The HELOC Payoff Spreadsheet, Decoded

The HELOC payoff spreadsheet: the guide in brief

Here is a plain summary of the main points in The HELOC Payoff Spreadsheet, Decoded, a one-page answer for CPAs and advisors whose clients bring in a spreadsheet promising to pay off the mortgage far sooner by running every paycheck and every bill through a home equity line of credit. The approach is often sold as velocity banking. This is general commentary on how the loans work, not tax advice: the tax side stays with you.

Where the savings come from

Take away the account shuffle and almost all of the speed comes from one thing: extra money reaching the principal early, while much of a normal payment is still going to interest. That extra money is the client’s own monthly surplus, the income left over after spending. Send the same surplus straight at the mortgage as an extra principal payment, and the result comes out close to the same. The shuffle adds very little. The surplus is doing the work, dressed up as a secret.

The risk the spreadsheet leaves out

A home equity line is not a fixed mortgage. Its rate is usually variable and moves with a published index, so the cost of carrying a balance can rise. The bank can also reduce the line or freeze it, and that tends to happen when conditions turn, which may be exactly when the client is counting on it. A plan that depends on always being able to draw from the line rests on a tap someone else controls.

The record-keeping problem

Whether interest on a home equity line helps on a client’s return is your territory, not the lender’s. The practical trouble is that this approach sends all income and all spending through one line. The money mixes, and rebuilding which borrowed dollars paid for what becomes very hard, so even interest that might otherwise have been supported can lose its paper trail. The guide’s advice is simple: confirm how the line is really being used before anyone assumes the interest is deductible.

The effect on the next loan

There is a lending side too. A line that runs close to its limit, with a balance that rises and falls, carries a required monthly payment, and a lender counts that payment among the client’s debts when the client applies for the next loan. A plan meant to save money can make the next purchase or refinance harder to fit.

How to answer the client in one meeting

• The surplus does the work, not the shuffle: aim it straight at the principal.
• A fixed-rate mortgage keeps the same rate and has no line to freeze; a line of credit can be repriced and frozen.
• Check how the line’s interest is actually being used before treating it as deductible.
• If paying off early matters, there are plainer ways to do it without the extra risk, and the right one depends on the client’s own rate, surplus and timeline.

You already tell clients most of this. The guide is meant to back you up in writing, with a lender’s view of the same numbers, so the conversation ends with the client’s plan intact rather than with a debate about a spreadsheet.

To see what extra principal does to a payoff date, run the early payoff calculator with the client’s own figures. For how a line of credit works, including its variable rate and draw period, read the home equity line of credit page.