Optimizing Mortgage Payoff Strategies: The Math Behind HELOC and Refinancing

[dtevol]

First, I wanted to thank you for reading this thread. I'd also like to apologize up front and let you know that I am a complete novice and bow at the feet of the people who both read and respond in this forum. I've been searching for the answer to my question (more on that further down) and felt that if I were to find the answer, then this would be the place to ask (should this go into the programming bords, mods, please feel free to move it over there ) . Here's my dilemma:

There are a number of mortgage payoff companies out there where people use their net spendable monthly income to pay down and eventually off, their primary mortgage. These strategies work in two ways. The first is to refinance a mortgage into a traditional "Home Equity Line of Credit" (HELOC) where the interest charged is variable.

For a brief online presentation of how and why this works, check out: http://www.homeownershipaccelerator.net/data/Movies/5-Min-Movie/player.html"
For an example of this check out an online simulator:
http://www.homeownershipaccelerator.net/home_loans/cmghome/calculator.html"

The second strategy is to keep your first mortgage in place and take out a HELOC. You can use the funds from the HELOC to pay off your mortgage in chunks by using the mortgage like you would a regular checking account. This can be done with a HELOC because that kind of loan is revolving and can be both paid down and borrowed against (like a credit card).

I'd like to know the math behind both of these strategies so that I can build my own program to budget my own mortgage accordingly. Especially what the formulas would be showing both stable and variable interest rate environments. I don't work for any of these companies (thankfully) that offer these kinds of programs.

THANKS in advance. I truly appreciate the help!
Jonathan

 

[mgb_phys]

You can do this sort of thing fairly easily in Excel.
Just make one row for each month (for the next 20years or so!), then columns for amount remaining, total paid that month, amount of interest paid, capitial paid off etc.
Then you can play with changes in interest rates and amount paid to see what effect it has.

That way you don't need any complex asset value type equations.