Analyze the “Velocity Banking” strategy with our heloc to pay off mortgage calculator. This tool simulates using a Home Equity Line of Credit (HELOC) to make a lump-sum principal payment on your primary mortgage, calculating the net interest savings versus the cost of the HELOC.
HELOC Payoff Strategy
1. Current Mortgage
2. HELOC Strategy
heloc to pay off mortgage calculator Formula
The calculator compares two financial paths. First, it calculates the interest saved on your main mortgage by making a lump sum principal reduction (the “Chunk”). Second, it calculates the interest cost of borrowing that chunk from a HELOC and paying it back over time.
Variables
- Chunk: The lump sum drawn from the HELOC.
- Mortgage Interest Saved: Reduced interest over the remaining life of the mortgage due to the lower principal.
- HELOC Interest Paid: Interest accrued on the HELOC while you pay it back using your monthly free cash flow.
Related Calculators
What is the “HELOC to Pay Off Mortgage” Strategy?
Also known as “Velocity Banking” or “Mortgage Acceleration,” this strategy involves using a Home Equity Line of Credit (HELOC) as a primary checking account. The core concept is to make large principal payments on your mortgage using the HELOC (a “chunk”), then use your entire paycheck to lower the HELOC balance daily, minimizing average daily interest, before paying expenses.
This calculator provides a simplified “Chunking” analysis: it determines if the interest saved on your mortgage outweighs the higher interest rate usually charged on a HELOC.
How to Calculate HELOC Payoff (Example)
- Input Mortgage Data: Balance: $200,000, Rate: 4%, Remaining: 25 years.
- Define Chunk: Borrow $10,000 from HELOC at 7%.
- Define Repayment: You have $500/month extra cash flow to pay the HELOC.
- Result: The tool calculates how long it takes to pay back the $10k HELOC, the cost of that interest, and subtracts it from the mortgage interest saved.
Frequently Asked Questions (FAQ)
It can, but the margin is tighter. Because the mortgage balance is much larger than the HELOC chunk, reducing the mortgage principal can save significant compound interest, potentially offsetting the higher simple interest on the smaller HELOC balance.
HELOC rates are variable. If rates rise significantly, your cost of borrowing the chunk increases. Also, if you lack discipline and spend the available credit, you increase debt instead of reducing it.
Proponents argue that a HELOC aids cash flow management (liquidity). However, mathematically, paying the extra cash directly to the mortgage (without the HELOC middleman) often yields similar or better savings without the risk.
Yes, if you have enough equity and credit limit. This is effectively a refinance into a variable-rate product (often called a first-lien HELOC).