Mortgage Killer Accelerator

Strategy 16 of 107

Equity relay: parent's equity in, child's equity out, parent repaid

Depends on people or program rulesFrom borrowing against another asset (moves the debt, does not erase it)

What it is

The parent draws on a home equity line and pays down the child's mortgage.

Steps

  1. The parent draws on a home equity line and pays down the child's mortgage.
  2. Later the child opens a home equity line on the now low-balance home and repays the parent, who closes their line.
  3. Be clear about the result: the child now owes the same money on a home equity line instead of the mortgage. It only saves money if the child's final rate is lower than the old mortgage rate, or the family charges less than the bank did.

Repeat: Once; repeating it just moves the same debt back and forth.

Measure: The rate on the child's final debt against the old mortgage rate. Enter it as the new rate in the calculator.

Try it in the calculator Enter its amount in "New rate, same payment". Add a payoff goal of 5 years to see what is still needed.

Risks

  • Two homes are pledged instead of one.
  • Home equity lines are usually variable and can rise above the old mortgage rate.
  • The child must qualify for the line when it is time to repay the parent.

Who it fits

Married couples, Newlyweds, Single, Grandmas and grandpas (62 and over), Average household

Needs

Family willing and able to help

How predictable

Depends on people or program rules (tenants, family, IRS records, lenders)

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (married couples). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: the parent draws on a home equity line and pays down the child's mortgage.

Suppose it brings a new rate of 5.5% while they keep paying the old $1,896 payment. The loan would be paid off in 23 years 7 months instead of 30 years, saving about $147,106 in interest. To finish in five years, they would still need about $3,834 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sources and more information

Where to get help

Related strategies

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