(Food for thought)
Many people in this country see mortgage as something similar to a sacred cow in India. Many of us associate mortgage with a familiar sign ‘Beware! Danger!’ This is the reason why most homebuyers tend to pick a 30-year mortgage, the most popular one, especially with the first- time buyers.
It is very common for us to think that once we get a good mortgage with reasonably low APR, we can relax and forget about it.
“And what’s wrong with that?” you will ask. Nothing really, except that:
- it is unreasonable to make plans for a 30 -year term;
- family plans need to be updated every 3-5 years and reviewed once a year;
- practically no first mortgage is ever paid off in full because of the subsequent refinancing within 3-5 years;
- investment potential of mortgage should not be ignored;
- it is not worthwhile committing to a big mortgage payment without being able to control it.
All of the above reasons will sooner or later start causing problems and complicate your life. And the key factor in these complications is your fixed ‘forever’ mortgage payment.
The good news is that the market provides a solution for every problem. In our case, it’s HELOC – home equity line of credit. HELOC is very helpful in resolving all the above issues, but most importantly, it gives us the possibility to change the amount of mortgage payment. In other words, HELOC is a tool that allows us to speed up the mortgage pay off. By lowering monthly payment – P&I (principal and interest) – we can start prepaying our mortgage (see the previous article on mortgage).
Let’s assume that we have paid off part of HELOC which helped us to lower the monthly bill. Now take a look at different options of mortgage pay off with the help of HELOC:
If the mortgage amount is $300K, P&I=$ 1,520.00, our pay-off per year is $4,800.00.
With HELOC = $200K, P&I = $750.00, prepayment = $770.00, annual pay off = $9,240.00
With HELOC = $100K, P&I = $375.00, prepayment =$1,145.00, annual pay off = $13,740.00
With HELOC = $50K, P&I = $187.00, prepayment = $1,333.00, annual pay off = $16,000.00.
As you can see, HELOC enables us to considerably speed up the mortgage pay off without increasing the initial monthly payment. However, we can make use of this method only if we manage to come up with the funds necessary for partial HELOC pay-off. Here, we can use any resources available to us like money in the bank accounts, CD, pension funds, and, of course, emergency fund money. Also, you can easily borrow the funds from your extended family members and friends because there is a one hundred percent guarantee thatyou will be able to pay them back at a short notice, without any control or limitations from the bank.
I will be happy to provide detailed calculations of different options for the full or partial pay off of your mortgage with the help of HELOC or any other method of your choice.
Please call me for more information: 847-520-7030.