Traditional Mortgage Calculations

Monthly Payment Formula

M = P × [r(1+r)^n] / [(1+r)^n - 1]

Where:

  • M = Monthly payment amount
  • P = Principal loan amount
  • r = Monthly interest rate (annual rate ÷ 12)
  • n = Total number of payments (years × 12)

Monthly Payment Breakdown

Interest Payment = Beginning Balance × Monthly Rate
Principal Payment = Monthly Payment - Interest Payment
Ending Balance = Beginning Balance - Principal Payment

Remaining Balance Formula

RB = M × [(1+r)^(n-p) - 1] / [r × (1+r)^(n-p)]

Where:

  • RB = Remaining balance
  • p = Number of payments already made
  • n-p = Remaining number of payments

HELOC Acceleration Strategy

Core Strategy Logic

The HELOC acceleration strategy works by leveraging the difference between mortgage and HELOC interest rates, combined with disciplined use of discretionary income:

  1. Chunking Strategy: Use HELOC funds to make large principal payments on the mortgage
  2. Income Redirect: Direct all discretionary income to pay down the HELOC balance
  3. Interest Arbitrage: Benefit from the typically lower HELOC rate compared to mortgage rate
  4. Accelerated Payoff: Reduce total interest paid through faster principal reduction

Monthly Calculation Process

Step 1: Calculate Interest Payments
Mortgage Interest = Mortgage Balance × (Mortgage Rate ÷ 12)
HELOC Interest = HELOC Balance × (HELOC Rate ÷ 12)
Step 2: Determine Principal Strategy
Base Principal = Regular Payment - Mortgage Interest
Additional Principal = min(Discretionary Income, Remaining Balance)
Step 3: HELOC Utilization Decision
Use HELOC when: Mortgage Rate ≥ HELOC Rate OR Mortgage Balance < 10% of HELOC Limit
Step 4: Update Balances
New Mortgage Balance = Old Balance - Total Principal Payment
New HELOC Balance = Old Balance + HELOC Used - HELOC Payments

Key Performance Metrics

Total Interest Saved = Traditional Total Interest - HELOC Total Interest
Time Saved = Traditional Payoff Months - HELOC Payoff Months
Interest Savings % = (Interest Saved ÷ Traditional Interest) × 100
Max HELOC Used = Maximum HELOC balance during strategy
Average HELOC Balance = Sum of Monthly Balances ÷ Number of Months

Implementation Logic

Decision Tree for HELOC Usage

IF (discretionary_income > 0) THEN
use_for_additional_principal = min(discretionary_income, remaining_mortgage)
IF (remaining_discretionary > 0) THEN
pay_down_heloc = min(remaining_discretionary, heloc_balance)
END IF
IF (heloc_available > 0 AND strategy_beneficial) THEN
additional_heloc_use = min(heloc_available, optimal_amount)
END IF

Strategy Beneficial Conditions

The algorithm determines HELOC usage is beneficial when:

  • Rate Advantage: Mortgage rate ≥ HELOC rate
  • Near Payoff: Mortgage balance < 10% of HELOC limit
  • Available Credit: HELOC has available credit remaining
  • Positive Cash Flow: Discretionary income can service HELOC payments

Safety Limits

Maximum Iterations: 600 months (50 years) to prevent infinite loops

Minimum Balance: $0.01 threshold to handle floating-point precision

Credit Limit: Never exceed available HELOC credit limit

Payment Validation: Ensure principal payments don't exceed remaining balance

Comparison Analysis

Key Comparison Metrics

MetricFormulaInterpretation
Time SavedTraditional Months - HELOC MonthsMonths earlier payoff is achieved
Interest SavedTraditional Interest - HELOC InterestTotal dollar amount saved in interest
Savings %(Interest Saved ÷ Traditional) × 100Percentage reduction in total interest
Payment DifferenceAvg HELOC Payment - Traditional PaymentAverage monthly payment difference

Risk Considerations

Variable Rate Risk: HELOC rates can fluctuate, affecting strategy effectiveness

Credit Access Risk: HELOC credit lines can be frozen or reduced

Discipline Risk: Strategy requires consistent discretionary income allocation

Market Risk: Property value changes can affect HELOC availability

Mathematical Assumptions

Calculation Assumptions

  • Interest is calculated monthly and compounds monthly
  • Payments are made at the end of each month
  • Interest rates remain constant throughout the calculation period
  • Discretionary income remains consistent month to month
  • No additional fees or closing costs are factored into calculations
  • HELOC credit remains available throughout the strategy period

Precision Handling

  • Balances are considered paid off when they reach $0.01 or less
  • Final payments are adjusted to pay exact remaining balance
  • All monetary values are calculated using standard floating-point arithmetic
  • Results are typically rounded to the nearest cent for display