Yes, refinance. But don’t refinance your mortgage into another mortgage. That would be counterproductive to your goal of paying off your mortgage sooner. Getting another 30-year term, even at a better rate, is not desirable.
Instead, refinance your mortgage into a home equity line of credit. Your HELOC will take first-lien position. Not only that, but you would be able to use it as your checking account, consolidating your finances and putting your income to work at its full potential.
Most homeowners work at companies that offer direct deposit. If that’s not you, skip to #3. If you do have direct deposit, here’s all you need to do:
- Make sure your HELOC accepts direct deposit via ACH. There are very few banks in this category, but it’s a big part of this strategy. (If you can’t find a bank that offers direct deposit to HELOC, you’ll have to use a “sweep account.” Here’s why sweep accounts aren’t ideal for this strategy.)
- Schedule deposits to occur every time you get paid.
- Sit back and relax – now, you’ll never forget to make a payment.
Many people who have tried this strategy haven’t gotten all the way there. They’ve kept their checking accounts and used them as their main accounts for bill payment. This is wildly inefficient. Every time there’s money sitting in a checking account, it’s not paying down the balance on your HELOC. It’s not working for you. It’s just sitting there. Meanwhile, you’re paying more interest than you need to. The best strategy is to consolidate your finances by using the HELOC as your checking account.
Remember, paying down your balance as much as possible is the engine that turns the wheel of quick pay-down.
This step is simple. Just pay your bills like you normally would. The only difference is that you’re paying them out of the HELOC account now.
Now comes the absolutely most crucial step. When your income lands in the HELOC, don’t go spend it. No, you shouldn’t have to change your lifestyle if you already have positive cash flow. But don’t get a Maserati. Don’t buy a boat.
Don’t spend more than you usually would simply because you have access to all of this money in the line of credit.
Keep as much of your income in the HELOC as possible. You’ll see the balance drop … fast. Most of the people we’ve worked with don’t see amazing results after a month. But after a year, they tend to be amazed and thrilled at how much they’ve been able to pay down their balances.
Do the same thing every pay period. Be consistent, and you’ll see the most consistent results.
- Income lands in HELOC
- You pay bills
- You save the rest
- Your daily balance drops
- You pay less interest immediately
By following this strategy, you’ll get out of debt sooner and have complete control of your equity.