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Here’s an email I received about something that was making the rounds years ago, but is still apparently out there. It concerns a system for shuffling debts to pay off a mortgage early.

Subject: Using HELOC for mortgage payment?
Message: I have seen this on TV news shows, used to pay off mortgage in five to seven years. Is it a scam? Does it work? Thanks. — Jerry

I’ll give you an answer, Jerry, along with some sources you can read yourself. But first, check out a video I did awhile back that includes three tips to pay off your mortgage early.

Now, on to Jerry’s question.

When I first researched this years ago, I started by doing a Web search for exactly what Jerry used as the subject of his email: “Using HELOC for mortgage payment.”

One of the links returned was to an article on wikiHow called “How to Follow the Mortgage Accelerator Plus Program.” The article starts like this:

We were taught to pay our mortgage payment entirely the wrong way. Using mortgage acceleration strategies, you can save thousands of dollars in interest and pay off your mortgage in a third [of] the time using the money you already make and not changing your lifestyle.

Sounds good so far. But after four convoluted steps, here’s how the author summarized the “system.” It assumes that you have a \$200,000 mortgage, a \$5,000 monthly paycheck, a mortgage payment of \$1,000 a month, and other expenses of \$2,000 a month.

• You put your entire \$5,000 paycheck into your mortgage of \$200,000.
• Your new mortgage balance is now \$195,000.
• You put all your \$2,000 of monthly “spendings” on a credit card.
• You have a \$1,000 mortgage payment for a total of \$3,000/month in payments.
• You use your HELOC to pay the credit card bill and the mortgage payment.

Your new TOTAL mortgage balances are:

• First lien of \$195,000.
• Second lien HELOC of \$3,000.
• Total = \$198,000.
• Pay off the balance of the HELOC.
• In February, you get your paycheck again, but this time, put it entirely into your HELOC while keeping the balance of your first mortgage at \$195,000 which is already saving you interest. With our balance of \$3,000 and our positive cash flow of \$2,000, the HELOC will be paid back to \$0 in, technically, a month and [a] half. Then you can continue the process of putting your paycheck into your mortgage.

Get it? If not, don’t feel bad. It makes no sense to me, either.

Let’s stop and look at the big picture: What this person is telling us to do is use our entire paycheck to pay down our mortgage, then borrow the money to pay our bills. If we do that, at the end of the month we’ll owe \$3,000 on our credit line and \$195,000 on our mortgage for a total of \$198,000. Which is the exact same amount we’d owe if we took our \$2,000 positive cash flow and applied it to our mortgage balance.

These programs are supposed to work by exploiting subtle differences regarding how interest is computed between home equity lines of credit and traditional mortgages. The sales blather insists that exploiting that difference can pay off your mortgage magically early.

Of course, the magic isn’t free. From the tips section of the wiki post:

Talk to a professional! There are certified mortgage acceleration specialists that can show you the right way and the wrong way of doing things. There are multiple sources out there and they will tell the benefits and drawbacks of all of them.

In other words, there are people who sell programs — often for thousands of dollars — that are supposed to help you unlock the “secret” of using debt to accelerate the repayment of your debts.

Also uncovered by my Web search was an article by The Mortgage Insider about these types of programs. Here’s part of what they had to say about something similar called a “money merge account” or MMA.

As with most scams, a little bit of truth is necessary to sell the mark. … Yes, a HELOC charges interest a different way. However, can one really conclude an actionable difference exists that is so powerful the average homeowner can pay off their mortgage in seven years?

Absolutely not. It’s ridiculous to even suggest it.

So there you have it, Jerry. Another silly idea championed by people too lazy to make an honest living.

If you really want to pay off your mortgage early, do the same thing you’d do to pay off any debt early: Make extra principal payments as often as you can.

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• grandmaguest

Ask your Mortgage lender for an “amortization” schedule. If they won’t provide one for free…go on the internet and find one you can print out for free. Using that, you can see just how much you will save in interest costs by paying as little as one extra “principal” payment each month (pay more principal payments if you can). It is amazing, especially if you have a mortgage that is less than 10 years old. I used this system and not only paid my mortgage years early but saved myself tens of thousand of dollars in interest. Better that interest in my pocket to use than paying it to the mortgage company. I’ve done this on every house I’ve ever owned. Best of all it is free to do!
One exception (although I’ve never seen one) is the loan that has a prepayment penalty, so check first.

• Joseph Freitas

As a finance professional I must say your advice could be counter productive to the average person. When you look at your mortgage loan in a vacuum while not considering the effects on your tax liability, retirement, other loans & liabilities you are making a huge mistake. Of course we all want to pay less interest, but this is not as simple as you make it out. But you must look at all the repercussions of paying down the loan.
I would rather pay 4% to my mortage company and take the tax benefit and sink my extra cash into a tax deferred retirement fund earning 5%. Yes, I pay more mortage interest, but I also have a tax break as well as an extra 1% earned on the investment.
Cheap debt is good. If you can get a loan below indexed inflation, take it!

• grandmaguest

Yes, I agree. It would have been wonderful had I had a 4% mortgage loan. My loan rates were considerable higher than that at the time….I’m talking years ago when interest rates were, if you were lucky, 9% or even higher. And I still put money into IRA’s and such. But by paying my mortgage down over the first part of a 30 year mortgage I was able to have it paid off by the time I retired. Granted once the interest was less each month than the principal I reverted back to just paying the regular payment and added the extra funds I had into my retirement accounts. I always lived beneath my means and now live in retirement with no debt. I use my credit cards and am able to pay them off in full each month while living comfortably. All this on what didn’t even reach the income level of middle class my entire life. I do agree, that there is “good debt and bad debt” …..just as I would recommend anyone with “good (very low interest) debt” to always consider funding retirement accounts first. Especially if they can earn more than they are paying in interest. However, the original question was from someone apparently wanting to pay off a mortgage early.

• Lorilu

One thing rarely mentioned is that on a 30-year fixed rate mortgage, the value of dollars used to pay the mortgage declines drastically over the years due to inflation. Just ask any older person how much their payment was when they bought their home. Why pay the mortgage off early, when you can use those dollars for other investments, as Joseph Freitas points out. If you sink all your cash into your home, you are placing it in an illiquid investment.

• Frank B

Wow, this is one of the most intelligent and informative discussions I’ve seen! You all have very good points. It’s complicated. The tax right-off point is only valid if you have enough deductions to itemize, otherwise just a sales pitch. I never considered the money deflation point, good one. Great discussion! A very helpful tool is a loan calculator website I like to use to play all the different options: bretwhissel.net/amortization/amortize Try it, it’s fun and enlightening.