HELOC Vs Extra Payments To Mortgage - YouTube

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

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