With the historically low-interest rate on 30-year fixed conventional, this is a frequent question I get quite a bit… “Sam, is it still worth getting a HELOC to pay down your mortgage when the mortgage rates are so low?”
One of the BIG myth about HELOC is that the interest rates are always higher than your traditional 30 year conventional mortgage. That’s simply not true… You also have to consider the lien position of a HELOC if you’re to make an accurate assessment.
1st lien HELOC interest rates are VERY comparable to 30 year fixed rates. Many of our clients are getting 2.5 – 4.75% rates on their HELOC. Plus, many of these rates can be fixed! YES! You can fix the interest rates on HELOCs as well. So the idea that all HELOCs are variable and higher interest is simply not true.
With that being said, if you’re planning on refinancing to a lower rate to “save money”, why not consider refinancing to a 1st lien HELOC where you do have the advantage of paying off your HELOC faster by using our strategy.
If you’re unsure what our strategy is, check out this video on How to Pay off Your Mortgage in 5-7 years: https://www.youtube.com/watch?v=3f-ebCjeH8o
Also, refinancing to a lower interest does not guarantee that you’ll pay off your mortgage any sooner. In fact, if you’re refinancing into another 30 year mortgage, then you’ve just reset your amortization clock to where you’re paying ALL of the front-loaded interest again. This is bad bad bad!
Bottom line, using a HELOC to paying off your mortgage trascends the benefits of refinancing to a lower rate. Here’s the ultimate reason why…
Getting a 1st lien HELOC now gives you both flexibility to invest in certain investments while paying off your mortgage by default. Think about it… If you can save money on interest and time passively while building up a cash-reserve to invest during a market crash, wouldn’t that be the ultimate win-win? Plus. like I mentioned before. HELOC rates are low as well. Mortgage rates have fallen steeply and so has HELOC rates.
So the answer is YES… It’s still worth getting a HELOC. In fact, I would argue that NOW is the best time to get it because you’re getting an instrument that can act as both a sword and a shield when it comes to helping you save money and giving you the flexibility to act on an investment opportunity.