort in clarifying!!

  26. Orland says:

    If my loan interest for my primary home is 3.5% and the loan interest for my rental property is 4%, does it make sense to use this HELOC mortgage acceleration if the HELOC interest is higher at 4.25%?

    • No definitely not. You don’t want to assume more interest debt. Is that the best interest rate you could find with a HELOC?

      • Ian Kee says:


        I’m not sure if you still read the comments here or not, but actually a higher interest rate would make sense. What you’re forgetting is that the 3.5% or 4% interest rate on a home mortgage is amortized. Interest is all front loaded. At the beginning you’re paying WAY more interest than principal. On a HELOC or any other line of credit, such as an unsecured personal line of credit, interest is simple interest. Big difference between simple and amortized. So for example on a 10% APR personal line of credit, on $10,000 you’d be paying $1,000 a year of interest. That’s $83.33 a month. Even with a “low” rate of 3.5% interest on an amortized home mortgage, you’ll be paying WAY WAY WAY more than $83.33 a month in interest.

        So if you use your strategy of chunking away at the debt $10,000 at a time, you’ll be paying $83.33 a month in interest on the money borrowed from the line of credit even if you have a “high” 10% interest rate. And actually, as you have leftovers in your line because of your deposited income, as the amount that you owe gradually goes from $10,000 to $0, you’ll be paying less and less interest each month. So your effective interest rate could be half of the 10%. Then once you reach $0, you chunk another $10,000 off your mortgage and immediately advance the interest payments on the amortized loan once again.

        • Not Front Loaded says:

          A mortgage is NOT front loaded. When you signup for loan you select your term and all payments are made equal. Whether your term is 15, 20 or 30 years the amount you pay in interest is the same for your first payment. A $100,000 loan at 6% for 30 years is a Payment: 599.55, and that breaks down to Principal: 99.55 and Interest: 500.00. On a $100,000 loan at 6% for 15 years is a Payment: 843.36, and that breaks down to Principal: 343.86 and Interest of 500.00. The interest is based off the outstanding balance, so $100,000 x .005 (that’s 6% / 12 months) equals $500 your term determines your actual Principal amount.
          As for a heloc it’s complete waste of time. Just pay extra on your mortgage every month.

      • Matt O says:

        Q: If my loan interest for my primary home is 3.5% and the loan interest for my rental property is 4%, does it make sense to use this HELOC mortgage acceleration if the HELOC interest is higher at 4.25%?

        My answer would be Maybe it might make sense… Natali was more of a hard no and I would agree with her if all additional factors are the same. However for most people “all additional factors are not the same” and for each your own personal scenario would need to be considered to see if this makes sense. Some other factors you would have to consider before answering. How long are your loans at 3.5%? How many months into the mortgage are you? etc.

        The HELOC strategy is used to turn compound interest (Mortgage on your home and Rental for many people payed over 30 years) into simple interest similar to Credit Cards. It is a challenging concept to wrap your head around but the “time factor” (how many years is your mortgage for) or “timing (based on how long you currently have been in your mortgage)(ex- using this strategy from day 1 leads to a better results than using 15 years into a 30 year mortgage)” is one of the most important details if you plan on using a HELOC successfully with this strategy. Your interest rate is only one factor when it comes to deciding if this is right for you. Other factors would include timing of HELOC’s LUMP SUM payment, your monthly cash flow (Income – Expenses), Mortgage amount, and amount of the lump sum applied.

        Listen to minute 31 of Adam Carroll’s Podcast as he gives a great example of what happens when he uses a HELOC to pay off $5000 of his $200K mortgage. Quite impressive! His results show how much of an effect compound interest and timing of payment can have.

        Great post Natali! Thank you for the links you refer to in the article. I have also loved reading some of the amazing comments and intelligent questions posted here. I was able to solidify my understanding and learn some new things from this to welcome in 2017. Also wanted to thanks Ron B for your comments…as you are from the industry and it helps to have that depth of knowledge that only experience adds to add to a high quality discussion board.

      • Mike says:

        It actually DOES make sense – remember, earlier you said that the enemy was Interest PLUS time. The time factor is huge. 30 years at 3.75% is much greater than 10 months at 4.5%

  27. Erin says:

    One thing I am having a hard time understanding – if our income is rather low, so that we are really living paycheck to paycheck with very little extra, where would that extra money come from in order to pay for the HELOC payments since at minimum there is interest that has to be paid? I see that we would be gaining equity and I realize that one might say that we should just look to cut expenses to find that extra amount, but if we don’t feel we can, is this even a possibility?

    • Erin, you’ve hit the nail on the head. You have to live on less than you make in order to make this work. There has to be left over cash at the end of the month/paycheck in order to pay down the HELOC. If there isn’t, this doesn’t work. Have you downloaded the podcast I listen to? He really does a great job of sussing this out. Give it a listen! It’s really inspiring!

      • Rick says:

        I am new to this concept, but I feel I absolutely get it. Most people that are skeptic are missing the major difference between this (or I prefer the Idea of a first position HELOC for simplicity) and making extra principal payments. I will even venture to say that while it would take way more discipline, it would work in a paycheck to paycheck household, as long as you’re not spending more than you make.

        The MAIN difference between the two (HELOC/Principal payments) is that nobody in their right mind would make payments towards their principal with their grocery money, gas , bills or the money they’re saving for vacation, Christmas shopping, whatever. using the HELOC as your checking account, every dollar that goes through you contributes to keeping you on the faster track of the amortization schedule. You would still “pretend” to make a payment as if you had an common mortgage, all it does is changes your “zero balance amount” that’s the tricky part, setting up accounting to know how much is in your HELOC “checking account”.

        Another thing I keep hearing is “Don’t use it to buy things like a car”. I understand why they say that, you don’t want to use equity for frugal things, but if you’re going to finance a car, you have the room in your line of credit. you can afford it and you’re HELOC rate is cheaper than what you could get a car loan for, with a little discipline, why not amortize it over 4 years and roll it in there, “make payments” as with the house and you’ll end up paying that early too…

  28. Jen says:

    I see some Loan guys on here that do the 1st Lien HELOC! Can you guys please leave your email? I heard about this method yesterday and I had a light bulb moment and have been a bit frustrated I didn’t think of this earlier. LOL!! We have traditionally paid off property in the conventional method…..Save up and money and write checks. However, I am loving this method way more and I am excited to try it on our next adventure!

  29. Kool-ice says:

    Thanks for sharing this. I had heard the Money Matters podcast before & appreciate the link.

    For those of you scared to try this we did a lesser version.

    We had the fixed mortgage and HELOC every mortgage payment increased our borrowing power in the HELOC. But being a chicken we never used the HELOC. It allways had a positive balance (which oddly looks negative on our statements because the bank expects you to borrow not have a surplus.)

    However, with the accumulating HELOC borrowing power we had the confidence to throw huge lump sums at our mortgage. Knowing if an emergency hit we could borrow. In the mean time, it was useless to keep 5,10 or even 20K in a savings account.

    The 25y mortgage was paid in 6 years.

    With a rental property I plan to get the same type of MTG, HELOC. However, this time we will use the HELOC as a checking account. I plan to accumulate $5K. Take out $10K & apply to the mtg. Now build back up from -$5K to + $5K and repeat. Rent will go in & taxes, maintance, regular mortgage payment will go out. The rental currently nets about $1000/month so every year we will be able to make that extra $10K payment.
    We will also save on checking account fees &/or the need to keep a minimum balance. Overdraft charges are never a worry if rent is late.

  30. R A Wallace says:

    This idea is very interesting. I heard about it first through the Clayton Morris blog post and then again with the podcast the two of you did. We like to try it but unfortunately we have only one income and are pretty much at our capacity of spending. Both our mortgaged my wife’s student loans are pretty low (4% and 3.5%, respectively). I can’t even figure out how we’d get our HELOC back to the zero line to do the second round, much less to continue it. Perhaps in the future, but not at the moment.

    • Thank you for this note! You wrote it the day I gave birth to my daughter so I was a little busy. 🙂 I appreciate you sharing your thoughts. I’m sorry it took me so long to tell you!

  31. Scot says:

    Here are my 2 questions about this.
    1) If you’re paying all your normal bills out of your HELOC, then aren’t you paying interest on all of your bills?

    2) What’s the advantage to using a HELOC to pay off your additional principle rather than the “extra” cash from you paycheck each month (after all bills are paid)?
    Thanks Natali!

    • Scot, I’m sorry I did not get to this. You wrote this the day my daughter was born. So I was a little busy while you were reading and responding to this. 🙂

      In answer to your question, no you’re not paying interest on your bills because you are paying the amount you spend on the HELOC right away. And the advantage is in taking big chunks out of your mortgage principal because your enemies are interest and time. This knocks down your interest faster and because of that you’ll save more. Make sense? Cents?

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  34. Michael says:

    Hey Natali! I discovered this method on a different podcast, and I am trying to learn all about it.

    Right now, my wife and I have about $14,000 in credit card debt and a $24,000 car loan. I know – bad.

    We have a substantial income, and are working on knocking that debt out. In one comment, you said that this HELOC method would be great for someone trying to pay off credit cards, as long as you are cash flow positive, and in another, you advised someone else to pay off their credit cards before using this method.

    I may have missed it, but did you mean that for credit cards, you should pay off the credit cards with the HELOC method first, and not pay down your house simultaneously, or are you saying you should pay off your credit cards on your own, outside of this method, and then get at HELOC and work on your mortgage debt?

    I’d also love to connect with those on this thread who work in this industry, like Ron, who may be able to steer me towards the right HELOC to use.

    • Hi Michael, apologies for a late reply. Thanks for your note! In your case, I would pay down the credit cards first since those interest payments are sky high. Then I would work on the home. You should always balance your interest payments like a teeter totter. Whichever side is heavier is the side to get rid of. Does that make sense?

  35. Troy says:

    Once the HELOC is paid back can you continue to add to it like a checking account? Meaning, you’ve paid back the $45K and you have not quite found that next rental property you want to apply the HELOC to; can you continue to add to the HELOC or do you have to start putting your day job paycheck into another account?

    • No. At least not with my HELOC. The bank does not allow you to keep putting money in there if there is no loan balance. We made that mistake and the money was stuck in a holding pattern. That is why we have a checking account with the same bank so that I can transfer some money from the HELOC to the checking account and then I’ll have room in the HELOC for the paycheck. Make sense?

  36. AR says:


    Does it make sense to open HELOC which have higher interest rate like 4.5 ( and current mortgage is at 3.75 ) and use above strategy to pay of the loan?


    • No! You want to utilize the lowest loan interest rate possible. Have you tried shopping around for a HELOC on

      • Fredd says:

        I think although HELOC interest might be a little bit the method works since that if payment goes to principal the mortgage will be payoff in advance.

        • Matt O says:

          Q: Does it make sense to open HELOC which have higher interest rate like 4.5 ( and current mortgage is at 3.75 ) and use above strategy to pay of the loan?

          I posted my Answer to another almost exact question on this discussion board but thought I would post it again…

          My answer would be MAYBE it might make sense… Natali was more of a hard no and I would agree with her if all additional factors are the same. However for most people “all additional factors are not the same” and for each your own personal scenario would need to be considered to see if this makes sense. Some other factors you would have to consider before answering. How long are your loans at 3.75%? How many months into the mortgage are you? etc. (would need more info to give a hard “no” or hard yes”)

          The HELOC strategy is used to turn compound interest (Mortgage on your home and Rental for many people payed over 30 years) into simple interest similar to Credit Cards. It is a challenging concept to wrap your head around but the “time factor” (how many years is your mortgage for) or “timing (based on how long you currently have been in your mortgage)(ex- using this strategy from day 1 of a 30 year mortgage leads to a better results than using this 15 years into a 30 year mortgage)” is one of the most important details if you plan on using a HELOC successfully with this strategy. Your interest rate is only one factor when it comes to deciding if this is right for you. Other factors would include timing of HELOC’s LUMP SUM payment, your monthly cash flow (Income – Expenses and what’s left over=Cash Flow), Mortgage amount, and amount of the lump sum applied.

          Listen to minute 31 of Adam Carroll’s Podcast as he gives a great example of what happens when he uses a HELOC to pay off $5000 of his $200K mortgage. Quite impressive! His results show how much of an effect compound interest and timing of payment can have.

          Great post Natali!

          • A very belated answer to this but I think you’re right, there are other factors to include in this query. It *may* make sense to use a higher interest HELOC, especially since your payments from your paycheck will be funneled to principal instead of interest. Good point! Thank you for posting!

  37. Teresa says:

    I would like to replace my primary mortgage with a HELOC. However the HELOC interest rate is 3.45% whereas my mortgage interest rate is 2.49%. Is it still a good idea to replace my mortgage with a HELOC seeing that the HELOC interest rate is higher?

  38. […] How To Save Thousands On Interest … – Natali Morris Blog January 6, 2016 How To Save Thousands On Interest With A HELOC. This month we made a $25,000 principal payment on our mortgage and … […]

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    • Sangita says:

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  40. Melinda says:

    For your living expenses, are you still making your monthly mortgage payment…is that included? Or do you not pay on your first mortgage until the next large payment from your HELOC?

    And with the $25,000 lump sum payment that you make with the $2,000 adding up each month, would that put you at making that large payment every 12 months or so?

    • Good question Melinda. Yes, you still make your regular monthly mortgage payment inside of your living expenses.

      As for that $25,000, if you pay it down $2,000 at a time, you’ll have it to 0 in 12.5 months so a little over a year. I would then re-negotiate the HELOC with the bank because you’d have more equity in your home to work with. Make sense?

  41. Gary says:

    Hi Natali,

    Can I tell the bank that I plan to use my HELOC to pay down the mortgage of a rental condo I own that’s underwater and stuck at a higher interest rate? Do I have to tell them what I plan to use it for?


    • They do ask what you are going to use it for but I don’t think they’re that discriminating about your answer. And you can always say you’re using it for an investment and then use it for whatever you want. At least that is how mine works in practice.

  42. Lura says:

    Hi Natali- I am super exited about this and getting over to the Credit Union to get a HELOC ASAP. But I have an FHA loan and was wondering should I refi out of that FHA first to get rid of the MIP payment first? The MIP is Approx. $200 a month, and permanent. I am thinking to a 5 year ARM for the lowest rate possible while I implement this strategy. What would be your advise? Thanks !

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    • Matt O says:

      Very smart to want and get rid MIP which in your case is $200 monthly to protect FHA’s interest in the house. You are in reality getting no value from this and turning this $200 into monthly cash flow for yourself would definitely be a WIN! I like Ron B’s answer on the discussion board about 1rst Lien HELOC and if this is available to you would be a great option. Biggest question here is your LTV (Loan to Value Ratio) for your home and what type of Refi or HELOC you would qualify for.

      I would suggest a Refi into the 1rst Lien HELOC if you are eligible (basing suggestion on the limited info given ). Obviously more info is needed.

      Heads up to yourself and many others here… I think it is fair to say that many Credit Unions, Banks, Mortgage Brokers, and Lenders do not understand or know about this strategy of using a HELOC. Some I am sure will even try and dismiss or convince you that this is not possible with a HELOC because they lack the understanding.

  43. Steve says:

    Hi natalie. First congrats on the birth of your child a couple months ago. I have 4 of my own so making up time (not just the interest due) and making plans for college soon enough is my goal here. My monthly mortgage is $900 and my monthly expenses are another $1800 including property taxes (not included in mortgage amount), car paymt, car/home insurance, food, electric, phone, natural gas, gasoline for car, food for house, cable, phone, internet, water/sewer, other (including saving money each month for xmas, school shopping, sports uniforms, last minute clothing needs, etc…) and fun such as movies or bowling. Don’t forget things such as car maintenance and a sticker and gifts for kids friends birthday parties or an occasional wedding, buying a lunch at work or pizza for the family every other week or so. And i have $4k on credit cards (bought a new dishwasher microwave and stove at home depot plus went on a cruise in October plus started buying for xmas already), I’m trying to be real here. So if I spend $2700+/month and I take home/net $3600 a month that leaves me with $900 a month. Usually I would just make an additional or higher pymt on my credit cards until my checking accounts say zero and wait for my next paycheck. Essentially there really isn’t any “additional” money at end of month really. How can this system help me? If I can only realistically apply $200-300/month towards the HELOC loan? It would take me years just to pay off the one time around. Then do it again and again would take me 15 yrs to complete it. I only have a loan amount of $198k and 22yrs left on a 7/1 ARM (6 yrs left on 7/1 ARM) before I have to find something else. My home is worth $350k. Thanks for your insight. I really want to make the right choice and not stricken my family on a bad decision. I applaud those who it has worked for and want to be sure I am worthy as well.

  44. […] How To Save Thousands On Interest With … – Natali Morris Blog January 6, 2016 How To Save Thousands On Interest With A HELOC. This month we made a $25,000 principal payment on our mortgage and that … […]

  45. John says:

    This is a simple question, but I’m a little confused. If I pay off my entire HELOC balance, is the full amount paid considered interest?

  46. D.O says:

    Hi. Thank you for your post. I enjoyed reading it. Just have a quick question when comparing this to paying off mortgage.

    Which will be better between two scenarios?

    Scenario 1: It is a conventional mortgage with 5 years 3% fixed rate. 30 years amortization. It has option to pay 20% of the borrowed amount as a lumpsum payment per year. The borrower will pay $25000 every year which is less than 20%.

    Scenario 2: It is a HELOC. So borrowing 80% of home price from Heloc is the 2nd scenario. The rate is 3.2% (Prime + 0.5. I am in Canada). The monthly savings going towards the HELOC is $25000/12.

    These two scenarios are for myself. I don’t know which one will make me pay less interest. I don’t need a lumpsum amount ready since my life is quite stable.

    If you can give me your opinion, that will be great.

    • You know, I have read this comment several times in the last 7 months and I’m just not sure I follow. I should have said so earlier instead of let this comment linger. In the event that you still are thinking of this, can you clarify Scenario 1? What do you mean by 5 years and then 30 years amortization? You are 5 years in? And how do you find $25k to pay down per year? Just in savings? Again, apologies for the extremely belated response.

  47. Gary says:

    Hi again Natali,

    Just thought I’d let you know about a few interesting side notes regarding doing a heloc on the underwater rental condo I mentioned on Dec. 2nd.

    We owe about 75k on the condo, and it’s only worth about 60k. Problem was, I could get about a 50k heloc drawn on the equity in our primary residence, but I couldn’t find any banks that would do a refinance on the remaining 25k condo balance. It was too small an amount for most banks to be willing to do a refi on, especially on a rental property. But, I called Quicken Loans, for one last try. They also couldn’t do the refi, but a great CSR there told me about doing a mortgage recast, which is something I had never heard of.

    Basically, it’s when you pay off a large chunk of your mortgage, and the bank re-amortizes the remaining mortgage based on the new balance. In my case, instead of still having to make my condo mortgage payments being based on the 75k balance, now it was based on a 25k balance. Everything else stays the same – the term, the apr, etc. Most banks will do a recast if asked, but most don’t advertise it. Some charge a fee; Wells-Fargo, who owns my mortgage, does not.

    If it hadn’t been for the recast, I probably wouldn’t have done the heloc, because now I would have been making the same mortgage payment every month, plus the heloc monthly payment, and while it still would have saved me tons of money in interest charges long-term, in the short-term, it would have actually increased my monthly payment.

    Just thought I’d pass it along for any of your readers in a similar situation where they have a small mortgage remaining after paying off a large chunk of it with a heloc, who may not have heard of a mortgage recast. The rep at Quicken loans was a really nice guy to tell me about it, because they didn’t get any business from me out of it, but he saved me a ton of money. I made sure his supervisor was aware – he did not have to do that for me!

    • Fredd says:

      You don’t need a HELOC to do this strategy, you can use a Personal Line of Credit or Credit Card if you prefer. Te thing is to deposit your income as payment into the credit line and to have net cash flow..

  48. maggie says:

    would just leaving a surplus balance in your heloc every month do anything to pay off your mortgage quicker? or do you have to actually use that money to make a payment toward your principle?
    thanks, your article was very informative

    • Maggie, correct! The money left in your HELOC doesn’t automatically go towards your debt. It just pays back up your balance so that you have a bigger chunk of money to use to knock out the next round of debt. Exactly!

  49. Cristina says:

    THIS IS THE BEST ADVICE… EVER, I only wish I had found this gem of knowledge years ago! I am about to close on my HELOC that will take first position; at closing pay off 10k in CC and a 20k boat loan. We have 30% equity in the home and a healthy incomes. Since the bank will provide us checks for the HELOC, thus a routing number, we will be auto depositing ALL of our income/commission bi-weekly (we won’t be making payments per say, the auto deposit is the payment) and closing all other checking accounts. Using an AMEX for living expenses, taking advantage of no interest grace period and points, pay the ENTIRE Amex bill at the end of the month AND using the points to pay off our last month of the year expenses. (yes AMEX) lets you use points to pay for purchases. Using this method, our home (and all debt really) will be paid off in 5.7 yrs. Yes, i could have gotten to a similar payoff period with my current 30yr fixed, BUT I would have put myself in a vulnerable position cash flow wise because even when I pay off the home, I can’t realize cash till I sell it. So what if I had my 30yr traditional mortgage in 5.7 yrs by making extra principal payments, I would have been cash strapped in the mean while with no liquidity. One more thing… my 30yr mortgage is compound interest while my new HELOC is simple interest. Play with the calculator, the numbers don’t lie. The more I play with the calc the more I see opportunities to take advantage of depositing income (such as eliminating tax withholdings from our pay checks and paying the tax bill at the end of the year). The banks don’t want us doing this because there is little profit for them. They want us “mortgaged” and indebted for life. Thus MORTG (morgue) AGE. Good luck to those that take the leap and move into financial freedom!

    • Cristina says:

      Just wanted to clarify, we will not have any other debt but the HELOC. This doesn’t not work so well if you have other debt you have to pay monthly (at least for me).

      • Cristina, true! But consider that the house payment is debt so this strategy could also be used to pay off other undesirable debt with high interest rates like a credit card or car payment. If you think about it, paying 1.99% on the HELOC is way > than paying whatever the rate is on your car or card or student loan, right?

    • Oh Cristina, I see that you are the same commenter as above. So you get it! Thanks for saying so!! Good luck on this strategy!!!

    • KC says:

      Hey Cristina, you mentioned that you intended to use the number on the check to use as direct deposit. I was wondering if that had actually worked like it did for Natali? And if you could share the bank you used

  50. Kazu says:

    Hi, I am thinking about doing this strategy as it is very similar to a program called 101financial which I have a few friends participating in. The beginnings of the program helps individual, or couples, to first eliminate debt, then begin healthy budgeting, which in turn cleans up their credit with the help of mentors. Once that is achieved, however long that may take, they move onto the next step, which is this style. Taking down their mortgage through HELOC chunking. My question to you, because I did not want to pay the humongous fee for that class/training, in your experiences have you found it feasible to utilize a number of banks/lenders to take advantage of their low introductory rates? For example, when 1 HELOC intro rate is about to flip to adjustable, do you find another bank to open a “new account” with introductory rates? My mortgage APR is 3.25% so finding a HELOC lower isn’t easy unless it’s their “intro rate”. Any suggestions? I am very intrigued by this concept and just need some time for my wife to establish history at her new job. Banks tend to look down on people whom just started a new job.

    • Kazu, thank you for your comment! In my experience what you find at banks is based on your financial health: credit, current debt, earning potential, etc. When your HELOC flips to an adjustable rate, you can re-negotiate it for another introductory rate because you’ve earned more equity in your home. Make sense?

  51. Emily Peak says:

    I am confused. If you put 25,000 extra on the principal, and it only takes one year off of your mortgage, why am I reading other sources that say if you put an extra 100 down on your mortgage (per month) it will shave 4 years off your mortgage, and if you put and extra 200 down, (on principal) it will shave 8 years off. (this was based on a 30 year loan, at 4% interest, 200,000 mortgage. it seems like with this rational, you are better off making LESS of an extra payment (if 25,000 only takes one year off the loan)

    • Emily, you’ll have to play with the amortization schedule to understand that. Amortization is a tricky beast but all of the above is true. That extra $100 per month is $36,000 total so it does stand to reason that it would shave off 4 years over time. I love playing with this amortization sheet to simply see what is possible.

  52. Jason says:

    I do like the appeal of this, but I am not sure it would work for us. We have a loan of $147000 left with 11 years on the mortgage at 2.875%. I am not sure we are going to accelerate the process that much. However, I really like the idea of paying it off in say 5-7 years instead of 11. Is there an amortization calculator that you know of where we can input numbers and see if it would work. Thanks.

    • Jason, attached to this blog post is a free download for an amortization calculator. Also, you can find one on You will be surprised how fast you can pay this down if you play with the numbers. But that is an awesome interest rate you’ve got there! When did you secure that rate? Just wondering.

  53. Amber says:

    This is great advice, but one better is an all-in-one HELOC. Instead of taking a second mortgage HELOC you can take an all in one HELOC on your entire home loan . . . if you have at least 80/20 LTV and you have great credit. It works just as you described for the HELOC here . . . you put all of your money into your all in one HELOC, and pay your bills out of that, leaving as much money in there as possible allowing your money to work for you. Most big box banks don’t offer this type of HELOC but talk to a knowledgeable mortgage broker about this and they can see if you’re a good fit. I’m looking to reduce my 30 year mortgage down to a 7 year pay-off using this method. Traditionally we would pay our mortgage and other monthly expenses and then work toward growing a savings account. With an All-in-One HELOC you put all your savings into the HELOC. It works toward paying down your house but is still there available to you should you need it. As long as you don’t need it, it is reducing the interest you pay on your mortgage.

    • Amber, I’m not sure I understand the difference between the HELOC as a second mortgage and a HELOC as an all-in-one. Can you link me to a description of this product? I Google’d it and got a lot of ads for HELOC products. This is interesting!! Thank you for alerting me to this!

  54. Larissa says:

    My husband and I have been toying with this for a while. (using heloc to pay down mortgage). Few questions:
    By running our checking out of our heloc, do you have to pay yourself for additional money that you normally would have put into savings cause otherwise your “savings” each month are now automatically paying down the heloc, correct? For example, if we have a positive net of $2000/month but we have a large payment for something like a vacation coming up in a few months for $8000 it would not make sense to take $8000 out of the heloc cause then you’re going to pay interest on that money, right? So do you pay yourself to put money into your savings account that you need for other large life expenses?? Cause I could see this method being hugely impactful to paying down your heloc/mortgage but then essentially having no savings?
    Also, I understand the concept of having your direct deposit go into it to lower the daily interest but could you do some simple math for me to help me understand how much more you save doing it that way versus paying towards the heloc on a weekly basis?? I don’t want to set this up and make all these changes to only save an extra $50-100. I’d rather just pay $50-100 more on a weekly basis towards the heloc and be diligent about it.

    • Larissa, a belated thank you for this note! As for your question about savings: Yes. I use the HELOC as a checking account and have to allocate savings from that account. I take the same portion I used to save out of my checking account and send it to the kids’ 529 plans, our vacation fund, our IRAs, etc.

      And as for the second part of your question regarding saving money by putting everything in the HELOC, you can also just take the money left over in your regular checking account every week or every paycheck. The point of doing it this way is not necessarily to lower the payment to the HELOC but maximize it automatically. So instead of hoping there is money left to put in the HELOC, you automate that happening no matter what. If you are disciplined enough to take the left over from a checking account, it is basically the same difference.

  55. Tim says:

    I appreciate you for answering comments on this thread, as I learned as much of more about the intimate details of this from the comment thread exchanges as I did in the original article. I listened to the podcast too. I’m doing this with a personal line of credit to pay down credit cards in a fraction of the time. Then I’ll do it again with my first home. Thank you so much for taking the time– I am so grateful.


  56. Ron Beebe says:

    Many are stating that there are not inexpensive HELOCs out there after the teaser rates, That is simply not true. Shop around, some banks are moving away from teaser rates. I know of one that is still offering PRIME MINUS 1.1% – no teaser – with I/O repayment – so that would be 2.9% until J-Yellen gets a hankering to raise it again 🙂 And if – make that when – she does, it will STILL be in the low 3’s which is cheap, cheap money, especially considering the tax deductibility of the product!

    • Exactly!! You just gotta shop it! Thanks Ron!

      • Sangita says:

        Hello, I would like to know if I take out a HELOC on my primary residence and pay off my mortgage on my rental property with that HELOC… is the interest that I have to pay on the HELOC tax deductible?

        • Yes the HELOC interest is tax deductible as far as I understand it.

          (Also, a very belated thank you for this note and apology for a belated reply!)

          • Sangita says:

            Hi Natalie,

            I have rental property with mortgage balance of 79,000 left with interest rate of 4.65%. I am getting a HELOC on my primary residence for 2.99% fixed for 1 year and adjust afterwards. Does it make sense to pay off the rental property mortgage with this HELOC since it’s lower rate than the rental interest rate and make monthly payments on HELOC?

  57. laura says:

    Why it works…it is because 1) you can use the money before you have actually saved it 2) uses lower rates to pay higher.

    This is very interesting, thank you for posting this and other great information.
    I was really having a hard time understanding the benefit of this but strategy but came the conclusion that it may or may not work based ONLY on your interests rates. The rate you currently have on your mortgage and the rate of your HELOC (along with cost associated with your loan).It is because one can use the money before they actually have it as to why it works better then saving.

    So is the only reason it works is because you borrow money you don’t have to make an extra payment EARLIER then if waited to save that same amount? Or is there more to the story? You are borrowing 20,000 at 1.99% to pay off 20,000 at 5.78% EARLIER then having to save for it.
    When I did my numbers, figuring I could pay about 18,000 a year extra, all I did to keep it simple was using a Mortgage Amortization with Paydown figured making a payment of 18,000 a year on Jan 1 2018 vs Jan 1 2019 and noting the difference between BORROWING vs SAVING the same amount. If I borrow, I can have this money working for me sooner, money I don’t have (but will).
    My numbers were this…..and this is how it works in my case.

    HOW IT WORKS FOR ME>>>>using 120,000 loan already 10 years old, and a 5.78% interest rate on rental property.
    Basically this works for me because I BORROW money at a LOWER interest rate to pay off one with a HIGHER interest rate a FULL year before I actually have the money.
    If I borrow 18,000 in May 2017 in a HELOC and apply it to principle on June 1 2017 I save 28,311.92.
    If I wait a year and save up that amount, then pay it toward principal 1 YEAR LATER I save 26,070.54, same 18,000.
    The difference is 2,241.38 by getting the HELOC one year earlier then saving a year then paying toward mortgage.
    Now, my next step would be to look into how much it cost to finance the HELOC and take that amount minus the 2,241.38 and that is my savings.
    Are there any advantages in taking out more then you could pay off in a year?

  58. Christopher Odom says:

    What about using this method to pay down a car with 5.19% interest?

  59. Fredd says:

    This strategy is awesome, I’ve used this strategy since January 2017and it works very well. $500.00 in interest borrowing $20k in PLOC and interest saving in mortgage about $25k and 5 years paying 500.00 in my PLOC. Math speaks!

  60. Kevin says:

    Everyone should consider however to use HELOC and invest in a ‘vacation rental property’ rather than focusing on saving 1-2% vs home mortgage.
    Most homeowners these days probably gained significant equity due to rising home prices, especially in major cities. So, if you have decently equity built up, apply for the best HELOC and get AS MUCH AS you can.

    Use that credit to purchase a solid ‘vacation rental’ property. Signup with and other short term vacation rental platforms like HomeAway, VROB….
    Short term vacation rental properties has twice the monthly income potential versus long term rentals. Even better, find cheaper ‘flippable’ properties to fix it and turn that into a nice vacation rental units/properties.
    The money you gain monthly/year should then be used to pay off HELOC.
    Once paid HELOC off, get a new (or use the current) HELOC loan to investing in ANOTHER vacation rental property.
    Keep doing this and I am pretty sure you will soon won’t worry about something called ‘mortgage’.

    • Kevin says:

      Also, your vacation rental properties will build up equity over the years and gives new opportunity to get more HELOC. With sites like Airbnb growing rapidly, vacation rental business is booming and whats better than having your second (and third) properties generating additional monthly income while building up equities.
      If you invested $100k as downpayment for investment property for $500k property in California as an example. Within last couple of years, property value went up by $50,000 and more. So, if you were also earning monthly rental income of $2000~$4000 a month, you’ve potentially made $100,000+ in couple of years. 100% return on your HELOC investment was pretty much what was possible.
      Perhaps 100% rate return may not seem possible, I am sure it is very very likely to beat 1~2% savings we are so focusing in this topic.

      The point is ALWAYS try to use HELOC (or any cheap loans) and invest somewhere with higher potential.
      Then, if you want, pay off your mortgage.
      Better yet, get the lowest interest rate mortgage to lower your monthly payment. Instead of focusing on principle reduction, use that money to buy and pay another property mortgage instead.

  61. Ann says:

    We have no debt as we recently paid off our mortgage. We are buying our first property with Morris Invest, closing this week. I am looking into a Heloc on our primary resident and can get 50% of the value , or around $140.000. We qualify for the best interest rate which I am told, is 3.99 and will adjust with the prime. The intention is to buy 3 additional turnkey properties. Is this a good strategy at this interest rate? I hear Clayton say often that having a home free and clear is not working for us. Any idea of a better way to do this?

    • Hi Ann! A belated response here but congrats on buying your first properties! Of course getting properties free and clear is the best way to go but you can accelerate your growth with a HELOC. The key is to funnel as much of the profit from your rent into paying down this HELOC. You should be able to do that fairly quickly. Is that the plan? A 3% interest rate on an investment property is amazing. You just have to look at it as a separate loan, not connected to your mortgage. If it were just an investment loan, it would be a no brainer right!? Good luck! LMK if I can help any further!

  62. bill higginbotham says:

    Any advantagesuggestions to these ‘pay for services’ thst walk you through this process? Anyone have any experience with them? Or is process easy enough to implement by yourself?
    Thanks for all the info.
    Great job!

    • Bill thank you for this note. I have never heard of a service that would do that but my husband Clayton and I are about to release a Kindle Single book that will lay out this process in an even more detailed way. Stay tuned!!

  63. Javier says:

    Great idea about the Heloc, but Texas won’t alow this to work, any suggestions?



    • What do you mean Texas won’t allow this to work? Please explain.

      • Javier says:

        Texas will not allow the use of the all in one HELOC like you speak of. They do allow a HELOC with a fixed rate on an advance of funds, for example I qualified for a 25,000 HELOC. I use 10,000 to apply towards my principal and after 1 yr if not paid back in full it goes to prime rate. Do you know of anyone in Texas that has been able to use the all in one HELOC as you mentioned?


  64. Avi L says:

    Hi Natali,

    This is a great post i read it years ago when you posted it and now i see you got a book. Now for my question i want to get into real estate investing and i follow a bunch of blogs including – Great site. so isn’t it better to use a HELOC to buy retail property or flip a house? would i get more for my money like this?

    Thank You

    • Good point Avi. It really depends what you can do with this money. If you can make a higher return on a piece of real estate, then you can conceivably pay back the HELOC and use the left over money to pay down a mortgage. That would be the best of both worlds, right? It all comes down to the teeter totter analogy I use in the book: Where do you pay less money for money and make more money for your money. The answer will be different for each person! Thank you for writing!

  65. Mark Kitchens says:

    Hi, just got your book for how to pay off mortgage in 5 years. Nice work! Really opened my eyes to the possibilities. One item I didn’t see addressed was what the best initial loan period would be. 30 year, 15, or 10. It seems to me the lower your monthly payment is the faster you pay down the HELOC. Please let me know what you think. Thanks!

    • Great question! We usually look at the option that allows us to do interest-only for a longer period of time. This way my interest-only payments are small and then everything else I put in the HELOC goes towards principal. So I look at it less about the length as the payment options. Make sense? Oh and thank you for reading the book!

      • Mark Kitchens says:

        That does make sense Natali and is what we thought should be the case. Thanks! We have been looking for good HELOC products this week but have not found any with a low introductory rate. In fact, most are for between 4 and 5%. We are in South West Florida and bankers are saying these rates are normal for them. We have even approached the big box banks but they say they never know when an intro rate is coming down the pipe. Is your area different or do you think we are just going into a general period of higher rates? Do you have any suggestions for what we should try next?

  66. Ryan says:


    I want you to tell me that I am wrong and direct me to whom I need to speak with. In fact, I just called a large bank today that holds two of my mortgages and asked them this question and their response was as I imagined. This is what they said and it conflicts with what you have written here and what your husband said on a recent podcast that I heard.

    The bank said that for a HELOC we will do up to 80% LTV. To take your example, the subject property is worth 100k and you owe 50k. There is 50k in equity (so far we are on the same page). Now, because it is 80% LTV we will be able to loan you 30k in a HELOC and here is why. 80% LTV means that, at most, they would lend $80k on the subject property because it is worth 100k. However, because you owe 50k, you take the 80k (which represents 80% LTV on a 100k property) and subtract what you owe, which is the 50k. This results in 30k that is available for a HELOC.

    You are saying that they will loan you 80% of the available equity which is not what I described in my example. I have never heard any bank doing what you described and cannot find any banks that are doing it. To that point, I heard your husband say on a podcast that someone with only 5k in equity could take out a small HELOC and use it as you have described. Please tell me how this is possible and where I can do it. Why would a bank loan 80% of the only available equity in the house that it has? Especially if that amount is only $5k. I hope that I am wrong.



    • I’m not sure what your question is. You are saying the exact thing I say here: The bank lends you only on your equity. That is exactly the example I give here. In my example, it is 90% loan on equity but in your example it is 80%. Is your question about why you were not offered 90%? That is based on your credit score and your debt-to-income ratio. The banker makes an assumption about your desirability as a borrower. Is that what you mean here?

      • Ryan says:


        Thank you for responding.

        No, my example was not at all the same. You are taking the equity in the house (50K) and then saying that you can use 90% (we will use the percentage that you used) of it. I am saying that is not correct because banks do not do that. If I am wrong, and I hope I am, then we need to talk about whom I need to speak with to do this.

        I am saying that banks do not lend 90% of the available equity. Banks lend 90% of the value of the home minus what you owe. They do not look at just the equity. They lend against the percentage of the house (in this case, 90%) and then deduct what is owed (50k, in your example). This would result, using your example, in 40K in equity (90k – 50k) available to be used to calculate a HELOC. From there, you multiply 40k by 90% which is 36,000. Unfortunately, I do not think you or your husband is correct with this math and how a HELOC works.

        I am not saying that your philosophy after these calculations is wrong as far as using the HELOC to pay down the mortgage, etc. I just cannot wrap my head around what your husband said in a podcast where he described being able to borrow the only equity in a property which was 5k.

        Thank you,


  67. Javier says:

    Just love all the information you and your husband puts out to help us. I live in Texas and according to a major bank in town, they say I cannot get checks or a debit card for my heloc. Do you know anyone in Texas that can use the system that y’all use?


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  69. Thomas says:

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  70. Chandra says:

    It’s quite fascinating to know this approach. But I couldn’t find any lender in Seattle area who allows to HELOC as checking or as a means to write checks from. Highly appreciate your inputs.

  71. Chris says:

    Not sure this makes sense for me. In my case I have 30K laying around in a money market account, why would I want to open a HELOC when I could just use the 30K in the money market account to pay a principal only payment on the mortgage then every month pay myself back which is essentially the same as I would do with the HELOC? I would then rinse and repeat and do it again just as with the HELOC. In that scenario I would not charge myself interest fees nor have an potential liens on my property.

    Also, I ran the numbers using the HELOC method and separately running the numbers but using the same money left over that would pay off the HELOC and adding it as a principal only payment every month and the HELOC method still did not work. It was cheaper and faster to include a monthly extra payment then it was using the HELOC. If the argument is that people will be more discipline using the HELOC you are auto-charging yourself at least 2K in interest payment so that someone puts you in check. I rather learn to be discipline on my own terms then to pay someone to put me on check.

    • Well you are absolutely right! If you have cash to plunk down, use yourself as the HELOC! Pay yourself back every month and then use that next chunk of change with this same system. Even better! Pay interest to no one but yourself!!

  72. Rob Bulgarino says:

    so my wife and i are in the process of HELOC homework and found a lot of problems with these CORRUPT BANKS! Wells Fargo only does 80%LTV and the fees are ridiculous and I BANK WITH THEM!!! Also, Natali?, the 3 banks that we have contacted so far say they amortorize the loan and no SIMPLE interest! WTH?? one company said they will do 100% HELOC at 7%, crazy!! So I don’t know, I am trying to stay with it and I WILL but damn it is depressing and irritating. What banks do you suggest? Please respond if you have any info to lend and insight on the no simple interest these banks are stipulating. NO 1.99% for sure.
    Oh and to give you an idea what I am working with, House = $210,000 (approx comps), mortgage $140,000. I probably left a lot of things out but I don’t like to type much.
    I am looking forward to buying from MorrisInvest soon but need to get this HELOC in control

    • The HELOCs on the market are MUCH crappier than they were when I wrote this post. I have struggled to find rates of less than 3% lately. I guess we have to wait for another market dump and then pounce when the rates go low again! Thanks for sharing your experience Rob!

  73. Gustavo Panosso says:


    Can you describe the advantage of doing this strategy instead of saving the money in an interest bearing account and then making an extra payment directly to principal? We have a little extra savings that we put away each month and whenever possible we chuck it principal.

    • Well yes but you can play with the amortization sheet and see for yourself. If you are putting $100 in an interest-bearing account, you are earning about 1-2%, right? But if you put it down on your principal balance, you are saving yourself TIME which equates to more interest which is most likely A LOT more than the 1-2% you are earning with the bank. Try to put that fictitious $100 high up in the amortization sheet and see what it does to the total interest paid over time.

      Hope that helps!!

  74. Bocephus says:

    I am currently looking into something very similar for paying down my mortgage. What if you took it one step further and used your heloc to replace your mortgage all together? I have been reading the information from Replace your mortgage dot com and it looks promising. You get the heloc in the first lien position and do exactly what you are saying. It becomes your checking and savings. The more money you make vs what you spend the faster the loan amount drops. You would need the right loan though as you would only want one that you make interest only payments monthly. What are your thoughts to this approach? It is an all in concept and you need to be very disciplined with your cash flow.

  75. kathy says:

    I had a whopping big HELOC. My 10 years was coming due for amortization, pushing my payments to over $5k per month with principal (payable in 15 yr.) and interest.
    On top of that, the Fed raised rates, and my regular payments had gone up, and up, and up in 2016-17, and were slated to keep going up thru 2018, since it’s not a fixed rate.
    Knowing the Day of Reckoning was at hand, I tried to refi over the past two years to ditch the HELOC. Credit rating was super, equity was superb, but the hang-up was the DTI (debt-to-income). Tho I had no consumer debt, the 1st and HELOC WERE the debt, and it was too high to qualify for a refi; i.e., my HELOC was so high I could not afford my house, though I could make the payments, but not affordable in the qualifying realm of DTI calculations for refi. Fortunately, I slipped under the DTI wire 1 month after the HELOC amortized. I feel that it was nothing short of a miracle that I got through it. Now the HELOC interest will no longer be tax-deductible in 2018, which would have only added to the nightmare. My advice to all HELOC borrowers: Don’t do it! Just don’t do it, no matter how tempting.

    • Yikes that is quite the story! You know I have to say, the HELOC can be a great product and then it can be a mediocre product. It takes a lot of management and now that the new GOP tax bill no longer lets you deduct HELOC interest, I have to rethink this strategy a bit. Thanks for sharing this story!

  76. Lee says:


    I like this method of using a HELOC of paying down the principal but I feel this only work towards those who have a large sum of disposable income AFTER expenses.
    To give you an idea of my situation, I earn bi-weekly paychecks, so to keep things simple, I get 2 paychecks in a month.

    My mortgage payment takes up one whole paycheck (okay…maybe not one whole paycheck but roughly 95% of it). Then my other paycheck pays for other expected expenses (car, insurance, home utilities, etc.) I have which consumes half of it.
    The remaining half, I put it towards building an emergency fund and leave a few hundreds (below $300) towards spending (so I can still enjoy having a life). So in the end, the savings and disposable income only adds up to a couple hundreds of dollars at the end of the month. If I put all all this left over money towards a HELOC, I feel I would be a very miserable guy living life like a hermit.

    After my given scenerio, do you see anywhere where I can use this idea of opening a HELOC and paying down my mortgage (of course, without giving up on having a life)?

    Thank you for this post!
    P.S. Appreciate and love you and your husband’s Morris Invest Podcast. It’s very uplifting and encouraging. It has helped me build momentum in my freedom fighting journey.

    • Hi Lee, I agree it seems like digging yourself out of a flood with a spoon. The numbers work out but it does feel like such small increments of progress. Perhaps you can save yourself the pain of a HELOC and save large numbers of principal payments at a time? It doesn’t quite give the same huge whack at the amortization but it does help you chip away at it little by little.

      BTW, we have to update this book and post because HELOC interest is no longer a deduction. Which sucks but we’ll play the game we’re dealt!

  77. Marissa Harcrow says:

    Hi! My husband and I have been married for 5 years (young married couple discovering the realities of adulthood) and are paying a mortgage on our home. We are tired of the debt cycle we keep going through and really want to become wise with managing our money. We aspire to be you guys as a couple. We have both read your book, and we love the idea of a HELOC. I have already spoken to about 7 banks –just to see what’s out there, and asked them the list of questions provided in your book. A couple of things I have noticed…many of them have a minimum amount they can loan for a HELOC (about $10,000). We do have a small amount of equity in our home that we have paid (only about $5,000) and believe (but don’t know for sure) that it would appraise for more than what we originally got the loan for, but don’t know how much more. Also NONE of them said that we would be able to direct deposit a check into the HELOC account and all of them acted like that was a really weird question, lol. Is it possible that they just don’t KNOW that is possible? With our seemingly small amount of equity at the moment, is it better for us to try to save up portions to pay chunks on the mortgage until we know we have enough equity to meet the minimum, or should we go with a bank that does not have a minimum amount required and see what we can get (I would think right now it would be in the range of $5,000-$10,000–max)? The couple of banks that did not have a minimum were at about 4.5% interest (no intro rates). I guess what I’m really asking is whether you think it would be worth it for us yet to go through the HELOC process (appraisal, etc), or should we wait until we know we have more equity built up from payments? I really enjoy reading your blogs, by the way, and hope to one day be as on-top-of-things financially as you are.

    • Thanks for this Marissa! Let me try to address your questions here:
      1. It is possible that they don’t know that the direct deposit is possible. My banker didn’t know that until we actually did it. LOL!
      2. Given the current high interest rates on HELOCs, it may in fact be best to sock large chunks of cash into principal payment instead of this HELOC trick. HELOCs are based on current market rates and they are currently really high. Some other places to look might be a 401k loan where the interest you pay is going back to YOU. Or even a 0% credit card, where they give you a certain amount for a short period of time. Are either of those options?

  78. Jane says:

    Natali ~
    Where are the icons so that we can share your blog? I guess I’ll do it the old-fashioned way…

  79. Eric Masaki says:

    Hi Natalie,
    I just finished reading your book & I have a few questions:
    –If I qualify for a $250K HELOC and my mortgage balance is $230K (with a current 30 yr. fixed rate of 4%); is it better to start off in chunks at a time (say $50K) or just use the HELOC for the whole $230K?
    –If I have a choice of HELOC teaser rates at .90% (1 yr) or 2.90% (3 yrs), then 4.5% thereafter; which would you choose? One bank does require you keep the HELOC for 3 yrs, otherwise a penalty; not sure if this is the norm or not.
    –Are there HELOCs that use simple interest rather than amortized interest?
    –One company mentions that (as an example), if you have a 4%, 30 yr mortgage, you will wind up over that 30 yrs paying out about 80% in interest payments ( their formula – take the 4, add a zero to show 40, then double that number to make 80); came somewhat close to mine at 70%+. Based on that, they indicated it was still better paying a HELOC rate at (after the teaser rate) 5+% or so…sounds true to you?
    Thanks, Eric

    • Hi Eric! Thanks for your questions! Let me take this one at a time:

      –If I qualify for a $250K HELOC and my mortgage balance is $230K (with a current 30 yr. fixed rate of 4%); is it better to start off in chunks at a time (say $50K) or just use the HELOC for the whole $230K?

      I would play with these numbers in an amortization calculator. That will be able to tell you what you are saving in your overall interest. But assuming you get one of the HELOCs below, you would want to make sure you are paying it off in the introductory rates and that seems a little tough.

      –If I have a choice of HELOC teaser rates at .90% (1 yr) or 2.90% (3 yrs), then 4.5% thereafter; which would you choose? One bank does require you keep the HELOC for 3 yrs, otherwise a penalty; not sure if this is the norm or not.

      This depends how quickly you think you can pay it back. If you take it and wipe out your entire mortgage above, can you pay it back in 3 years before the rate changes? The 3 year rate is pretty great!

      –Are there HELOCs that use simple interest rather than amortized interest?


      –One company mentions that (as an example), if you have a 4%, 30 yr mortgage, you will wind up over that 30 yrs paying out about 80% in interest payments ( their formula – take the 4, add a zero to show 40, then double that number to make 80); came somewhat close to mine at 70%+. Based on that, they indicated it was still better paying a HELOC rate at (after the teaser rate) 5+% or so…sounds true to you?

      It sounds about right. Again, I’d play with the amortization calculators to make sure you know what you are giving up vs what you are paying.

      Does this help?

  80. Lucian says:

    I have a question? What bank are you using for HELOCs? I want to buy a house which is priced at 1.25 mil, I have 10% down, and I want an All In One HELOC in first position for the other 90%. I live in California, and I have a hard time finding a financial institution that is willing to give HELOCS of over a mil.
    Can you help?

    • Oh really? They cap you at a certain value? Interesting! We use a local bank in New Jersey called Lakeland Bank. I know banks in California can be far more expensive. Have you tried bankrate to shop around for this?

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