Can You STILL Use a HELOC to Pay Off Your Mortgage? | The Kwak Brothers

Can You STILL Use a HELOC to Pay Off Your Mortgage?

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October 2, 2020
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Can You STILL Use a HELOC to Pay Off Your Mortgage?

Hey what’s going on guys, it’s Sam Kwak here one of the Kwak Brothers… And I’m finally coming back to writing about HELOCs! With the mortgage interest rates being at an all-time low and the economy at its slowdown, you might be wondering… Is it still worth it to get a HELOC to start paying off your mortgage? Wouldn’t it be better to refinance?

Now, if you want to watch and listen to this blog instead of reading it, check out this video:

This is probably the question running through your head. So I’m going to unpack the latest updates to HELOCs, what the banks are doing, and why I ultimately believe using a HELOC transcends other options such as a refinance.

So let’s start with the latest update on HELOCs and what the banks have been doing since COVID-19… But first, don’t forget to subscribe to our channel if you want more HELOC content, Housing Market News, and how to invest in real estate.

Earlier this year when the COVID-19 situation blew up, 3 major banks and institutions shut their Line of Credit Department down. Those were Chase, Wells Fargo, and Navy Federal FCU. But pretty much every other bank operated their lending procedures like nothing really happened.

And then on April-May, banks were experiencing a major slowdown on processing applications and that is due to bankers and underwriters working from home – causing a communication meltdown. But so I thought…

While the work-from-home situation may have caused part of the slowdown, I think the bigger contributor came from the lack of buyers of the underlying notes. As the market started tumbling down, investors and investment bankers started to sell and stripped cash out of their investment. Why this is important is that when mortgages are created at the bank level, these mortgages are often packed and sold to the market as a Mortgage-Backed Securities. This is how the banks make their money by creating mortgages and selling them in bulk to investors for a “guaranteed” return. Because of the wave of sellouts and cashing out investments, there were fewer investors buying these Mortgage Backed Securities – causing the banks to slow down on processing the mortgages.

This is also true with certain HELOC products – such as a 1st lien HELOC and ultimately, I believe that’s happening right now at this moment…

The interest rates are ridiculously low which is leading the consumers to refinance or buy a new home… Which if you guys don’t know, refinances are literal financial suicide. I have a separate video to explain why (point)

With a huge demand for new mortgage loans and not enough investors buying the mortgage backed securities, the banks have ultimately slowed down the entire process to make sure that they’re not creating mortgages without ever being sold. It’s kinda like your local highway during the rushhour but all the exits are blocked yet the on-ramp to the highway is open.

The bottom line, it’s now taking 45-60 days for the banks to process loan applications when it comes to mortgages.

Okay now moving over to THE question… Is it still worth getting a HELOC to pay off your mortgage despite the low-interest rates? Wouldn’t it better to just refinance? Yes… And… No…

Learn How to Pay Off Your Mortgage with a HELOC:

Now, remember, HELOC interests also ride on the WSJ Prime Rate. In fact, some HELOCs are based on LIBOR but next year, it’ll be phased out to SOFR (Secured Overnight Financing Rate) The current SOFR is at 0.10% which is ridiculously low. So if your argument is, well Sam… I just want to refinance because the rates are low… Why not get a HELOC that also has a low-interest rate. Some of my clients in our private membership got a 2.99% HELOC or 3.75% 1st lien HELOC. So if you’re gonna refinance to play the “interest rate game”, then might as well do a 1st lien HELOC that can also be a fixed rate…

But using a HELOC to paying off your mortgage transcends playing the interest rate game because you’re driving the principal balance down so low that even at a higher rate, the effective interest amount on the HELOC is lower at the end of the day.

PLUS… you can use the same HELOC to acquire investment opportunities such as buying rental properties and cash cow businesses that have higher return than the HELOC interest rate.

Also… I mentioned this in our previous YouTube videos that a HELOC can act as an “income insurance” in case you lose your job or income. Hope it never happens to anyone but in case you do, you need 3-6 months of cash to cover the expenses and that’s where a HELOC comes to help put food on the table. And I know.. you’re making the argument of having 3-6 months of savings. But let me ask you this, what’s the interest you earn on your savings account? Like 1% So why not dump those extra savings into a HELOC where you’re now saving 2.5-5% interest. Get it?

So all that to say, getting a HELOC to paying off your mortgage is still very much relevant and it transcends any refinancing game you’ll play! Even if it’s not for paying off your mortgage, you can use a HELOC to buy more investments which give you maximum options and flexibility. And options always keep you on the top.

Learn How to Pay Off Your Mortgage with a HELOC: