What is mortgage cycling? To put it simply, its just a way to use the existing equity in your house to pay down your mortgage faster. The concept is based on the fact that when you take out your mortgage, the payments are initially interest heavy and you use the home equity to pay directly towards principal so that you can pay down the mortgage quicker.

The best way mortgage cycling works is to use a Home Equity Line of Credit or HELOC, because being that its a line of credit, you can access this repeatedly. You take the portion of equity from the home equity loan and apply that towards the first mortgage. By doing so, you’re paying your principal faster and thus pay the mortgage balance quicker.

You also have to make sure you can pay off the home equity line of credit every 6 to 12 months so you can start the process over again, thus the term ‘mortgage cycling’.

A common question asked is are there any risks to mortgage cycling. And there are some risks. The main thing you have to pay attention to is that you have to be disciplined in order to make this work. You have to be able to pay of that home equity line of credit in a very timely fashion so you can quickly take out another HELOC loan. You have to be committed to this strategy for the long term.

But if you know that you’re not going to spend that money on a car or boat, then you can really get your mortgage paid down much quicker. The temptation is always going to be there to use those funds to do other things.

So, if you can play with the equity in your house responsibly, then instead of risking a default and possibly foreclosure, you could have your mortgage paid off in as little as 10 years.

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This entry was posted on Monday, May 26th, 2008 at 2:57 am and is filed under Home Equity. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.