HELOC is an acronym for “ home equity line of credit”. Any amount you pay over the interest due in any given month would be applied toward principle, thereby reducing the amount of interest charged the following month. It works just like a credit card. You may withdraw and pay back funds as much as you like.
If you are interested in paying off your loan quickly, then you may want to consider a new product on the market called the Home Ownership Accelerator (HOA). This loan works opposite of a traditional loan in which interest is paid first , then the majority of principle is paid at the end of the loan term. With the HOA your principle is paid first so that the term of your loan will be dramatically reduced.
This answer will assume that those asking this question would be reasonably familiar with the process of Mortgage Acceleration.
There is a full article on the general topic of MA that will bring you up to speed. If you’d like to read that click here. With that out of the way, it’s important to note that several companies have brand names that are similar to the general term “mortgage acceleration.” Be sure to differentiate when you are examining the general concept versus a specific product. Someone may give you information that appears to be about mortgage acceleration in general but is in fact only pertinent (and possible a tacit invitation to learn more) about a specific product that they are marketing. The point is that there are several competing ideologies regarding Mortgage Acceleration. Some companies disseminate their programs through affiliates, while others simply educate clients on mortgage acceleration as a whole. Be aware that biases can exist among either of these and to be cautious if you are being steered towards a “product.”
All that to say, I’m not going to address the particulars of the different MA companies. I’m simply going to give you a factual answer regarding HELOCs.
A HELOC, simply put, has similar functionality to a credit card. If you make the minimum payments, the balance would stay the same. Anything above minimum payments will reduce the balance on a simply interest basis. Some MA (mortgage acceleration) products use just one HELOC, while others use a lower interest rate first mortgage combined with a HELOC.
Whatever the case, the principal balance of the HELOC only gets paid down if you are paying more than minimum, which is the case with almost all MA products that incorporate the HELOC. Any portion of your payment that is greater than the minimum will reduce your principle balance. The balance will not go up again unless you spend money out of your HELOC. This is the “how” of HELOC principle reduction.
The “when” is a more subjective question. In any case, the short answer is “as quickly as possible.” That’s the whole reason for mortgage acceleration in the first place. If you are using your HELOC as a checking account, it will be paid off as soon as you have paid all the principal by putting more money into your HELOC than the minimum payments require. If you just have one HELOC, this could take quite some time and is more volatile based on market fluctuations than the two loan method.
In the two loan method, you’d have a guaranteed fixed first loan that carries a majority of your debt. In this case, your HELOC balance starts off much smaller and thus the same amount of income will pay it off much more quickly. But remember, you still have mortgage debt and most methods advocate taking your full available HELOC draw and applying towards your interest only, fixed, 1st mortgage which will lower the minimum payment on it.
Then you simply repeat that process again and again until both the HELOC and 1st loan are paid off. Each cycle pays the HELOC off quicker because you are paying less towards your first mortgage with each cycle. Essentially, your same income does more and more to pay down your home the less and less your interest is.
This is a complicated subject and perhaps this was an overly complicated answer. Please email me if there is something about it that is still unclear and I will amend this response with your questions answered.