I’ve seen this mentioned a few times now in various financial articles, but it smells like some kind of “system” a gambling addict would come up with to “beat the house”. Doing a web search on it, I find a lot of hucksters selling it as one of their get-rich-quick schemes, but it also comes up on some legit sites too so I wanted to ask about it.

In a nutshell, it’s a method for paying off your home mortgage faster. It goes like this:

  1. Take out a HELOC on your home equity and use it to make a large single payment to your home’s principal balance.

  2. Use all of your regular monthly income to pay down the HELOC.

  3. Pay all of your monthly bills — including your mortgage payment — with a credit card (preferably a rewards card that gives cash back).

  4. Use the HELOC to pay off your entire credit card balance each month (to avoid paying interest on the card and to maximize the rewards).

  5. Repeat this process until the HELOC balance is paid off. At that point, make another large principal payment to your house and start the process all over again.

If you have a good credit score (which I do), enough equity for the HELOC (I do), good financial discipline (I do most of the time), and a positive cash flow each month (I also do), then proponents of this method claim you can pay off your 30-year mortgage in as little as 7 years.

But how?

I see a number of potential gotchas with this that makes me think it’s a bad idea:

  • You’re paying low-interest debt with higher-interest debt, which is a cardinal sin financially. My mortgage rate is 2.75%, but a HELOC would cost me about 3.5%-4% interest. The cash back credit card would absorb some or all of this difference in theory.
  • An unexpected expense (like a large medical bill) seems like it would derail this and cause it to spiral out of control quickly.
  • You’re devoting all your excess financial capacity into getting rid of the mortgage faster, but at the expense of other financial goals (like paying down higher-interest debt or even just taking a vacation).

If I have the financial chops to pull this off and enough excess income to make it work, how would this pay off my mortgage any faster than just making extra principal payments in the first place and avoiding all the extra steps?

  • 3
    For this scheme to work you must have excess income each month, which you say you do. In that case if you simply apply all those extra funds toward your mortgage I believe you'll find you can accomplish nearly the same effect with much less complexity.
    – jwh20
    Dec 15, 2021 at 12:22
  • @jwh20 Some mortgages have penalties for overpaying too much.
    – gidds
    Dec 15, 2021 at 22:49
  • 1
    That's true but I'm not clear how it relates to this question. The HELOC scheme would involve prepayment as well.
    – jwh20
    Dec 15, 2021 at 23:58
  • @jwh20; Exactly my thinking. How is this scheme better than just making extra mortgage payments? That’s why I don’t really understand what the point is.
    – Wes Sayeed
    Dec 16, 2021 at 0:00


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