Using HELOC to reduce interest payments and term of 30-year mortgage

[W2R]

Quote:

Originally Posted by Patrick My old mortgage company would not accept additional principal payments unless I sent them in with my regular payment. They returned my checks with a note saying that they must be submitted together. I suspect it was a way to try to keep people from paying off their mortgages early. I don't know if my current company accepts them separately or not, since I just send them in together now as a matter of habit.

Might be worth asking about! I think it really helps to be able to send in those lump sum payments when the spirit moves you to do so. I would make out the check and send it in that day, and really it was quite a rush.

[SecondCor521]

There are only two ways mathematically that this scam idea can work:

1. If the interest rate on the HELOC is lower than the interest rate on the first mortgage. If I had such a situation I would borrow the max on the HELOC and put it towards the first ASAP.

2. If payments applied to the HELOC immediately reduce the interest accruals. I think, but don't know for sure, that most HELOCs work this way. Even so, the rates on the first and HELOC would have to be very close in order for the beneficial effect of the interest savings from reduced daily accruals on the HELOC to offset the presumably higher rate of the HELOC.

Everything else beyond the above is a shell game.

2Cor521

[W2R]

Quote:

Originally Posted by SecondCor521 There are only two ways mathematically that this scam idea can work: 1. If the interest rate on the HELOC is lower than the interest rate on the first mortgage. If I had such a situation I would borrow the max on the HELOC and put it towards the first ASAP. 2. If payments applied to the HELOC immediately reduce the interest accruals. I think, but don't know for sure, that most HELOCs work this way. Even so, the rates on the first and HELOC would have to be very close in order for the beneficial effect of the interest savings from reduced daily accruals on the HELOC to offset the presumably higher rate of the HELOC. Everything else beyond the above is a shell game.

After I got my HELOC, about a year before I finished paying off my mortgage, I thought about using it that way. I worked it out and for me, it did seem like a shell game. I figured out that I would be paying pretty close to the same amount, but without the protections that a mortgage loan provides. That was in 2006, and during the Katrina evacuation mortgage companies sent out letters to us saying that we didn't have to pay if we didn't want to, for a few months (six?). Then the mortgages were just extended to make up for that. I think one's credit is more at risk if you skip several consecutive payments on a HELOC, maybe? I dunno.

Anyway, I decided not to use my HELOC for that purpose. I wanted to do it so that I would reach my goal earlier, but regretfully realized that my mortgage really wasn't paid off until it was paid off, KWIM? My HELOC was a higher interest rate than my 30-year fixed, and lump payments to the latter immediately reduced my interest rate accruals (well, after a 5-day mail/processing delay). That saved me some which was satisfying but not a huge impact on paying off my mortgage. I only had a small amount left to pay off at that point in any event, and got it paid off later that year.

[Gumby]

..

[Nords]

Quote:

Originally Posted by Patrick Why would the bank freeze your HELOC? They want you to use it so they make interest money.

That's a supremely logical question.

Just don't ask Laurence or any of the other thousands of HELOC holders who've had theirs frozen by nervous banks/brokers...

[rayvt]

Quote:

Originally Posted by Nords Originally Posted by Patrick Why would the bank freeze your HELOC? They want you to use it so they make interest money. That's a supremely logical question. Just don't ask Laurence or any of the other thousands of HELOC holders who've had theirs frozen by nervous banks/brokers...

I keep thinking about the run-in I had with my bank 30 years ago, regarding my checking account and overdraft LOC. I wrote checks on the checking account and when the balance hit zero the LOC would transfer money to the checking account. When I got my paycheck it went to the LOC to pay it off. Then I got a call from the branch manager, and he said, "I see that you have not deposited any money into your checking account for several months, but have just been tapping the LOC to cover the overdrafts. So I'm going to freeze your LOC until you completely pay it off." When I explained what I'd been doing, he said, "Okay,now I see, that seems reasonable. But that's not how we envisioned the OD-LOC to be used. So the freeze stands."

That was a pretty good analogy for the mortgage/HELOC/paycheck/bills scheme.

I can imagine a call from a banker, "Our typical HELOC customer writes one large check on the HELOC every few months and then pays it off a little at a time for month after month. You seem to be using the HELOC as a checking account to pay your bills each and every month. That is not how we envisioned our customers would use a HELOC. And I see that you are making your 1st mortgage payment with a HELOC check. That *really* makes me nervouse. Your HELOC is frozen until you pay it down to zero."

[Patrick]

Quote:

Originally Posted by rayvt I keep thinking about the run-in I had with my bank 30 years ago, regarding my checking account and overdraft LOC. I wrote checks on the checking account and when the balance hit zero the LOC would transfer money to the checking account. When I got my paycheck it went to the LOC to pay it off. Then I got a call from the branch manager, and he said, "I see that you have not deposited any money into your checking account for several months, but have just been tapping the LOC to cover the overdrafts. So I'm going to freeze your LOC until you completely pay it off." When I explained what I'd been doing, he said, "Okay,now I see, that seems reasonable. But that's not how we envisioned the OD-LOC to be used. So the freeze stands." That was a pretty good analogy for the mortgage/HELOC/paycheck/bills scheme. I can imagine a call from a banker, "Our typical HELOC customer writes one large check on the HELOC every few months and then pays it off a little at a time for month after month. You seem to be using the HELOC as a checking account to pay your bills each and every month. That is not how we envisioned our customers would use a HELOC. And I see that you are making your 1st mortgage payment with a HELOC check. That *really* makes me nervouse. Your HELOC is frozen until you pay it down to zero."

Here is how the author of the strategy suggests using the HELOC and he has an arrangement with Bank of America so apparently it's OK with them:

https://speedequity.com//website/Gra...A_Cust_Ref.pdf

[rayvt]

Quote:

Originally Posted by Patrick Here is how the author of the strategy suggests using the HELOC and he has an arrangement with Bank of America so apparently it's OK with them:

All well and good. Except that he doesn't actually have "an arrangement" with BOA. What he has is a "Refer-A-Friend" form when he and you can get a signup bonus.

What you need to look for is a clause in the HELOC note/mortgage that says the bank can freeze your LOC and under what conditions. They have that clause in there for a reason. Note that the standard 1st mortgage has a clause that specifically says that it cannot be called at their whim.

All this is stupid anyway. The only "magic" in these systems is making extra payments toward the principal if your 1st mortgage. The HELOC has only 2 functions: confuse the issue, and allow you to draw money out of your house via the credit line.
The former is the most important by far---for the proponents of these systems.

[Patrick]

Quote:

Originally Posted by rayvt All well and good. Except that he doesn't actually have "an arrangement" with BOA.

"So if you want to help yourself and this grassroots movement then simply
contact the Branch Manager I have selected and he will set up your HELOC for you as I have outlined in this document. This
gentleman has personally assured me that he will give you outstanding customer service."

That sounds like an arrangement to me.

[growing_older]

I have not participated in a scheme like this, though I know someone who has. As I see it, the other purpose of the HELOC is that it lets you be very aggressive about plowing all available funds into your primary mortgage. You don't have to keep a side fund for future house maintenance, car replacements, periodic bills or any of that. You just dump everything into the primary mortgage and use the HELOC for those other things as they come up. If you are disciplined or maybe a bit overboard on the side of saving, then you could effectively be more aggressive about paying down that mortgage. If you are too inclined to spend out of the HELOC, you could find yourself digging deeper into debt.

I'm skittish about the big dependency on the HELOC staying available despite the unusual activity in it, but perhaps that is mitigated if your bank is knowingly advancing the credit line with advance notice of what you are going to do.

[rayvt]

Quote:

Originally Posted by Patrick "So if you want to help yourself and this grassroots movement then simply contact the Branch Manager I have selected and he will set up your HELOC for you as I have outlined in this document. This gentleman has personally assured me that he will give you outstanding customer service." That sounds like an arrangement to me.

Patrick, you've got to be shill.

1) "...will give you outstanding customer service." says nothing about what BOA will or won't do. It just says that he'll give you good customer service. Just what, I wonder, is the exact meaning of "outstanding customer service".

2) "This gentleman has personally assured me..." means nothing. The assurance is to Harj, not to the new customer.

3) Assurances are meaningless. Def'n: "A statement intended to inspire confidence."

4) "This gentelman", the Mr. Hassan Sheik, does not speak for BofA. His title appears to be "Personal Banker". Which means somebody who answers phone calls from customers. From a quick google search: "A personal banker services specific customers, opens new accounts, takes loan applications, answers questions about other banking services." IOW, a low-level flunky and whatever he says will certainly not bind BofA.

Not that this person has actually said anything other than he has told Harj that he will give good customer service------in taking loan app(s) and opening account(s).

There is *nothing* in there that says--or even implies--that your HELOC will never get frozen.

[Bestwifeever]

Personal Banker will likely get a little bonus for every new HELOC, too....

[Patrick]

Quote:

Originally Posted by rayvt Patrick, you've got to be shill.

Not a shill. Do it or do it not, for it matters not to me.