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Homeowners seeking smarter strategies to pay off their mortgage faster while maintaining financial flexibility often consider combining a Home Equity Line of Credit (HELOC) with a 15-year fixed first mortgage. This advanced approach can offer a powerful way to reduce interest costs and achieve mortgage freedom years ahead of schedule — when done right.
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home equity. It functions like a credit card: you can borrow, repay, and borrow again — typically with a variable interest rate. Many borrowers use HELOCs for home improvements, debt consolidation, or major expenses.
But there’s another strategic use: pairing a HELOC with your primary mortgage to optimize cash flow and reduce mortgage principal faster.
Why Combine It With a 15-Year Fixed Mortgage?
A 15-year fixed mortgage already offers lower interest rates and faster principal payoff compared to a 30-year loan. Combining it with a HELOC can provide:
- Accelerated payoff: You use the HELOC to chunk down principal aggressively.
- Interest savings: Less time = less interest.
- Cash flow flexibility: Use the HELOC for temporary liquidity when needed.
- Debt reshuffling: Transfer higher-interest debt (e.g., credit cards) to the HELOC, which usually has lower rates.
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How the Strategy Works
This strategy is often referred to as a “mortgage acceleration” or “velocity banking” method. Here’s how it plays out:
Secure a 15-Year Fixed Mortgage
- Lock in a low, stable interest rate.
- Begin your amortization schedule with significant principal reduction from day one.
Open a HELOC
- Choose one with a low variable rate and minimal fees.
- Access up to 85–90% of your home’s equity, minus your mortgage balance.
Apply a “Chunking” Strategy
- Use a lump sum from the HELOC to pay down the mortgage principal.
- Redirect your income to the HELOC monthly, reducing its balance.
- Repeat once the HELOC is sufficiently paid down.
Repeat Strategically
- As you reduce both balances, you build equity and eliminate debt faster.
Example: Mortgage Acceleration With HELOC
Let’s say you have:
- A $250,000 15-year fixed mortgage at 5% interest
- A $50,000 HELOC at 7% variable interest
- A monthly surplus of $1,000
Without HELOC: You pay down your mortgage in 15 years, with total interest around $105,000.
With HELOC Strategy:
- Use $25,000 from the HELOC to immediately reduce mortgage principal.
- Use your $1,000 surplus plus income inflow to pay down HELOC.
- Repeat in cycles, shaving off years and interest — possibly paying off in 10–12 years instead.
Curious how much time and interest you could save? Use our free mortgage acceleration calculator.
Risks & Considerations
Before jumping in, understand the potential risks:
- HELOC interest rates are variable and could rise over time.
- Discipline is required to redirect income toward the HELOC.
- Market conditions may impact HELOC limits or terms.
- Overborrowing could jeopardize your home equity if not managed carefully.
It’s not for everyone, but for those with financial discipline and surplus income, it can be a powerful tool.
FAQs
Is combining a HELOC with a mortgage legal and safe?
Yes, it’s legal. When managed responsibly, it’s a safe and effective strategy. However, it does involve financial risk if misused.
Can I use this strategy with a 30-year mortgage instead?
You can, but the benefits are magnified with a 15-year mortgage due to quicker amortization and lower interest rates.
What happens if HELOC interest rates increase?
You could end up paying more interest than planned. This is why it’s vital to pay down the HELOC quickly and avoid long-term borrowing.
Read Next: Expand Your Mortgage Knowledge
Thinking about tapping your home equity? Talk to a mortgage strategist about your best options today.
Final Thoughts
Combining a HELOC with a 15-year fixed mortgage is an advanced strategy for financially savvy homeowners. When executed properly, it allows for early mortgage payoff, reduced interest, and better use of income and equity. However, it requires careful planning, strong budgeting, and ongoing monitoring.
Whether you’re a first-time homeowner or refinancing, this strategy might unlock greater financial freedom — years ahead of schedule.
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
