We’re all pretty fiscally conservative on this board, so I would guess most of us have actually not heard of this type of loan.

If the loan comes with a software program, I’d say it’s pretty complicated, and buyer beware!

We occasionally have some mortgage brokers on this board. They disappear pretty fast though when we start asking for stories from the ‘good ole days’ (last year). But, maybe one will chime in and tell you the truth about this type of loan.

A realtor mentioned this option to me when I was considering buying a house a couple years ago. Here is a site that has more information:

http://www.cmgfs.com/partner/#

I think the idea behind it is that your money normally sits in your checking account earning little or no interest in preparation for paying upcoming bills. Instead, you have your direct deposit go into a checking account that is tied to your mortgage payment. As the money sits in there, it accrues a decent interest rate, which helps to automatically pay down the mortgage.

This will only really work for people who have more money coming into the account than leaving it. A direct deposit automatically pays down the principal, but should you need to then pay a bunch of bills, it’s the equivalent of taking out a HELOC.

Seems like an interesting idea and I’d love to hear from anybody that has actually looked into or had one of these.

It’s really doesn’t have to be this complicated. They are taking a simple arbitrage and making it seem complicated.

A simpler system to pay off debt sooner:

1. Budget an additional amount (e.g. 5 -10% more) each month towards your debts.
2. Look at all your debts and apply this excess payment to the highest rate debts first.
3. (optional) Keep your checking account near zero, with the balance in money market, ING, or HSBC accounts earning 4-5-5% (as opposed to checking’s 2-3%).

Check out the book “Downsize Your Debt,” by Andrew Feinberg. I read this over a decade ago. The ideas seem obvious to me now, but it certainly helped me back then.

Or you could just… set a strict monthly budget, stick to it, and send all your excess to the mortgage company with each paycheck… how would this be any different?

It seems some people need to have handcuffs on to save money. Like my wife, who prefers to let the IRS sit on her money and give her zero interest, so she can get a nice fat return in April. I ask her “Why not you keep the money each month, do something productive with it, and turn April 14th into a non event?” She says “I’d just spend it on something”

??? huh?

Anyway, how is sending all your excess to the lender any different than depositing your whole paycheck, and taking back from them what you need each month? I’d rather have the control myself.

I’d be nervous giving most people a direct link between a HELOC and their primary checking account… good intentions aside, it would make it too easy to avoid normal financial crunch-times (the ones that make us perform the needed minor adjustments to our spending habits) and instead cover consumption with a loan.

I think this is a facinating concept. But I agree with others that the hard part would be not “respending” the equity you’ve already paid down. However, I love the concept on paper. My checking account earns about a 1-2% interest rate. (1.56% last month) On that interest I pay about 33% to Uncle Sam and another 6% to Maryland. (Where I don’t even live, but my husband works). So what is my total take 3/4% ? Maybe? I’d much rather save between 6-7% on that money. But this wouldn’t work unless you are incredibly disciplined.

I too can’t understand how getting a HELOC can save money unless you already have one.