Photo (cc) by gruntzooki

Here’s an email I recently received. It concerns something I’ve never heard of, but maybe you have…

Subject: Using Heloc For Mortgage Payment?
Message:
I have seen this on TV news shows used to pay off mortgage in 5-7
years. Is it a scam? Does it work?

Thanks
Jerry

Here’s your answer, Jerry, along with my methodology for obtaining it.

As you can see from the above email, there wasn’t much to go on. So 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 payoff your mortgage in 1/3rd the time using the money you already make and not changing your lifestyle.

Sounds good so far. But after 4 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 “expenses” 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 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 (HELOC) and traditional mortgages. The sales blather uses that difference as smoke and mirrors to get you to – surprise! – part with your cash. 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.

Certified mortgage acceleration specialist? Please.

Also uncovered by my web search was an article by 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 home owner can pay off their mortgage in seven years?

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

This money merge account system is ugly and is really just a way for loan starved originators to move into selling overpriced software and HELOC’s since bona fide home buying and refinancing has dried up completely.

So there you have it, Jerry. Another silly idea put forth by people who are either too stupid or too lazy to do what the rest of us do: Make an honest living.

If you really want to pay off your mortgage early, make extra principal payments as often as you can. And if you want a system that really works to pay off debt, read my book Life or Debt 2010. It offers two advantages to programs like the one above: First, it works. And second, it’s free – just go to your local library.

Got more money questions? Browse lots more Ask Stacy answers here.