HELOC to Pay Off Mortgage - YouTube

hey what's up you guys in this video I'm going to show you guys how to use a

HELOC to pay off your mortgage hey what's going on this is Sam Kwak one of

the Kwak Brothers, real estate investor entrepreneur and in this video

I'm gonna show you guys how to use a HELOC to pay off your mortgage now

chances are you already have a home you bought a home and you have a mortgage or

you're looking to buy a home with the mortgage and you're just looking to pay

that sucker off whether you want to retire faster you want a cream or a cash

flow or you just want to have the pride of ownership knowing that you don't owe

a darn thing now before we get into it be sure to go and click the like button

on this video because it does help us a lot with our YouTube algorithm we can

get this video out to more people which means that we can help more people pay

their mortgage off all right let's dive right into it now if you don't if you

guys don't know what a HELOC is I want to quickly recap and quickly summarize

what exactly is a HELOC a HELOC is actually an acronym for home equity line

of credit and the easy easiest way for me to explain a home equity line of

credit it's kind of like a credit card that's attached to the equity of your

home which if you guys don't know what an equity is equity is basically your

home value it's what the fair market value is - anything that you owe on that

property so we're gonna basically take an equity let's say we have $100,000

equity in your given home and essentially it turns out $100,000 into a

quote-unquote credit card that you can go and use to do wonderful things now

one thing that I do vies like many people may tell you is don't go out

there and use home equity line of credit for you know to buy a new boat or to go

buy a vacation home or new car none of those should be a subject matter when it

comes to how we use our home equity line of credit but I do believe that if you

use the home equity line and credit wisely in an educated fashion you could

do many great things such as paying off your mortgage or going out there to buy

income producing assets such as a rental property the difference between a HELOC

versus a mortgage and why I prefer a HELOC you'll get to know by the end of

this video but what I love about HELOC is its

open-ended so what that basically means guys is you can go and pay back reuse

pay back and reuse just like a credit card another thing why I love a HELOC is

it uses a simple interest calculation whereas on a mortgage it uses amortize

now this all depends on how you use a HELOC because any luck if you don't use

it the right way it could very much have pretty much a similar effect as to a

mortgage but if you guys use it the way that I show you show you guys today

you guys probably won't have much of an issue so it does use a simple interest

basically what that means is because a home equity line of credit is open-ended

meaning it can be payback reused payback over use obviously there's going to be a

lot more of transactions out of going back and forth so the banks use what's

called average daily interest calculation and what that basically is

guys it takes your interest percentage okay

divided by 365 days which is how many yeah the days of the year times the

balance of that specific day so a mortgage is more likely if you're not

doing extra payments if you're not doing any other thing with your mortgage is

making a scheduled payment every month on your mortgage basically it takes the

balance of that month and it calculates the interest for that month and then

obviously that gets applied as your interest payment whereas on a HELOC it

takes account for every single day instead of every single month now again

just like what I said earlier if you treat your HELOC almost as if it's a

mortgage it's gonna have a similar effect to that so balance of that day so

if today let's say we have $10,000 balance in our key lock and tomorrow we

have $9,500 balance in the HELOC we're gonna be we're gonna be charged with two

very different amounts of interest today versus tomorrow because obviously we

have different balances for today and tomorrow so you sort of recap HELOC

open-ended and uses simple interest whereas other mortgages closed-ended

meaning you can only pay the mortgage and you can you can never take that

money buy it back out unless you've refinanced of course and

it uses amortized interest which takes a month's worth of balance and uses that

as a calculation and a lot time's mortgages come of course with

amortization schedule which means that you have a 30-year amortization 15-year

ram ization you have that time period until you hit zero on that mortgage so

here's why I love using a HELOC to pay off your mortgage and there's a couple

ways to do this and I'm I'm just gonna give you two versions of the strategy at

the end of this video I also give you guys a free excel sheet calculator so

that you guys can use to basically determine how much money and time we can

save using the HELOC to pay off your mortgage so ideally what you want to do

is and this is the first version of strategy it's called the chunking

strategy traditionally you guys been putting your income into a checking

account right and I change the color in this that we make a little bit more

interesting and traditionally what you guys been doing is you've been taking

your checking account and making your monthly payment on your mortgage well in

this strategy using the heat lock what we're gonna do is that we're gonna

establish a HELOC I should make a little get a little bit smaller there we go

home equity line of credit and let's say we have a fifty thousand dollar limit

because remember guys not all fifty thousand dollars can be it could be used

but you don't have to write it's a it works very similar to a credit card and

let's say with your mortgage you have a two hundred fifty thousand dollar

balance so what we're gonna do and ideally in real life situation this is

something that I don't suggest but let's say we take the entire $50,000 that we

have on our HELOC okay and then we're gonna go ahead and make a principal

payment against the mortgage okay so what that does guys I'm gonna change

color it brings the mortgage balance down to two hundred thousand dollars and

then now we have a balance of fifty thousand dollars now of course like us

you know told you guys earlier I don't suggest that you guys max out the key

lock for many various reasons but just for illustration say a sake stick with

me here so what we have done is when we do a $50,000 principal payment against

the mortgage using our HELOC we have reduced the

amount of interest that we are owed on your mortgage and obviously you guys can

go and calculate this on your own and you guys can also download the

calculator that I'm gonna give you guys at the end of this video to figure out

why this actually saves you money and no we don't have we didn't incur more debt

we have a savings exact amount of debt right 200,000 50,000 we didn't have more

debt and another misconception is that well now saying we have to monthly

payments to get the mortgage payment and we got the HELOC payment well here's how

we get rid of that and in in reality in this strategy you only have one payment

instead of putting your money into your checking account okay and paying your

mortgage directly out of the checking account what we're gonna do is we're

gonna go ahead and put all of our income into the HELOC now the reason why we do

this and going back to the whole simple interest calculation is we want to drive

down the balance on the HELOC as much as we can right we want to get that thing

low super super low let's say our income is five thousand dollars for example

okay we're gonna go and put all five thousand dollars into the he laughs such

so that we can go go and lower the balance on the home equity line of

credit now I know some of you guys are thinking

well hold on if we put all of our money to the home equity line of credit how do

we spend our money how do we take care of our expenses how do we take care of

Bill yadda-yadda-yadda well I get that guy so what happens is

using your HELOC you're gonna go ahead and be able to pay your bills right gas

groceries and in most cases also if you find the right banks the banks will also

have a account number as well as routing number for the he'll off so you can do

ACH transactions right out the HELOC meaning you can pay bills and groceries

you can also have your paycheck auto deposited into the HELOC without having

to move money around so it makes things a lot easier if you do it that way now

the reason why we use a HELOC remember going back to the whole average daily

balance we want to lower the average daily balance as if we took the whole

five thousand dollars and made that payment on against the mortgage which we

did it we were using the hila but we can also use the same amount of income that

we have this same HELOC to be able to buy groceries and take care of our bills

so we've done ideally what you've done is

we've lowered the obviously balanced and while we're not using the money because

obviously we're not gonna take all the we're not gonna go ahead and deposit or

check into the HELOC and then the next day we're gonna use it all right away

it's not gonna happen it's not realistic but while we're waiting for for us to

spend money on bills and gas and groceries it's saving us money because

the he life reflects a lower balance while we while we wait for us to use

that money now here's a better version of strategy which I'm a even more bigger

fan of this is actually my personal favorite of the strategy mainly because

it pays us money and at the same time it saves the most amount of interest in

terms of using our strategy so just like what I've explained to you guys earlier

we're gonna go and take our income okay we're gonna put it on our HELOC okay I

don't draw the best best circles but I'll do what I can and instead of using

the HELOC to pay for expenses directly what we're gonna do is we're gonna go

and employ a credit card okay and some of you guys may know this some of the

guys may not but with credit cards whenever you guys go and swipe that

thing to go and buy something typically most credit card companies are gonna

give you anywhere between 21 to 30 days of an interest-free grace period so

let's say I went and bought this pant pen today and swipe my credit card I

have 30 days until the interest kicks in so for the next two days I don't pay any

interest on the purchase of this pen so you can handle your bills groceries and

I know that not all bills and groceries can be paid using your credit card I'm

aware of that but try to get everything on your credit card as much as possible

so your groceries right diapers my goodness those are expensive right every

so pretty much all of your bills and expenses are going to go on your credit

card keep in mind guys for the next 21 or 30 days all these all the

expenditures and and spendings are subject to interest free until of course

the next statement cycle so you get 0% interest here for 21 days 21 to 30 days

and ideally guys what you want to do is work with a credit card that gives

you points and why you want points is obviously you spend money you want to

earn points and those points could mean travel can go to vacation you can when

you go book a hotel you can use points and obviously it be out of you know you

don't have to pay out of pocket I love my points I have an American Express

card some of you guys may already know but I use my points to buy stuff on

Amazon virtually for free and all I have to do is use my credit card to do all my

expenditures now here's where the fun part is at the very preferably at the

very last day of the month or at the last day of the 30-day interest-free

cycle this is where you're gonna go and take your HELOC and completely wipe out

the balance on your credit back to zero that way you're you're not subject to

any interest on the credit card spending that you have done and you're moving the

balance back over to your credit card so what typically happens is let's say this

is the first day of the month and you got your thirty first day of the month

sometimes I know it's 30 days the thirtieth day what you want to do guys

is you want to keep the heel off balance as low as possible between the first day

of the month and a thirty first day of the month so ideally what it suggests at

least from here with us clock brothers is you want to take all of your income

your savings your money whatever comes in to your income put it into a HELOC on

the first day of the month and you're gonna go and use your credit card your

spendings and expenditures and of course at the very last day of the month this

is we're gonna go ahead and actually incur a balance increase on your heel op

so between the first day of the month and the 31st day of the month what

happen is you have you're keeping that balance the average daily balance on

your home equity line of credit SuperDuper low with pretty much all your

income but your credit card sort of acted as a waiting room for your

expenses of kick in and on the 30th day of the month obviously your balance goes

back up a little bit but we know immediately - right the next day which

is back to the first of the next month we have income going in there - also to

further drive the balance down on the HELOC super duper low what this does

guys again is when the balance is down interest is also down and the less we

owe on interest this tends to speed up our paying off process

on our mortgage typically you can expect to pay off your mortgage within five to

seven years on average and of course guys this is an average number not

everyone will be able to pay off their mortgage within five to seven years I

see a lot of people that pay off their mortgage mortgage in ten years a lot of

people pay off their mortgage in five years it all depends so ideally what you

want to do is use the HELOC lower that average daily balance down by putting

all of your income in there which we know that you can again reuse that money

out we can take that money back out because it's an open-ended revolving

line of credit and then we use a credit card to sort of have all their expenses

sit there for the 21 to 30 days cycle when we're not charging the interest and

then use the HELOC to wipe out the credit card balance that we pretty much

didn't owe any interest on the the expenses that we have to take care of

every single month guys like I promised I'm gonna go and give you that free

calculator as well as an e-book that's gonna give you a full breakdown

explanation as to how our strategy works so where you go guys is you can go to

chop my mortgage.com and go and download the free calculator for you guys it's

absolutely free you can go and punch in your numbers so you can go and put in

your original balance of the mortgage your current balance your interest rate

on the mortgage and then you can enter the information as far as how much of a

HELOC are you gonna use and what your HELOC interest rates going to be and

it's gonna spit out an estimate as to how soon you can pay off your mortgage

and how much interest you can save on your mortgage I know a lot of you guys

may still be thinking well the HELOC interest rates higher like why do we

want to do that well like the HELOC interest rates can

can go up it could be variable well let me quickly explain to you guys right now

before you guys go and eva's it out of this video is that with the HELOC

interest rate it really won't matter what it within the context of this

strategy because our focus isn't paying off your principal balance when we lower

the principal balance we're not going to be subject to as much of an interest

because of course without principal you won't be charged in the interest right

another thing is that with the key lock being variable some he lops can be

locked into becoming a fixed-rate HELOC and of course

want to get into too much of the detail but what you can do is you can lock in

the rate for a very small fee anywhere between 60 to 100 bucks to lock in the

interest rate if that's something that you're worried about so guys I hope that

this video helped you guys at least understand how to use a heal out to pay

off your mortgage if you guys felt like I've missed anything going comment down

below we'd love to have a quick chat with that and again please do click on

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video doneghy locks and how to use a heal out to pay off your mortgage so go

and definitely check out some other videos that we have about using the

HELOC to pay off your mortgage I'll see you guys in the next video