After conducting thousands of calls with homeowners wanting to know the best way to pay their home off faster using a first lien heloc, here are the top 10 questions we get.
1. HOW DO I TAKE MONEY OUT OF MY FIRST LIEN HELOC?
Many banks offer debit cards/checks/credit cards associated with your HELOC.
Just simply withdraw money like you would if it were your checking account.
2. HOW DO I PAY OFF MY MORTGAGE WITH LITTLE EQUITY IN MY HOME?
Many banks and credit unions offer 90-100% financing in 1st lien position. This means you can literally refinance your existing mortgage and replace it with a Home Equity Line of Credit. This is not a loan on top of your existing mortgage. It is simply replacing your current mortgage just like any other traditional mortgage refinance.
Even if you cannot get a first lien position HELOC, we can show you how to perform our strategies with any open-ended line of credit including a credit card. However, we recommend a HELOC above all other options.
However, here is the problem if you are contacting heloc lenders on your own. The very experts you are relying on to get the info (mortgage lenders) are ignorant of how to use the heloc to pay off a home faster.
Don't believe me? Watch me call a top mortgage lender from a fortune 500 lender.
3. WHAT IF HELOC RATES INCREASE?
Many banks offer rate lock options with a HELOC. In fact, if rates decrease you can unlock your rate and capture a lower rate. Some banks offer you the capabilities of doing this 3 separate occasions making it more flexible than a traditional mortgage. Be sure and contact us to find out which ones do offer this option.
Many folks are rate immune when using our strategy. This means folks reduce principal faster than the increase in rates. For example, paying 6% interest on $100,000 balance is less interest than paying 3.5% on a $300,000 balance.
Some heloc lenders offer introductory interest rates for the 1st year from 0.99% to 1.99%. Just like a credit card, when the intro rate expires you can just go get another HELOC on another intro offer.
Although, HELOC rates are tied to prime rate and prime rate has been 3.25% since late 2008.
Lastly, there is a federal cap rate of 2% which means the highest the rates can go up is 2% a year which would be pretty crazy. If that happens then more things are going on to worry about than the rates.
4. CAN THE BANK ACCELERATE OR FREEZE MY LINE OF CREDIT?
Yes, although it is VERY rare in a 1st lien position. Most freezes occurred on 2nd lien positions where folks owed more on their home than it was worth putting the 2nd lien holder in a risky position to not recoup their funds in the event of default.
A 1st lien position HELOC offers less risk to the bank than a 2nd lien position which is why most banks allow 1st lien position HELOCs. Our strategy will give you positive equity the first month and your equity position will greatly increase every month thereafter.
The bank can also freeze your line of credit for failure to make payments. This is no different than a traditional mortgage. In fact, a traditional mortgage typically has an “Acceleration Clause” that you sign at closing as well giving the bank the ability to call your loan due when necessary.
5. HOW IS A HELOC DIFFERENT THAN A MORTGAGE?
Watch our mortgage vs home equity line of credit video.
A HELOC is a simple interest open-ended line of credit. This means you only pay interest on the balance remaining at the end of each day. So, as your daily balance decreases your interest on that balance decreases with it.
Money can move in and out of a HELOC freely 24/7 during the “Draw Period”. It gives you the ability to dump 100% of your income into a HELOC and still have access to the principal reduction at any time. Where a mortgage is closed-end and only allows money to go in and NOT come out.
A mortgage has a fixed payment for the life of the loan based on an amortization schedule where the bank front loads interest. This gives the bank full control of the allocation of principal vs interest on each payment.
A HELOC has a variable payment (usually interest only). The payment decreases as the balance decreases. Every penny above the minimum payment will go towards the principal much like a credit card.
6. WHAT ARE THE CLOSING COSTS FOR A FIRST LIEN HELOC?
HELOCs have very little to no lender fees. Most banks will also cover your title expenses and appraisal fees when getting a HELOC and not add it onto the amount borrowed.
A mortgage typically costs thousands in lender fees and title fees.
7. HOW LONG IS A HELOC OPEN-ENDED (DRAW PERIOD)?
Most HELOCs are open-ended for 10 years, however there are some that are 15-20 years. This means you have the ability to move money in AND OUT at your convenience during the draw period freely.
After the draw period, the loan enters the repayment period where the balance remaining must be paid off over 10-20 years. Money cannot come out during the repayment period. However, one could just refinance with another HELOC to start the draw period all over again.
8. WHAT ARE THE QUALIFICATIONS OF GETTING A HELOC?
They are very similar to that of a mortgage where equity, income and credit scores play a huge role. A good rule of thumb is if you qualify for a mortgage then you will qualify for a HELOC.
HELOCs are not government loans like 99.3% of mortgages offered today. Hence, each bank can set their own requirements for a customer qualifying for a HELOC and banks are typically more flexible with underwriting than the Fannie Mae, Freddie Mac, FHA, USDA or VA.
If you have an extremely low score (below 500), you may not qualify for the loan. If you have an excellent credit score (above 700), you should qualify for the best rates and terms. To qualify for the prime interest rate, you should have a credit score of 620 or higher.
9. CAN I DEDUCT THE INTEREST ON MY TAXES?
Yes, according to the IRS you can deduct interest on your HELOC. Consult your CPA on how to deduct the interest.
You will get a 1098 Mortgage Interest Statement at the end of each year from your lender just like you do for a mortgage.
UPDATE: Make sure you listen to our podcast where we address "Is heloc interest tax deductible in 2018" because there is a lot of bad information out there about the 2018 tax changes and first lien heloc's.
10. WHY SHOULD I WORK WITH REPLACE YOUR MORTGAGE VS GETTING A HELOC ON MY OWN?
Great question and one that I have to chuckle at because when my partner David and I started Replace Your Mortgage, our close friends would ask us ”Are you charging people for something that they can do themselves?”.
I would just smile and say “Of course. Have you tried getting a first lien heloc yourself?”. The answer was always a no and so I said call me back when you do it.
When they called me back they completely understood why we offered to hand hold people throughout the entire process. It can be a nightmare talking to lenders and asking the right questions to get the right heloc.
Nowadays because we have thousands of clients, we don't get asked that anymore. 🙂
Many homeowners value the wealth of knowledge that they get from us that dramatically transforms the way they finance debts/real estate forever.
They will thoroughly understand the systemic methods used by banks to profit from your lack of knowledge and reversing the massive transfer of wealth from the bank back into your net worth.
We will show you how to "effectively and efficiently" use a simple Home Equity Line of Credit to capture any leakage of income that would otherwise be wasted on a traditional mortgage. Thus, utilizing your income 24/7 to accelerate the payoff term in as little as 5-7 years on your existing level of income.
HELOC Lenders That Do First Lien HELOC's
One of the biggest hurtles of getting a 1st position heloc is navigating the banks. HELOC's are bank owned loans so each bank has different guidelines.
We cherry picked over 200 different banks that offer first lien helocs by calling them and asking about their guiidelines. Our clients get access to that list and also our special HELOC questionnaire to use when calling the banks so that you ask the right questions.
Powerful stuff! It's no wonder our clients have a smooth process throughout and save on average of $15,000 in their first 6 months.
We will illustrate how you can use this simple financial tool to create wealth and quickly replace your existing income, giving your family financial freedom that few capitalize. There are many variations of Lines of Credit that can be used to Replace Your Mortgage.
You become a client for life so that you reach your ultimate goals of being debt free and financially independent. Ongoing consultation is not only accepted, it is encouraged without additional fees to pay.
Bottom-line, you are making a one time investment that is a fraction of what you will save in a few short months of performing our strategy and the results are guaranteed because it's mathematically impossible not to work.
I hope this answers some of your questions about using a 1st position heloc to pay off your mortgage early. It's truly lifechanging if you know what you are doing.