HELOC Vs Extra Payments To Mortgage

HELOC Vs Extra Payments To Mortgage

hey what's up you guys in this video I'm
going to show you guys why using the keel out to pay off your mortgage is far
more better than just paying extra into your mortgage hey what's going on
everybody this is Sam Kwak one of the Kwak Brothers real estate investor and in
this video I'm going to show you guys why using a key lock to pay off your
mortgage is way way better than simply making extra payments into your mortgage
now chances are you may have seen my video on how to pay off your mortgage in
five to seven years or how to use a HELOC to pay off your mortgage now I
totally get it guys you have questions such as Sam why do we need to use a
HELOC to pay off for mortgage why can't we just make extra payments of the
mortgage it's much simple it's much more clean it's so much better well I'm gonna
show you guys why it's not and there are some serious serious drawbacks to it but
before we do be sure to hit the subscribe button as well as hit the like
button because it does help us a lot with our youtube algorithm we can get
this video out to as many people as possible okay let's go dive right into
reason number one is the liquidity lockup and here's what I mean let's say
you have $300 extra payments that are going into your mortgage okay now if
you're doing 300 bucks extra payments into your mortgage first of all I want
to congratulate you guys because a lot of people won't can't and won't do that
because they don't have the situation to do so so first congratulations but I
will be forthcoming and say that doing extra payments into your mortgage in
terms of a principal payment can and will save you guys money and time but
again it's got some drawbacks first one being is that if you put that through
here bucks into your mortgage you won't be able to reuse that money or you won't
have access to that 300 ollars ever again unless you refinance now I know
what you're saying you're justifying it by saying well Sam that 300 bucks isn't
just going into fees or garbage it's actually going towards our principal
it's building our equity it's going somewhere that's gonna help us build our
net worth I totally get it but the reason why it's a drawback is if there
is ever an emergency right where you know your kid has to go to the hospital
or you break a leg and you have to pay for a large surgery or whatnot or you
need that that money for you know future expenses or
or investments you're gonna need that money back out but with a mortgage you
won't be able to do it unless you go and refinance now I know what some of you
guys might be saying you might be saying well Sam's giving us a permission to go
use that money back out when you when using a HELOC no I'm not what I am
saying guys is that only during dire emergency situation will you ever want
to touch your he lock or if you have a very rare opportunity where you know
buying an investment property can make you a lot more money than just simply
you know paying off your mortgage so only the in this very rare situation
will I ever suggest to go and touch the HELOC so when using a HELOC you can make
that extra payments just like what you're doing on the mortgage but even
better I'll get to that in just a sec we can do what's called double income
utilization not only do we actually make extra payments of 300 bucks
but using the Gila you can take all of your income and make a principal payment
against the mortgage and I'll get to that in just a second so when you go in
and lock up that money into your mortgage you won't be able to get it
back some of you guys may be arguing saying well Sam this is why we have an
emergency fund we don't need to be able to ask us up money don't worry I got six
months of savings to cover me but here's the issue with that as well when you go
ahead and make that let's say $50,000 in your savings account which by the way
you guys between a really good job if you have $50,000 in receiving but what
are you really earning with your $50,000 savings account maybe one or two percent
right at annual percentage yield right some of you guys may have more if you're
lucky some of you guys have way less I know a lot of you guys may have point
zero to five point zero five I'm it's SuperDuper low you're not really making
much money by parking your money in a savings account but what if I told you
that by by taking your $50,000 and parking in and HELOC you can reduce your
average daily balance of your HELOC 550 thousand dollars which in return you can
potentially save anywhere between five to seven percent on your key lock and
there's a good Benjamin Franklin quote as you guys may know right a penny saved
is a penny earned so by taking that $50,000 and parking it in our he lock
lowering the average daily balance we're essentially saving whatever 5 to
7-percent is on that $50,000 but keep in mind we can still use that $50,000
during a dire emergency so that money is really really never gone
it's the HELOC is acting as if it's our savings account but instead of making us
money it's saving us 5 to 7 percent in terms of the interest that we would have
owed if we have not put that $50,000 into the Gila so your HELOC is now
essentially a secondary savings account it's saving us money it's helping us pay
down the mortgage even faster using a HELOC overall sum it's a much more
effective than just throwing extra through her bucks and having a six
months worth or saving now back to the double income utilization this is this
will be my reason number two why I believe that using a heal off to pay off
your mortgage is far far better than just doing extra payments so instead of
doing extra payments of 300 bucks okay let's say this is the mortgage okay and
this bar graph represents the balance of your mortgage so when you do this you're
maybe taking a very small layer out of the balance which again I'm not gonna be
a liar and tell you guys you won't save money you'll save money by doing this
way but what if I told you using a HELOC there is a better way instead of $300
let's say your total income is $7,000 okay I've got seven thousand dollars of
income okay you draw the oh there we go I can't draw a perfect bar graph but
here we go all right with the heal out here because you're taking all of your
money and putting into the the balance of the of the HELOC you're doing a way
more contribution to lower the principal balance all while we can go and use that
money again to cover our expenses now you might be saying well Sam if you're
gonna draw the money back out what's the difference like I mean we're gonna end
up with the same amount of money sitting the HELOC why do we go in and put that
$7000 into a HELOC well the reason is using our entire income to bring the
balance down our HELOC contributes to lowering the average daily balance on
the HELOC which when we have a our average daily balance pretty much
equals to lower amount of interest that is owed at the end of the month so by
taking all of our income to drive down the principal balance we save even more
money than just your mere 300 bucks of extra payment logically guys think about
this you want to bring down your principal balance by 300 bucks or do you
realistically want to bring that bring down your principal balance by $7,000
right obviously $7,000 is a much more greater of a number than just 300 bucks
that you might be saving just a little bit with your mortgage you also might be
saying is well Sam I still don't know I still don't get why like we want to put
all of our income well here's a quick recap
and a summary of my favorite version of the strategy which saves you good
I mean I almost swore there but crap ton of money in terms of using your heel ah
so this is my favorite version of the strategy which I think it's gonna make
sense to you guys which you got your income here income
source right it's gonna go directly into your HELOC form a quick line of credit
and some he locks guys will allow you to do direct deposit right into the he lock
so that you don't have to go and direct deposit into the check in Callen then
move it again to the he lock and right too many steps so we want to reduce the
amount of barriers that we have between us doing this strategy and you can
accomplish that by shopping for the right heel on so with the he lock we're
not gonna go and directly do expenses because that won't contribute that's
gonna take money out of our key lock that's gonna go and bring the balance up
which that's not what we want so in this example in this version of the strategy
you're gonna go and employ a credit card into the mix okay and you're gonna do
all of your expenses out of the credit card okay all of your expenses like
bills diapers okay those are expensive groceries okay and if you guys didn't
know most credit credit card companies will give you anywhere between 21 to 30
days of interest-free period on your purchases so if I bought by this pen
today okay for the next 21 21 to 30 days depending on which credit card company
you go to they will not charge you any intro
on that purchase as long as you pay it off by the end of the 21 to 30 days so
what that basically means guys is all the expenses all the things that you end
up buying is gonna be interest-free for 21 to 30 days and while we do that at
the end of the 30 day mark or 21 day mark you're gonna go and use your HELOC
to pay off the balance completely wipe it out zero out your credit card balance
thus the credit card company doesn't have any opportunity and time to charge
you any interest so what we've accomplished there is that while we do
all of our expenses on our credit card right all the balance is sitting over
here the HELOC balance stays relatively low
because all of our income is parked inside the HELOC which means that we
have taken the maximum amount maximum opportunity right to be able to save
money because our average daily balance was SuperDuper low thanks to all of our
income and savings contributing towards the HELOC another bonus I want to tell
you guys is with the credit card preferably you want to use something
that gives you points or any sort of cash back rewards and the reason why I
love that is because if you do all the expenses and expenditures you pay for
diapers right you can earn points that could potentially contribute to going on
a free vacation you can book hotels for free I just actually recently booked two
airline tickets for myself and Daniel for absolutely free which is pretty cool
we get to travel for free or some credit cards give you access to your points to
shop on Amazon so if you want to gift someone for the upcoming holiday during
Christmas you can use your points to give that special gift to someone you
love so I love using credit card with the myths of HELOC because you don't
have to worry about drawing money and money out of the he life to cover all
the expenses just use your credit card swipe it right and then use your HELOC
wipe out the balance of the credit card and then use your income to lower the
average daily balance down this gives you maximum savings not only just with
extra payments but it gives you potential savings that could far exceed
just making extra payments on your mortgage
in fact you're taking all of your income and paying down that principal balance
down which saves your interest and time overall now the best part is I think
I've looted it to an earlier little bit but when you pay off your he lock in
your mortgage you got your HELOC here that's fully
paid off like zero balance let's say if you want to you go in and find a rare
opportunity of investing into a real estate property so you can buy a real
estate ran it out collect rent right and that contributes to you getting more
income into your cash flow into your finances which could help you pay off
your HELOC faster or any other debt that you may have so I'm a huge fan of buying
rental properties because not only it builds additional wealth
it creates cash flow creates income right it does wonderful things and you
can pass that that wealth down to your next generation that's why I love using
the HELOC to not only pay off your mortgage it gives you flexibility it
gives you that emergency fund not just one or two percent earning but it could
potentially save five to seven percent every year and it gives you that
liquidity and access to future cash for you to be able to invest and grow your
wealth grow that financial muscle so I hope that this give you give you guys
some insight as far as my thinking process as to why I believe using a
HELOC to pay off your mortgage is far greater than just making extra payments
on your mortgage you guys want to debate or if you have objections or if you feel
like I missed anything go and comment down below we'll love to hear from you
guys what you think about my reasoning here if if you think that my reasoning
is faulty or I'm wrong going comment down below anyways it's YouTube it's
free for all right so go ahead and comment down below and also if you love
the strategy if you love what we've done here go ahead and click Subscribe and
check out us some of our other HELOC videos as well as hit the bell icons so
you guys getting notified for our future videos

dave ramsey

As found on YouTube

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