Can Extra Mortgage Payments Match HELOC's Payoff Speed?

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In this video, Michael Lush addresses whether making extra mortgage payments can match the payoff speed of a HELOC (Home Equity Line of Credit). He explains that while extra payments on a mortgage can reduce debt, mortgages are closed-end products that lack liquidity. In contrast, HELOCs offer a two-way street for money, providing continuous access to funds, which is crucial for financial flexibility. Lush emphasizes that liquidity allows for better financial management and seizing opportunities, making HELOCs a more efficient tool for managing debt. He highlights the importance of understanding the value of liquidity and how it can impact long-term financial health, encouraging viewers to consider HELOCs as a superior option for debt repayment.

[jakecook]

Thanks for explaining liquidity in terms of the structure of a mortgage versus a HELOC.

[comsummatus]

How about instead of making a payment on a HELOC, don't take out a HELOC in the first place and save in a savings account?

[jnachtig]

I generally agree with what you are saying mathematically. I personally have a 15 year mortgage (2 years of payments left) and a HELOC that is available (but I dont use) But I think your argument ignores the behavioral economics, however. The vast majority of people don't have the discipline to properly handle the liquidity of a HELOC. The reason the biggest asset most people have is their house is because you can't withdraw from a mortgage, unlike an investment account or even a 401k. It is sad, but true, that the 1 way nature of the mortgage save people from themselves.

So returning to the question, the answer for most people and therefore the best advice is yes, pay your mortgage early. You can't give the 60% of Americans who can't save $1000 in cash the chance to drain their home equity with a HELOC.