The only wrinkle is whether pulling out the money via a HELOC is going to hurt your DITI ratios for qualifying for both the second and the first at the same time. And what happens if the value on your first drops between now and then. Or values don't drop, but interest rates are suddenly sky-high on HELOCs, which hurts your DITI ratios. You'll really regret not having the cash.

Cash can be king sometimes, even if you may not be earning any interest on it.

yes, would sell the first house after buying the second. use the proceeds to pay off the heloc.

Anonymous wrote:It's more like, if I have $100k, and it has to be somewhere for a year, it could either earn me $1k deposited with the bank or earn me $3.5k by reducing the balance of my mortgage. As long as I can tap that principal by taking out a HELOC for a month or two, that seems like the better way to go.

So are you planning on selling your current house when you buy your 2nd home? If not, I don't understand how the "month or two" HELOC would work.

It's more like, if I have $100k, and it has to be somewhere for a year, it could either earn me $1k deposited with the bank or earn me $3.5k by reducing the balance of my mortgage. As long as I can tap that principal by taking out a HELOC for a month or two, that seems like the better way to go.

Well, no, you'd just be paying down principal, not changing your amortization schedule. If you subsequently pull the funds out as a HELOC, you've undone what you did before you see the benefit.

I.e let's say you owe $1,000 and pay $100 a month, half interest and half principal. If you up your payment to $1100 a month it's still $500 in interest each month unless you get the bank to reamortize the loan (which they can do but may have a fee). If you didn't take the money back out you'd pay off the loan sooner - and thus pay less interest - but otherwise, pulled back out it's zero sum

I read people asking about where to keep the cash they are saving up for a down payment. I need to save for a down payment on a new/second home. I could put this money in short term investments (CDs, Ally Bank account, etc.), but why not pump the money into my current mortgage? When I am ready to buy the new house in a year or two, I can take out a HELOC and use it for the down payment. Since my mortgage is at ~3.5%, I come out a lot better than making ~1% on a CD/Ally. Sound right?