So I been thinking about buying my first home. I saw youtube and other resources saying that heloc is better and faster to pay down your mortgage. However, heloc just doesn't make sense to me. It has higher interest rate and by using it to pay your mortgage down you would still owe original loan. Can anyone explain to me why would anyone actually do this?

Here is my example.

House price 400k 
downpayment 80k @20%
mortgage amount 320k @4% interest
Heloc amount 100k @8% interest
put 60% heloc against mortage principle 60k
new mortgage amount 320k - 60k = 260k
Now you have 260k with 4% interest and 60k with 8% interest + your other expenses.
On top of that you would still pay your original mortgage monthly and your entire check 
would only deduct little from your heloc account biweekly (assume biweekly pay). 

How is this better than the conventional loans?

  • 2
    We used a variable rate HELOC (at the time of refinance 3.5%, I haven't followed it every month but I don't believe it's ever run above 5%) to retire our second mortgage at 6.25%, so from my anecdata the assertion that HELOC has a higher rate isn't categorically true. We have a risk if variable rates rise, but so far have done well. But the example quoted makes no sense other than the person is in fact paying more overall including more principal as well as more interest per month.
    – user662852
    May 18, 2020 at 15:53

1 Answer 1


We're talking U.S. mortgage market here, true? And this is an owner-occupied property?

A HELOC is usually not the best way to pay down an existing first lien because all things being equal the HELOC interest rate will not be as favorable as the first lien. If however there's not much unpaid principal balance left on the first, it may be convenient to refi into a new first lien HELOC where your initial draw is enough to cover the first lien and where you have some line left over to use for other purposes.

In specific purchase scenarios you may find that a "combo" of a first lien @ 80% LTV and a HELOC or fixed-rate second lien @ 10% LTV (leaving 10% down) can net/net save due to elimination of mortgage insurance, but you have to pencil this out in detail to see.

It's good to run any specific scenario by your accountant as tax laws on the deductibility of interest changed recently. There are some specifics for Texas as well due to homestead laws in that state.

  • Another factor might be expensive flood insurance, if your lender requires you to carry it on the soutstanding mortgage balance, but not on the HELOC.
    – jamesqf
    May 18, 2020 at 16:51

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