Graham Stephan: Paying Off Your Mortgage Fast (Expert Reacts)

Graham Stephan: Paying Off Your Mortgage Fast (Expert Reacts)

By now you're probably familiar with our
HELOC strategy using a HELOC to pay off your mortgage
well in this video I'm gonna go and react to Graham Stephan whose also
reacting to our strategy and why some of his key points are incorrect hey
what's up everybody this is Sam Kwak here one of the Kwak Brothers and lately
I've been getting a lot of questions and feedback about this and that is Graham's
video about why you shouldn't use a HELOC to pay off your mortgage but
there's some lot of things that he's outright incorrect or have misled you
guys to believe about this strategy wrong that is absolutely wrong proved over
and over again we actually and now no disrespect to Graham you know I
appreciate and love his channel on fact I'm a subscriber myself but in this
particular video there's some myth and not so true information that he shares
and of course, there are some you know details that he didn't really cover so
what I'm gonna do now is I'm gonna go and share my screen hit play on the
video and provide my commentary for you guys now first when it comes to doing
this I think it's really important we address the comments I've received far
too often that really needs to be talked about and that is the concept of paying
down your mortgage early with a HELOC I've never really understood what anyone
would do this or how this would even be a topic of discussion but once I started
digging deeper I realized that this method is frequently published and
emphasized by people who don't understand math as well as banks who
just have a financial interest and you spending more money with them so they
make it sound way better than it actually is okay so I'm gonna pause
right there first of all this strategy has been around for about 25 years
that's actually been around quite long so it's not a new fad that just came out
last year or two years ago and originated from New Zealand and
Australia now in fact in places like Australia New Zealand this strategy is a
common strategy to pay off your mortgage in fact it's often published in
Australian articles and I'll post that right there and I'm gonna highlight this
in just a sec some success stories of people who used our help and our
strategy to pay off your mortgage let's go over exactly what a keylock is how
you can down your mortgage early with this and
why you should also never do this in like 99.999% of situations so first what
is a HELOC this just basically stands for a home equity line of credit this is
pretty much just using your home like a bank account where you borrow money
against the value of your home and then you only need to pay back what you
actually end up using this function similar to a credit card where you only
pay interest on the amount of money that you actually use and with a keylock you
typically only pay interest for a certain time frame and then when that
time frame is opted you enter what's called a repayment period where you'll
then pay principal and interest until your full balance is paid off and full
full balance paid off in full like I guess so okay so so far he's correct
about the definition of the HELOC and this is where it starts to take a turn
into the incorrect zone and we start debunking some of the things that he
says that are outright untrue or has been misled or reframed to be untrue
okay and in many situations a home equity line of credit can be awesome
like if you ever need cash for an investment but you don't want to
refinance your entire mortgage a home equity line of credit is actually really
really useful and many people also use a home equity line of credit to fund a
business or pay for a home remodel but using it to bethe real quick
a hundred percent agree with hey says there you should be using a HELOC to buy
investment properties acquired businesses acquire income-producing
asset a hundred percent agree with gram and this is something that we teach here
in the coop others as a consequence of paying off your mortgage using a HELOC
so let's continue and see what Graham has to say that is negative about helix
porridge on the other hand can get a little strange so the concept of paying
down your mortgage with the HELOC goes a little something like this and by the
way this is super confusing so just stay with me here because two logical people
like you and I you probably won't get it but let me at least try let's say that
you have a $500,000 home but then you have a $200,000 mortgage this leaves you
with $300,000 worth of equity that you could then borrow from then you open up
a HELOC and you borrow $100,000 from that credit line
then after that you take that $100,000 that you borrowed and you pay down your
mortgage with all right so first thin or first debunking here's in our videos we
suggested not to use the entire hundred thousand dollar limit that you have so
Graham is talking about how you have a hundred thousand dollar home equilon a
credit limit and in our videos we suggest that you only use up to 30
percent in most cases now the reason being is that liberal won because a home
equity line of credit is a revolving line of credit maxing it out can have a
detrimental effect on your credit so we usually suggest that you use only 30
percent at a time of the home equity line of credit and if you run into an
emergency where you do need to tap into the 70% you have that access so first of
all we don't use all hundred thousand dollars we use only a portion of it at a
time okay let's go and continue with it now you still own the five hundred
thousand dollar home but now you have a hundred thousand dollar mortgage instead
of two hundred thousand dollars and then you have a hundred thousand dollar c-loc
payment that you now have then you put your entire paycheck not if you got pay
payment but a HELOC balance okay just a little quick crush in there a check and
you're just paying down the HELOC payment as soon as possible and then you
borrow more money from the HELOC if you need it for other expenses so basically
the key log just becomes like a checking account for you to draw from while
you're paying it down at the same time then once it's paid down voila
you've saved money on your mortgage interest because you've made a sudden
lump payment and paid it down much faster now if you're anything like me
you're less scratching your head thinking that makes absolutely no sense
why would anyone do this and how can someone do so many mental gymnastics to
think this is ever a good idea because okay let me pause right there so Graham
is going off and saying this doesn't make any sense this is complete baloney
well I'll tell you the honest truth it took me a little bit of time to actually
understand what's going on and it wasn't because I had to learn something new it
was a lot of it because I had to unlearn some of the preconceived notions that I
had about paying off your mortgage so a lot of us already know that doing extra
payments to the mortgage will help it to reduce the principal balance also
reduces the interest and the overall time spent on paying off your mortgage
that's a convention with truth and I won't disagree against that right if you
want to do an extra payment go for it I have a whole nother video about why
doing extra payments your mortgage is actually a lot more risky than the HELOC
strategy but for me what it didn't make sense because I had all these layer of a
past experience and pastner's thing about mortgage so it doesn't make sense
if you're going with the wrong frame of mind and part of this is you have to
sort of peel back and unlearn some of the things you already have and take on
the mindset of a student and find humility knowing that you know what I'm
gonna try to understand this strategy without putting any of my own
preconceived notion or past experience about mortgages so that's going to
continue I'll tell you this makes zero sense to me whatsoever
first of all a HELOC is generally at a higher interest rate all right so I knew
who's gonna get started with this point cuz everyone starts with this argument
he lops have a higher interest right okay let me break this down for you guys
there are two types of he lofts that could be that you shop for he laughs are
known as non-qm loans which is non qualifying mortgages which means that
banks have less regulations and restriction as to what they can offer
inside of a HELOC unlike the mortgage now if you go shop mortgages a lot of
the mortgages are gonna be very similar because it's heavily regulated by the
government now with a HELOC there's less restrictions which means that base can
have different features different interest rates different options to draw
the money out of the HELOC so I like to say that no HELOC is ever created equal
so when when Graham says he lops have higher interest rate well Graham which
ones there are banks that offers significantly low interest rate as well
as high interest rate yes there are out there that are significantly higher in
interest now one thing that Graham doesn't talk about is the concept of
first lis position he Locke now what this is is basically instead of having a
primary mortgage and then a junior lien HELOC right having two counts this means
that you can completely replace your mortgage with a HELOC now a lot of times
first lien he locks have way less interest rates than secondly he lock cuz
of the risk that the banks are carrying now this is very important because and I
have a whole nother video about first lien position versus second
in position he laughs with a first lien position he Locke you can go out and
find two point nine nine percent to 5 percent interests on these he lops which
is very comparable to your standard traditional conventional mortgage so to
debunk another myth not all helots have higher interest rate just as Graham is
painting out here so it's really important for us to understand that not
all he lofts are created equal there are different types of helots with
different types of offerings that also follows a different type of interest
rates so secondly he locks are generally what's called a variable interest rate
loan which means that the interest rate you pay will fluctuate over time okay so
another myth that I added funkier is that not all he lofts are variable
interest rate there are fixed rate interest rate options for HELOC as well
whether that's through rate locking or it's just the fixed rate from the get-go
so here it is again graham painting a broad stroke false information about he
locks not all he lofts are variable interest rate they won't just go up
magically there are ways to fix rate the he lock and that's something I've to
debunk right there and outright untrue and third with the key lock you also
have to pay transactional costs including appraisal fees transaction
fees processing fees smashing the like button if you haven't done that already
fees title alright so couple things now when you get a mortgage when you go
refinance which Graham will suggest later down the road you're gonna pay
appraisal fee too so it's not like with a HELOC it's exclusive where you have to
pay it appraisal fee you're gonna pay an appraisal fee no matter what if you get
a HELOC or or mortgage so throwing the stick at the heel off because of the
appraisal fee I think the cheap move on Graham and also again not all he locks
are created equal there are some heel offs that don't have transactional fees
which we've done the research and we found out which things don't have those
so it's unfair to lump all the helots in general into one category and I think
this is a little bit an unfair assessment of HELOC products and I'm not
a banker I don't represent a mortgage I don't make money by selling a HELOC so
there's no incentive for me to tell you this or than the fact that I want to
help you guys pay off your mortgage okay let's continue if you haven't done that
already fees title costs uh the list goes on this all needs to be factored
into the overall cost of applying for this line of
whether or not this money might just be better spent somewhere else like
actually just paying down your existing mortgage a little more a little early
and forth one of the main reasons I would absolutely never do this is that
the interest you pay in a home equity line of credit is often not a tax
deduction if you use that to pay off any existing debt now when it comes to using
a HELOC to pay off your mortgage it is true that you can't use the interest as
a tax write-off on the HELOC side but that's only true if you use a second
lien position HELOC but on the first lien position HELOC side you can write
off the interest on the HELOC itself and completely replace your mortgage in
doing so but even if you do use a second lien position HELOC to pay off your
primary mortgage wouldn't it be better to save a couple hundred thousands of
dollars doing this strategy rather than paying the couple hundred thousand
dollars just to get the tax write-off I mean it's kind of like my friend who
bought a forty five thousand dollar truck and I asked him hey why did you
buy a truck you live in the city you don't need a truck right and it's like
yeah I don't need the truck but I want the forty five thousand dollar tax
write-off and I'm like that's that's ludicrous you could have just not pay
two forty five thousand dollars and paid a little bit of taxes and use the rest
of money and invest in other things like real estate or stocks why did you do it
so even when it comes down to using a second lien position HELOC to pay off
your primary mortgage yes you won't be able to ride off the taxes
on the HELOC but the savings you'll get out of using this strategy far outweighs
any taxable liabilities you have using the HELOC here are the real ways to do
it the first is what's called a refinance this is where you go now when
it comes to refinancing generally I am NOT a fan even if you do refinance into
a much lower rate the reason being is that when you go and refinance into
another 30-year fixed you end up going back to what's called a front-loaded
into zone what this basically means is that when you start a new mortgage or
you refinance vast majority of your monthly payment goes towards paying the
interest so for example your monthly payment is thousand dollars a month vast
majority of your interest depending on the rates goes to paying the interest
but regardless of the interest rate however
they typically work is that vast majority of the interest is accrued in
the beginning stages of the mortgage it's not linear as most people think
which means that you pay the interest as you go with amortization and your
mortgage vast majority of your interest payment is paid upfront towards the
beginning portion of your mortgage life cycle that being said how this strategy
works is that we're paying off the principal balance as fast as possible so
that what we owe on the interest also goes down in your mortgage but we were
simply using the keylock to pay extra into the mortgage as well as our
paycheck which will be explained in a bit and still access the funds when you
need it so if you're out there and you realize that you can save money on your
mortgage by just refinancing it to a lower interest rate then do it just like
always always do it this is probably one of the best ways to cut back know don't
always do it right you should have make a blanket statement on every little
situation that you might be going through so I honestly don't like
absolute statements this is why you may hear me say you could you may or you
right you don't hear me say 100% of time all of you guys should get a HELOC okay
I don't say that right most of you okay this strategies can be great but not all
of you alright let's continue on your expenses and save some money that's
basically it's 100% guaranteed now the second method to pay down a mortgage
early is to make what's called bi-weekly payments now the way your mortgage is
calculated is by your total outstanding loan balance so instead of making one
payment per month you can make half of that payment every other week so what's
interesting is that this strategy will work doing bi-weekly payments but it's
actually it's actually interesting Graham doesn't get the strategy because
if he understands this concept he should understand our strategy too he said it
your interest on your mortgage is calculated by the outstanding balance of
the mortgage so if you're using our he la strategy and I don't know why he
doesn't get this yet because he is a smart guy I'm not I'm not saying he's
done one or anything in the helots strategy and the accelerated banking
strategy what you're doing is if you got a HELOC balance of let's say ten
thousand dollars okay this is your key lock let's say you put all of your
income into the HELOC of let's say five thousand dollars now by doing so now you
have a balance of five thousand dollars in your key
so the idea is you're supposed to leave that heel out bounce low at $5,000 as
long as possible so that when the interest is calculated
its calculated on the 5000 not the $10,000 balance so what Graham is
suggesting here which is the bi-weekly payment again it works but not as much
in efficient as the HELOC it works because you're tackling the mortgage
balance twice in a month which you're further reducing the average daily
balance on the mortgage but on a HELOC the best part of the HELOC is its
revolving you can reuse and pay it back the reason why we use in our entire
income into the HELOC is so that we can get this benefit of low balance on our
HELOC but we can still tap into the HELOC balance to pay for our expenses
and take care of our diapers groceries you name it now this is something I
don't necessarily share in a free video but one thing that you can do is have
all of your expenses get taken care of by a credit card let's say credit cards
down here now if you didn't know any purchases you do on the credit card it's
interest free for 30 days so what I like to do is I like to do all of my
purchases expenses and grocery shopping diapers into a credit card and then at
the end of the 30 day period I'll use my line of credit to completely wipe out
the balance of the credit card but in that 30 P 30-day period at a time my
HELOC balance was at five thousand dollars which means the banks have
calculated my interest based on the five thousand dollar balance not on the ten
thousand dollar balance does that make sense
plus my credit card because it pays me points and cash back rewards I got paid
to do this strategy Wow my Elop balance is super duper low so your credit card
is kind of acting as a middleman it's holding your expenses for you until you
can use your HELOC to wipe out the credit card balance to zero so if
grandma understands that bi-weekly payments work I don't know why he
doesn't understand this works as well because you're essentially taking down
the entire balance in the HELOC with your entire income but still have the
ability to reuse that for expenses okay let's continue so the third way to pay
down the mortgage early is just by making extra payments towards her loan
all right now if I get a dollar for every time I hear about extra payments
I'd be rich now I've made an entire separate video on extra payments versus
using a heel off to pay off your mortgage and I'll give you a little
synopsis on what I talk about now let's say you do the extra payments on your
mortgage right okay I'm gonna draw mortgage and you
throw extra payments into it will this save money
absolutely it's gonna save you money it's gonna save you time it's gonna save
you interest I'm not saying that this is a bad plan
but the problem is let's say you need to draw money out for emergency reasons or
you have a phenomenal investment opportunity and you want to use some of
the money to get into those types of opportunities well with doing extra
payments to the mortgage the only way to get that money back out is through
refinancing and we really talked about how evil refinancing is so we're not
going to do that but with the he'll a strategy because the revolving nature
you can reuse and pay back you can access that funds anytime you want now
you might be saying Sam this is why I have a savings account like come on I
got six months of savings but my argument against that is why not take
the six months of savings throw it in the HELOC so that it further reduces the
balance of the HELOC saving your interest and you can reuse that money
whenever you want so it's such a the same thing as a savings account the only
difference is you actually save more interest on the HELOC because after all
how much interest are you actually earning through your savings account
like one to two percent every year right so most savings account today if you're
lucky you're gonna get one to two percent saving annual percentage yield
but with if you throw it on a HELOC it could be anywhere between three to six
percent so that same money that you have earning one to two percent interest now
could be saving you three to six percent interest by parking your cash in home
equity line of credit and you can access that funds whenever you want in case of
a medical emergency maybe you have an investment opportunity that comes along
and you can make way more than the three to six percent savings so this is why
I'm not a big fan of just extra payments because you're achieving the same thing
anyways at the end of the day but you get access to cash faster and this after
as a protection vehicle just in case you run into an emergency this is why I'm
not a big fan of the extra payment let alone we haven't talked about how the
entire income is now saving you the interest on the heel off we talked about
that on a few minutes ago reducing the average daily balance
using all of your income in the Gila so anyways let's go and continue but if you
ever get like an end-of-the-year bonus or any lump sum check or any sort of tax
return and you throw it all into the mortgage that could cut down your
mortgage time or if you off you can just throw it in the he log and so you can
access it later on and also save you interests that's an option right
and finally the number one best way to pay off your mortgage early that
everyone's been waiting for it's just to pay off your mortgage early alright so
I'm gonna stop the video right there which by the way I'm gonna leave the
video link down below in the video description I want you guys to go see
for yourself and compare that to our strategy and our rebuttal and my
commentary on Graham's video again not everyone is gonna want to use a strategy
this isn't for everybody if you don't understand it I encourage you and I
invite you to take a look at the strategy come and look at our calculator
read about it I'm not the only one that preaches the strategy there are many
other individuals that teach this strategy just go check it out and like I
mentioned there's Australia New Zealand there are places where this is fairly
common to pay off your mortgage so and again I'm not hating on Graham Stefan
here in fact I agree with a lot of things that he teaches about real estate
financial strategies it's just this particular video and this potato
strategy we have to put some truth to the table so if you guys enjoyed this
video if you guys thought that this videos helpful go and smash the like
button and subscribe to our YouTube channel for more videos about personal
finance real estate investing and paying down your mortgage and if you have any
questions goin drop them down below we'd love to have a conversation with you out
and I'll see you guys in another video take care now


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