Combining the HELOC with the concept of 0% Balance Transfer Card, you can take even more advantage of your balance transfer card by making only minimum payments to the balance transfer card and in the last statement before your balance transfer card becomes interest bearing, pay off all the balance from your HELOC account. This will save additional interest on your Mortgage and/ or HELOC account.
Numbers speak better than words
Once you have mastered the above tactic, you may love to keep only a single lien on your home using the HELOC account and do away with the mortgage altogether. The below illustration shows how you will end up paying way lesser interest on a HELOC compared to Mortgage.
Assumptions and Notes:
- We have assumed the same loan amount that we have considered for Home Mortgage for HELOC.
- HELOC interest rate is 3.25% and tenure is 20 years.
- Borrower has an obligation to repay only the minimum payment each month.
- Borrower can swap money between the HELOC account and Bank Account any number of times in each month.
- There is no concept of Escrow so the borrower will have to make payments for taxes and insurance from their bank account. In the example below, these amounts are withdrawn from HELOC account to make the Escrow Payment.
- Notice the flexibility that the buyer has when making payments. In a home mortgage, you will need to make a payment equal to the EMI every month. There is no way you can withdraw the money.
- There are a few months when you just pay minimum payments and when you receive a lump sum income then you can make a payment and bring the balance down.
- Even with HELOC interest being higher compared to Home Mortgage, at the end of the first year, assuming that the same payments were made to both accounts, the HELOC Outstanding Balance and Interest Paid are lower compared to Home Mortgage.
Table 7: EffectiveLY UsING HELOC
| Date | Description | Transaction | Balance ($) | Category |
| 1-Mar-21 | Mortgage Refinancing | ($425,928.00) | ($425,928.00) | Line of Credit |
| 1-Apr-21 | Transfer from Bank Account | $3,500.00 | ($422,428.00) | Transfer |
| 13-Apr-21 | Autopay | $370.33 | ($422,057.67) | Payment |
| 13-Apr-21 | Minimum Payment | ($109.71) | ($422,167.38) | Finance Charge |
| 13-May-21 | Autopay | $773.63 | ($421,393.75) | Payment |
| 13-May-21 | Minimum Payment | ($484.90) | ($421,878.65) | Finance Charge |
| 13-Jun-21 | Autopay | $753.36 | ($421,125.29) | Payment |
| 13-Jun-21 | Minimum Payment | ($452.50) | ($421,577.79) | Finance Charge |
| 13-Jun-21 | Minimum Payment | ($482.86) | ($422,060.65) | Finance Charge |
| 21-Jul-21 | Transfer from Bank Account | $10,000.00 | ($412,060.65) | Transfer |
| 21-Jul-21 | Transfer from Bank Account | $4,500.00 | ($407,560.65) | Transfer |
| 21-Jul-21 | Transfer to Bank Account | ($800.00) | ($408,360.65) | Transfer |
| 6-Aug-21 | Transfer from Bank Account | $5,000.00 | ($403,360.65) | Transfer |
| 6-Aug-21 | Autopay | $482.86 | ($402,877.79) | Payment |
| 6-Aug-21 | Minimum Payment | ($238.07) | ($403,115.86) | Finance Charge |
| 15-Aug-21 | Transfer from Bank Account | $3,000.00 | ($400,115.86) | Transfer |
| 16-Aug-21 | Transfer to Bank Account | ($2,500.00) | ($402,615.86) | Payment |
| 21-Aug-21 | Transfer from Bank Account | $3,500.00 | ($399,115.86) | Transfer |
| 28-Aug-21 | Transfer to Bank Account | ($15,000.00) | ($414,115.86) | Transfer |
| 28-Aug-21 | Transfer to Bank Account | ($500.00) | ($414,615.86) | Transfer |
| 6-Sep-21 | Transfer from Bank Account | $8,000.00 | ($406,615.86) | Transfer |
| 6-Sep-21 | Autopay | $500.39 | ($406,115.47) | Payment |
| 6-Sep-21 | Transfer from Bank Account | $6,000.00 | ($400,115.47) | Transfer |
| 13-Oct-21 | Autopay | $598.28 | ($399,517.19) | Payment |
| 13-Oct-21 | Minimum Payment | ($224.30) | ($399,741.49) | Finance Charge |
| 13-Nov-21 | Autopay | $550.91 | ($399,190.58) | Payment |
| 13-Nov-21 | Minimum Payment | ($192.22) | ($399,382.80) | Finance Charge |
| 13-Dec-21 | Autopay | $485.15 | ($398,897.65) | Payment |
| 13-Dec-21 | Minimum Payment | ($193.47) | ($399,091.12) | Finance Charge |
| 31-Dec-21 | Transfer to Bank Account | ($9,500.00) | ($408,591.12) | Transfer |
| 6-Jan-22 | Transfer from Bank Account | $10,000.00 | ($398,591.12) | Transfer |
| 13-Jan-22 | Autopay | $477.23 | ($398,113.89) | Payment |
| 13-Jan-22 | Minimum Payment | ($169.86) | ($398,283.75) | Finance Charge |
| 13-Feb-22 | Autopay | $419.91 | ($397,863.84) | Payment |
| 13-Feb-22 | Minimum Payment | ($160.43) | ($398,024.27) | Finance Charge |
| 13-Mar-22 | Autopay | $397.43 | ($397,626.84) | Payment |
| 13-Mar-22 | Minimum Payment | ($163.56) | ($397,790.40) | Finance Charge |
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