@Bonaccan wrote:Does using equity loan to make mortgage payments make sense only if the mortgage will be paid off with the loan?
What if I were to use multiple equity loans to eventually payoff mortgage if one loan could not cover mortgage balance?
Example: Current mortgage is $2500 and mortgage balance is $355k. I can take out an equity loan of $85k and then use that to pay monthly mortgage payments AND monthly loan payments. All while I am saving the $2500 mortgage payment from my own funds and putting it away.
I'm sure it's not that simple but just wondering if anyone has been able to positivel use available equity for this manner.
I'm not sure what advantage you are hoping will come from such a money shuffle.
While a person could potentially do as you are asking, it wouldn't be cost effective (in my opinion).
You would continue to pay interest on your remaining $355000 mortgage plus interest on your $85,000 loan... the $2500 a month from your original mortgage payment that you could "put away" wouldn't earn enough interest to offset the interest you are paying on the two loans.
If you are looking to save interest or pay off your mortgage sooner, make larger payments... an extra $100 a month near the beginning of the loan takes years off the length of time it takes to pay off the loan; saving you thousands in interest over the life of the loan.
In general, paying interest with a loan that charges interest is a good way to go broke quickly... a large portion of your monthly mortgage payment is interest.
The only way I see your plan as asked being useful would be, if you are selling the house in the next 18 months. If so, it still only works if house values remain the same or go up.
I personally wouldn't bank on home values climbing over the next 24-36 months... however I do think they will continue to climb in most areas of the country for the next 6-9 months... at which point the escalating amount of foreclosures will begin to show and pop the bubble. <-- this is purely speculation based on the rapid jump in home prices, many homes are currently priced out of reach for local income levels... top that off with the current trend of people quitting their jobs in mass with no other better paying jobs in the area... it's a recipe for disaster... a perfect storm for a repeat of the 2008 financial crisis.
What you're talking about is a common practice known as Velocity Banking. If you google a bit, you'll find info, but the basic premise is that so long as your equity line of credit is a super low rate, you can do what you're talking about and save money. It requires seriously disciplined budgeting though.
I'm actually gearing up to do exactly this with my student loans, and then potentially our mortgage.
