*Loan,banking and credit>>>credit line

Has anybody heard of using a HELOC (HOME EQU ITY LINE OF CREDIT) to pay down their mortage?

I'M INTERESTED IN A PROGRAM THAT ALLOWS ME TO PAY DOWN MY PRIMARY MORTAGE AT AN EXCELLERATED RATE. IT INVOLVES USING MY HELOC AS MY CHECKING ACCOUNT.WONDERING IF ANYONE ELSE HAS HEARD OF THIS. WHAT ARE THE PROS AND CONS OF THIS SYSTEM ?

Yes I have. But you are not describing it correctly...in some ways it seems like a HELOC, but it is not. It is really more like a real estate property secured checking account with overdraft line.

This type of real estate financing instrument was developed in Australia and is popular there. It has only taken on some interest in recent months in the US.

Typically, you would have a checking account that you can write a check and use the credit. Any cash you put into the account earns an interest rate, and any amount you owe will be charged an interest. This account fully utilizes your cash and helps to reduce interest paid for mortgage.

I recommend:
Pros:
- This was designed to help faster paydown of mortgages. By putting all your cash in the account, you use every last penny to reduce the interest on the loan.
- You have the ability to use any of the equity in your home up to the maximum limit of the overdraft line. It's flexible, and you can pay back any time.

Cons:
- The line is based on a variable rate index. This means that if the index goes up, so does your rate. You have no control over how much the rate will move up.
- This instrument has the effect of Negative Amortization. This means that if you refinance $100,000 of your mortgage into this line, and you use more than $100,000... your balance actually increases instead of decrease.
- Your cash will be used to pay the interest. This is an interest only overdraft line. So hopefully your cash automatically reduces the balance on the overdraft line. At the end of the month, you will pay the interest out of your cash. This means if you tend to overspend, your loan balance will increase and you will pay more interest.

So, this is a good program if you are financially disciplined and if you are ok with the risk of a variable rate (adjustable rates) line.

Just Be!

The trouble with home equity loans is that you often get screwed on interest.
As Ed said, second mortgages, HELOC, are at a higher interest rate. The better way is to make payments twice a month on your mortgage. Even if you make two payments that equal your total payment, the payment made early will reduce your interest. .
Many people wanting to borrow money usually choose home equity line of credit, or HELOCs. They are attractive bet as you can generate the urgent cash at a reduced interest rate. Another benefit of opting for HELOC, or a home equity line of credit is the tax break you get, but you have to get it confirmed from your lender or accountant.
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