Quick answer
Using a HELOC to pay off your mortgage rarely beats sending the same extra cash straight to the mortgage. In the example below, a $300,000 mortgage with $1,000 a month of extra cash is paid off in 11 years 11 months with plain extra payments and in 12 years with the HELOC method. The extra cash does the work, not the HELOC. The method also adds a variable rate and a second loan secured by your home. Figures are examples from our calculator; your numbers will differ.
The claim, and what it leaves out
The pitch goes like this: open a HELOC, use it to knock down your mortgage in chunks, and you will own your home in a fraction of the time. It is sometimes called velocity banking.
Most versions of the pitch compare the method to making regular payments and nothing else. That comparison is not fair, because the method only works if you have extra cash every month. The honest question is what that same extra cash would do if you simply added it to your mortgage payment.
How the HELOC payoff method works
- Open a HELOC. A line of credit secured by your home, usually with a variable rate.
- Draw a lump sum and pay it on the mortgage. For example, $20,000 against principal.
- Send every spare dollar to the HELOC until the line is back to zero.
- Repeat until the mortgage is gone.
Some people also deposit their paychecks into the HELOC and pay bills out of it, so the balance sits a little lower during the month. For the basics of the product itself, see what a HELOC is.
The fair comparison: three paths
To judge the method, compare three paths on the same mortgage and the same budget:
- Regular payments. You make the scheduled payment and nothing more.
- Extra cash straight to the mortgage. You add your spare cash to the mortgage payment each month. No new loan.
- The HELOC method. The same spare cash, routed through a HELOC as described above.
The example: $300,000 mortgage, $1,000 a month extra
Take a $300,000 mortgage at 6.5% with 25 years left, and a homeowner with $1,000 a month left over after every bill is paid. For the HELOC method, assume an example rate of 8.5% and $20,000 lump sums.
| Path | Paid off in | Total interest | Interest saved vs. regular |
|---|---|---|---|
| 1. Regular payments | 25 years | $307,686 | — |
| 2. Extra $1,000 straight to the mortgage | 11 years 11 months | $131,382 | $176,305 |
| 3. The HELOC method | 12 years | $135,329 | $172,358 |
Paths 2 and 3 finish one month apart. In this example the HELOC method costs about $3,947 more in interest than simply making extra payments, because part of the balance moves from a 6.5% loan to an 8.5% line.
The large number in the table, more than $170,000 saved, shows up in both rows. It comes from the extra $1,000 a month. A HELOC does not create money.
Example only. Results come from the HELOC mortgage payoff calculator and assume the rates and the extra cash stay constant. 8.5% is an example rate, not a quote. HELOC rates are variable and depend on credit, equity, property and the full file.
What changes the result
The same example, with one thing changed at a time:
| Change to the example | Extra payments (path 2) | HELOC method (path 3) | Difference |
|---|---|---|---|
| Base case | 11 yr 11 mo · $131,382 | 12 yr · $135,329 | HELOC method costs $3,947 more |
| $9,000 a month of take-home pay run through the line | 11 yr 11 mo · $131,382 | 11 yr 10 mo · $129,025 | HELOC method saves $2,357 |
| Paycheck through the line, and the HELOC rate rises 2% | 11 yr 11 mo · $131,382 | 11 yr 11 mo · $131,502 | About even |
| Mortgage rate is 3.5% instead of 6.5% | 12 yr 4 mo · $69,712 | 12 yr 8 mo · $78,206 | HELOC method costs $8,494 more |
| No extra cash each month | 25 yr · $307,686 | 26 yr 3 mo · $337,144 | HELOC method costs $29,458 more |
Running your paycheck through the line helps a little. With $9,000 a month of take-home pay sitting in the HELOC, the method comes out about $2,357 ahead over twelve years. That is the entire advantage, and it uses an assumption that is generous to the method.
A rate increase takes it away. Raise the HELOC rate by 2% and the two paths are about even.
A low mortgage rate makes it worse. If your mortgage is at 3.5%, the method moves debt from a cheap loan to an expensive one and costs about $8,494 more.
Without extra cash, it does not work at all. With nothing left over each month, the HELOC balance never gets paid down and the total cost goes up.
All rows are examples from the same calculator, holding everything else constant. The paycheck rows use a simple average-balance approximation.
The risks the method adds
- The rate can rise. Most HELOC rates are variable. Some programs offer a fixed-rate option.
- The line can be frozen or reduced. A lender can do this if home values fall or your finances change. See HELOC freeze risk.
- It depends on discipline. Every extra dollar has to go to the line, every month. An open line of credit is also easy to spend.
- Your home secures both loans.
A HELOC is secured by your home. Missed payments on the HELOC or the mortgage can put the home at risk. With plain extra payments there is no second loan, and you can stop the extra payments in a tight month without owing anyone.
When the method can come out ahead
It is not crazy, and it is not a scam. It just does less than the videos say. It tends to come out slightly ahead when:
- the HELOC rate is close to or below your mortgage rate,
- a large paycheck sits in the line for most of each month, and
- you would not make the extra payments without the structure the method gives you.
The third point is real for some people. If the method is what gets the extra $1,000 paid every month, it has value. Just know that the payoff is coming from the $1,000.
What a HELOC is good for
A HELOC is a strong tool for the right job:
- Paying off higher-rate debt. See a customer example with $45,000 in credit cards.
- Funding a renovation in stages, paying interest only on what you draw.
- Reaching your equity without giving up a low first-mortgage rate. Compare the options in HELOC vs. cash-out refinance.
Run your own numbers
Your mortgage will not match this example, so test your own. The HELOC mortgage payoff calculator shows all three paths in about thirty seconds, with a stress test for a higher rate.
Under the results there is a button that sends me your scenario. I will look at it against real rates for your state and tell you which path I would take. No cost and no obligation.
FAQ
Can you pay off a mortgage in 5 to 7 years with a HELOC?
Only if you have enough extra cash each month to pay it off that fast anyway. The HELOC does not shorten the payoff by itself. The same extra cash sent straight to the mortgage produces nearly the same result.
What is velocity banking?
It is a name for the HELOC payoff method: draw a lump sum from a HELOC, pay it on the mortgage, pay the HELOC back down with your spare cash and paychecks, and repeat.
Is using a HELOC to pay off a mortgage a scam?
No. It is a real strategy, but its benefit is usually much smaller than advertised and can be negative. Be cautious of anyone charging for software or coaching to do it. You can compare it with plain extra payments for free in the calculator.
Is it better to make extra mortgage payments or use a HELOC?
In most cases extra payments are simpler and cost the same or less, with no second loan and no variable rate. The HELOC method can come out slightly ahead when the HELOC rate is near or below the mortgage rate.
Does the method work if my mortgage rate is low?
It usually works against you. With a mortgage near 3.5% and a HELOC at a higher rate, you would be moving balance to a more expensive loan.
What are the risks of the HELOC payoff method?
A variable rate that can rise, a line the lender can freeze or reduce, the need for steady extra cash every month, and two loans secured by your home.
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Keep reading
HELOC Mortgage Payoff Calculator
Compare all three paths on your own numbers.
HELOC vs Cash-Out Refinance Calculator
Side-by-side cost of the two ways to reach equity.
HELOC Pros and Cons
The benefits and the trade-offs in one place.
Can You Pay Off a HELOC Early?
How extra payments on a HELOC work.
HELOC Freeze Risk
When a lender can freeze or reduce a line.
All HELOC Examples
See every customer example in one place.