Why Replace Your Mortgage With a First Lien HELOC
Updated as of January 2, 2024 | FirstLienHELOC.com
Emerging trends in home finance
If you’re an avid reader and student of personal finance, you’ve likely encountered many types of financial strategies involving investing, insurance, realty, debt management, and saving.
Our site is dedicated to a new type of home hacking debt management / cashflow optimization strategy that is essentially a next generation replacement of velocity banking.
Many of these concepts are new, and First Lien HELOCs are only offered in certain configurations for maximum benefit (see our needed features guide), but with consistency and strategy, you can heavily benefit by saving on hundreds of thousands in interests costs.
The strategy generally hacks the way that interest works for a HELOC (% rate for last month’s average daily balance), and uses your additional income to accelerate your premium pay down. There are additional nuances worth learning about (see our how it works page), but if you’d like to learn more about what your cost savings could look like, sign up on our platform and we will connect you with the right lenders.
Using a 1st Lien HELOC to replace your mortgage
"How the next generation of velocity banking can hack interest accumulation"
Many have become familiar with a mortgage pay down hacking strategy called “Velocity Banking”. This strategy uses a 2 lien position HELOC as your primary account and use bulk payments to pay down a loan, usually a 1st lien mortgage. This hacks your personal cashflow because you use your cash flow and extra money to cover your expenses but also go toward paying off your mortgage. The excess funds are more rapidly applied to your primary mortgage, so therefor, you end up saving money on interest accumulation.
While this is an amazing strategy that is becoming increasingly common, this strategy is still inferior to its next generation product: the first lien HELOC.
Why a First Lien HELOC is a better product.
Using a first Lien HELOC to replace your mortgage can rapidly lower your debt, maximize your cashflow, and consolidate your financial life.
See these key benefits:
- A 1st lien HELOC only needs to close once, and doesn’t require multiple closings on a 1st and 2nd lien loan.
- Because a 1st lien HELOC allows money in and out of the account, allowing for a better personal cashflow strategy
- A HELOC will generally have a higher interest rate than a mortgage, but when using the Velocity Banking, your EFFECTIVE INTEREST RATE is much, much lower.
Additionally, the HELOC (as a line of credit) can be paid down but left open for emergency, daily, or debt consolidation purposes. Whereas a mortgage can only be paid into, and requires a separate account for escrow.
Even though mortgages currently have historically low interest rates, the overall money paid on a 30 year mortgage is substantially larger than is commonly understood, and usually pays as much to the bank in interest as the purchase price of the loan. The important figure to understand is your effective interest rate, and this is generally only shown during closing.
Other convenient benefits of a First Lien HELOC
The First Lien HELOC is a very flexible financial tool, and can be easier to get access too if your credit score is ~ 680 or better (depending on the lender). It can often be financed up to 1.5 million with a 90% LTV or better for no additional underwriting. Often times, at certain house and property cost thresholds, a mortgage becomes a jumbo mortgage, and requires additional underwriting and costs. The First Lien HELOC can skip any additional hurdles as long as you maintain a 10% loan-to-value or greater in equity on your purchase.
As is commonly known with a 2nd Lien HELOC, homeowners can easily access their equity as capital for things like:
- Home Improvements
- Debt consolidation
- Paying for College
- Boats & Recreational Vehicles
- Cars & Vehicles
Similar to a financial swiss army knife, the First Lien HELOC makes it easy to spend or save any way you want. Taking advantage of the HELOC loan at low rates allows you to spend the money on renovating your home. Or you can pay for your kid’s college tuition or fund a new business venture. If you decide to sell your home, for whatever reason, you pay your HELOC off first.
In the sale, the remainder of your financial proceeds is what you use to pay back your old mortgage. A HELOC can be taken out at any time and doesn’t have to follow a set amortization schedule.
Why wouldn't you replace your mortgage with a First Lien HELOC?
When you understand the concepts of a First Lien HELOC, it almost sounds to good to be true, doesn’t it? There are exceptions, however, and it’s important to understand what qualifications you’ll want to meet to be qualified for, and benefit from, a First Lien HELOC.
- If you don’t consistently earn more than you spend, this is not a good product for you. Interest rates over a 20-30 term will drastically increase your payment, and not be a wise financial decision.
- If you have poor credit.
- If you don’t have more than 10% equity in your home from your mortgage. Generally, homeowners reach that threshold about 5-8 years into their amortization schedule.
If you want to use a HELOC for your personal financing portfolio, you need to know that variable rate HELOCs can become more expensive as interest rates rise. They could also go away altogether, as they have before. This happened in the early 1990s when most banks eliminated home equity lines of credit because they were more costly to maintain.
Fun Fact: You don't need to earn more or spend less
When using the Velocity Banking, you simply re-route your income and expenses to all transaction from your HELOC account, and each night, any credits or debits needed will be applied via a sweep account against your loans principal balance.
Yes, that is right. You don’t need to earn more or spend less.
This works because of the way interest accumulation adds up over time, and when you apply all of your “personal profit” to your principal balance, your balance gets paid down much faster, saving you a lot of money.
Replacing your mortgage: Is it right for you?
If you currently have a mortgage on a primary residence with more than 10% equity, or have a home and a 2nd Lien HELOC, a 1st Lien HELOC may be great for you.
One important next step to take is to calculate your numbers. Generally you can do this with a loan officer of a lender, which you can connect to by using our sign up page.
We encourage you to reach out to First Lien HELOC and ask questions about how best to manage your money. When you are ready to learn more about how a HELOC provides one of the easiest ways to build wealth in America, reach out to First Lien HELOC. Don’t worry; we will be here when you decide now is the time.
Achieve Financial Freedom
Sign up on FirstLienHeloc.com to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.