It’s real simple, if you don’t prepay your loan, you merely do debt arbitrage.
If the HELOC rate runs 1/4 of percent higher, you need an excess cash flow above your loan. If you currently have a $400K loan at 6% with a $2400/mnth payment, you would need $9600 excess cash per month in expenses to breakeven on the HELOC if the HELOC rate is 6.25%.
If the HELOC rate is 6.5% you need $21000 excess cash flow above your mortgage payment each month. Yeah, that’s right, you live in a house with a $400K loan and have a take home of than $250K /year.
If the HELOC rate is 7%, you need $42,000 of excess cash flow a month to break even.
The only reason it appears to pay off the loan faster is because you prepay the loan with extra cash you already have each month.
