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Refinance My Mortgage: Understanding Mortgage Cycling

With mortgage rates at near-historic lows, the search for strategies to pay off your mortgage faster is more relevant than ever. One such strategy gaining attention is Mortgage Cycling. Marketed as a method to pay off your mortgage in less than 10 years without biweekly payments or altering your current mortgage, Mortgage Cycling promises significant savings. But does it deliver as advertised? Here’s what you need to know.

What is Mortgage Cycling?

Mortgage Cycling involves making substantial lump-sum principal payments on your mortgage every 6-10 months. This technique can significantly reduce the term of your mortgage if you have the financial flexibility to make these large payments. However, it does come with caveats and risks.

How It Works

1. Use of Home Equity Line of Credit (HELOC): The core of Mortgage Cycling is using a HELOC to make lump-sum payments against your mortgage principal. A HELOC is a revolving credit line secured by your home’s equity, allowing you to borrow against the equity you’ve built up.

2. Additional Costs: Setting up a HELOC involves various costs, including application fees, title searches, appraisals, attorney fees, and points. These costs can add up, sometimes totaling hundreds of dollars.

3. Interest Rate Risk: HELOCs typically have variable interest rates. With the Federal Reserve raising the federal funds rate, variable rates on HELOCs are likely to increase. This can impact your savings if rates rise more than anticipated.

Risks of Mortgage Cycling

1. Financial Strain: Mortgage Cycling requires making both your regular mortgage payments and HELOC payments. This can strain your finances, especially if your cash flow fluctuates.

2. Risk to Home Equity: Since a HELOC uses your home as collateral, missing payments or experiencing financial difficulties could put your home and the equity you’ve built at risk.

3. Variable Interest Rates: The variability of HELOC interest rates means your costs can increase unpredictably. If rates rise significantly, the benefits of Mortgage Cycling may diminish.

4. Upfront and Ongoing Costs: The initial and ongoing costs associated with a HELOC can offset potential savings from faster mortgage payoff. These costs include setup fees, annual fees, and interest payments.

Should You Consider Mortgage Cycling?

Mortgage Cycling is a high-risk strategy that should be approached with caution. It requires careful consideration of your financial stability, the associated costs, and the potential risks.

Before committing to Mortgage Cycling, explore other mortgage reduction strategies, such as:

• Refinancing: Explore refinancing options to lower your interest rate or shorten your mortgage term.

• Extra Payments: Make additional monthly payments or lump-sum payments to reduce your principal faster without the complexities of a HELOC.

• Biweekly Payments: Opt for a biweekly payment plan if you prefer a simpler approach to accelerating your mortgage payoff.

Mortgage Cycling may be suitable for those with a strong financial position and the ability to manage both a mortgage and a HELOC. However, it is essential to assess all risks and costs before deciding. Consult with a financial advisor or mortgage professional to determine the best strategy for your circumstances.