Why Your Mortgage Keeps You Broke: The HELOC Strategy Explained
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- Опубліковано 26 гру 2023
- On this podcast episode, we’ll be discussing why your mortgage keeps you broke. We’ll also share why the HELOC strategy makes more sense in most cases. We’re going to do this by using real numbers, from a real client so you can see in real time how it works. Check it out!
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Also, share and leave a comment below.
@jamelgibbs..just done a heloc ..I'm going to look at a 3 bed 1 bath 1100sq ft house for 40k..already have tenants in the house paying 700 a month through HUD....do you think this is a good move? I've watched your channel for awhile and I think it a good move..I can refinance down the road if need be to pay my heloc back off or I can use monthly payments to pay heloc??
The parisite/symbiote analogy is So Strong! I've booked an appointment with Clayton, & I'm excited to speak with him.
This makes so much sense. I would like for him to break down this method when it comes to insurance savings and conversion. Thank for the explanation on money.
THANKS. Just what I needed to watch. My wife and I got a 400k HELOC from our 780k primary home which we are still paying a mortgage for. I want to only use 200k for this new duplex down payment. I realized that the secret to making millions is making better investments and staying out of debt.
I'm grateful to GOD for the internet space, we were able to join the credit repair program, we payed up our debt and now we are back to being the administrators of our farming business and our own properties, as well as small pensions. I am almost 56, my wife is 52. We have started saving for retirement from the farm and maybe live off rental income, I would really appreciate it if you would do a video on how to earn using Airbnb and retire comfortably.
This is an absolute game changer. Thanks for sharing!
Great video! Thank you guy’s!
I'm loving the valuable info you're sharing. Very nice
You guys are amazing together. As a late bloomer and beginning investor you 2 have been a blessing to me. Thank you 💯
This was a great video. Definitely mind blowing. I like how you guys debunked the myths and showed a case where it might not work.
That's some powerful stuff brothers!
Great video!!
Excellent
Excellent podcast
Never had anybody who breaks down buying a house with no money as well as you my friend. Thank you very much I have a lot of equity in my home over 200,000 but based off the HELOC I can purchase a fix for flip or rental division is almost clear except for a few minor details, but wow.
I really wish I knew about this years ago. I have given the mortgage companies hundreds of thousands of dollars in interest. I just closed on my 1st position HELOC yesterday on my primary residence. My previous interest rate was 2.5% and I owed 150k. My HELOC is for 370k @ 8.4%. Why would I do this you ask..... I plan to pay off a 4 unit building that I just purchased 3 months ago. I owe 232k on the building. I will be able to pay off my primary residence and the building in under 2 years. and saving 395k in interest. Please listen to this information, it is real and it works!!! It only cost me $500 and normal closing cost. Total under 2k to save 395k
Never too late.
I love you two together! I am so grateful for this podcast session.
The way you guys breakdown the money mindset behind the HELOC strategy versus the money mindset behind a traditional mortgage.
I wish I have known this before filing chapter 13 bankruptcy due to the pandemic.
Is it possible to get out of chapter 13 and transfer my mortgage and other payment obligations to a HELOC?
I am commenting in the middle of the podcast so I will continue listening to see if you guys will speak on it.
Good one
We are launching out on the real estate investment. Right now we are fetching for information. Refinancing or heloc to get cash out. We do not have a mortgage, all equity. Trying to make the best move.
Will other bank give you a heloc if you have a existing heloc already?
Just subscribed to your channel and looking forward to viewing more of your content. Regarding HELOC'S, I'm not clear on who best benefits from this strategy...is it a person who recently purchased a house and has little to no equity, or a person who is almost finished paying for their home and has lots of equity?
Good question.. I would image in person B
Wow. Nice to know.
Thank you both very much think and grow rich when you work for money money becomes your boss when it should be the other way around
To Simplify this to my understanding a HELOC is like being your own Bank.
You borrow from yourself you only Pay Back on the Portion you Borrow
and can for the most Part always be open for you to use or not use..The HELOC has nothing to do with the First Morthage other than both are Tided to the House with two different functions. The House is the Collateral for Both the original Mortgage and the HELOC.
Except you do not borrow from yourself but from your bank and pay more interest than on a mortgage. With additional fees. With additional risk (since HELOC rates tend to be variable)
37:13 most sobering moment ever. Those numbers are just insane.
And they are completely bogus.... Using every trick in the book to make a financially worse solution appear more attractive
It is really simple. If the interest rate is higher (as it is with the HELOC ) you'll end up with more costs.
@thomasxxxxxx2345 just say you don't understand how interest works.
Hello, Jamel I just subscribed to your channel last week I feel like you are the answer to my prayers, I want to thank you for your help in advance, and what did HELOC stand for?
Home Equity Line Of Credit
I understand the numbers I just want to ask if you didn't have a mortgage you can't get a HELOC. So in order to get a HELOC which is based on your Equity, you need to have a mortgage first. so I totally agree when you have equity you need to put the money to work for you.
This has always confused the hell out of me. The mortgage interest is based of remaining principle. If you just put excess money towards the principle explicitly saying the money only goes to principle how am I going to save interest by getting another loan with its own interest?
The second loan(heloc) helps build your equity theteby wiping out years of mortgage payments . The discipline you use in paying your mtg is replicated as you leveage n pay into your heloc. Honestly rewatch this video at least 4times at different times of the day, preferable on your television so you can see the slides
Can you get a heloc on an investment property?
This sounds good one thing that you’re not covering is the additional $$$ that’s being applied to the principal. Your payment schedule shows about 4k that’s being applied to the principal on the HELOC. If you can put aside 48k a year you don’t have a problem. The people that do have a problem can’t put aside 4k a month. So tell them how to get the 4k a month additional to what you have now. That’s a GREAT podcast.
🎯🎯🎯🎯
The client had a net income of $8000 and expenses were only $3000. That’s how he was able to apply 4k to HELOC. This only works if you have disposable income.
@@A143nickle Apply the same amount directly to the mortgage, it is more cost efficient
I am not sure what the word "works" means in this context ? What "works" ?
Paying extra towards a debt will of course reduce it faster, it is not rocket science. And the most cost efficient, least risky way to do that is by paying extra directly to the mortgage
There is no need for a HELOC in this situation. Unless by "works" you mean "makes the borrower pay more interest"
Bal is $16,000 and value is 240,000…is heloc a good ideal
Pay that thing off, don't expose your finances to the unknown of the future.
But what if the bank shuts off the ability to draw? That's my biggest fear with this strategy.
Unlikely when they are in the first lien
@williamsmith3331 You trippin'. Are there other banks? The secret lies in your discipline, not the banks. I lend money all day, every day. What people like me look for is someone who has the discipline to pay us back.
Cause if you don't, I get to take your house.
Very likely. Only 5 years open end at my credit union. Will keep searching
That's a real concern as it happened to us in 2008. Horrible experience.
Then the bank gone reopen
The main difference between the initial mortgage and the HELOC is that for the initial mortgage $1 750 (rounding) is directed toward the debt monthly while in the HELOC scenario $5 500 is directed toward the debt monthly
The HELOC rate is not much higher than the mortgage rate (typically there would be more of a difference), still if we look at the numbers
1. The HELOC scenario:
HELOC paid off in 5.4 years interest cost $59K. No cash on hand
2. Extra payments on the mortgage scenario (paying an extra 3750$ per month to direct a total of $5 500 to the mortgage to be in line with the HELOC scenario):
Mortgage paid off in 4.9 years interest cost $46K ... By the time the HELOC would have been paid off (5.4 years), in this scenario the mortgage is paid off AND there would be about 30K$ cash on hand
3. Just paying down the mortgage per the regular schedule.
After 5.4 years there would still be a debt of $250K$ on the mortgage. In addition the person would have about 244K$ + interest/gains of cash on hand (Presumably he would have invested this money or at least put it in an interest bearing savings account. Even with low interest rates he would make more than 6K$ of gains over the 5.4 year period... for reference if the savings account rate is only 2% he would earn some 13k$ over that period, if it is 4% he would earn about 27K$)
He could pay all of his mortgage (or part it if he prefers) at this point AND still have cash on hand (7K$ if he invested at 2%, 21k$ if he invested at 4%, more if he managed to get better returns)
Basically paying extra on the mortgage appears to be the most cost effective scenario. But of course if a person likes to have "cash on hand", just pay the mortgage per the regular schedule and put the rest of the money aside.
The HELOC is the worst option financially
Hey Thomas nice to see you again I know we responded a few times to a couple questions you had on Halzetine LLC. One thing that I was confused by when you said paid off when no cash on hand. Are you saying that you don't view the open unused equity as cash on hand to do other things if the client would like to? Also, point number three is extremely confusing because it would seem that your applying lump sum growth in a dollar cost averaging way. Maybe I missed it but you may need to clear up the math because it is terribly confusing the way it's presented.
A 60 month 6.6% 270K note ha P/I payment of $5300. 47K interest. You could spend $200 extra per month on mangos. the Joe in the example has $5500 per monrh cash flow that you completely IGNORE in trad mortgage example. If your goal is to save interest, max your payment at lowest interest RATE you can get. You can PULL money out of house with HELOC, but that doesnt mean you'll save interest.
I appreciate your comment as usual I think people lose sight of the entire aspect of debt one and the difficulty of what your suggesting to the people who you maybe thinking this will work for. For the average person who makes slightly more than 3 times their payment. If they double the mortgage payment and still pay the monthly expenses. There is absolutely no room for retirement planning or even having an emergency fund of 6 months. The other thing to consider is when a person uses the HELOC they can now use those funds to pay other debts that have a significantly higher debt interest cost than the HELOC or a mortgage through your idea. The client won't be protected when a serious issue happens and they can build up a sizeable retirement. Through mine client can wrap 30K of bad credit ad only add 4 months to the loan in many cases and save an unimaginable amount of debt on the credit cards or other places. You focus only on house debt I focus on debt in general, paying the car, student loans consumer debt as well and being able to invest and having enough money to properly insure yourself. Paying off your home is just one achievement not all which is why I break down all the forms of interest because the more we increase cashflow now the better.
Doubling mortgage payments decrease cashflow and leave you exposed to a host of problems that will just make you refinance when that time comes because the other sectors in your life aren't covered.
How can I book a consultation? I want to run my numbers with you
Can you please explain how you got that effective interest rate of 1.4%?
And where can I get a copy of the spreadsheet or how can I make my own?
It is called creative accounting
(such as paying $5 500 every month per the spredsheet and then computing an "Average minimum monthly payment of $900 only)
As for spreadsheets, you can use available mortgage/credit calculators such as that of bank rate
I’m using the IBS and the heloc, am being helped, but I still can’t help the feeling that I’m robbing Peter to pay Paul? And I feel broke? Please help!
Not sure if this has been asked somewhere before but can a 1st lien heloc be used in a new purchase or is this for existing mortgages conversions only?
Great question you'd be happy to know that yes you can buy a house and enter the First Lien HELOC on purchase as long as 10% has been paid down. Also, you can actually do new construction with a First Lien HELOC as well.
Excellent, that was my question. I will book a call leading up to my next purchase.
@@dandreclayton4754 I did not know that … fascinating
Is it a good idea to use a Heloc to pay for hight interest credit card debts?
I always heard No because now your CC debt is tied to your house.🤷🏽 I’m not sure how to use my current HELOC to get an investment property myself👀😂
During the pandemic I did a loan modification for 40 years lol, it’s at 3 percent interest rate, how in the hell do I get out of this loan? Would chunking work for this loan? Thanks
You certainly will not find a cheaper loan currently. If you still want to pay it off earlier just make extra payments (assuming you have the money for that and you have no better use for it)
What is the best rate or bank as of now who offer best for heloc?
I used PENFED Credit Union
What if just open a heloc and dont use it only for emergencies? Then all the cash flow you have and savings just throw it all in the principle to pay it faster? 3.375 mortgage vs heloc 8.5 fixed rate this is my situation if i applied for heloc.
Good question truthfully both methods work. Which one is more efficient is the question? Which one would cost less would be hard to decipher without the numbers one thing I will say is that there is no reason to get a fixed interest rate in this environment. Sometimes people forget that variable interest rates means that interest also has the possibly of decreasing as well. But the reason why it's hard to answer that question is I don't know the degree of cashflow you have with the mortgage included. Whereas when the First lien is in place there is no fixed mortgage payment and it really is based on the average calculation throughout the month of interest therefore when the principal is hit it drops by the difference of your income and expenses and calculates the interest afterwards. Your cashflow will decide if keeping the 3.375 and chunking the cashflow at principal would make sense versus just being in the All-in-One or 1st Position.
No brainer. 3.375% mortgage and extra payments beats that 8.5% heloc everytime
I'm looking on retirement from my job in the next 5 year would it be wise to take HELOC on my home
It depends on how much you have left and what your cash flow is.
Can you have more then one heloc?
Yes. I actually have 3
Is your school website still live? I have sent SEVERAL messages and could not go forward because no one contacted me. Great videos, but it seems there is no support there.
Where are you sending the messages?
I put extra on principal only. Does that escalate it???
That will escalate it, but the point of this video is that once your money is paid to a mortgage it is the bank's money - if you make that extra payment on a HELOC, that money is still available for you to withdraw, if necessary.
@@1NunyaBidness Yes, but you still need extra money to pay the heloc. It's silly to pay additional interest on the heloc when you can just keep paying the extra directly to the principal.
Maybe I missed it, but aren't the payments interest only?
You don't need extra money to pay the HELOC. You would put ALL of your money into the HELOC (every penny) which satisfies the HELOC payment. You'd then pay your expenses from the HELOC. After you then pay your monthly expenses, you will decrease what you owe on the HELOC by the amount of your cash flow.
@@tonydouglas863 Which is the same thing as paying extra.
In this example the borrower pays some $5 500 every month when using the HELOC (this is why he can pay off his loan faster) instead of less than $ 2 000 when using the mortgage ......
If he paid those same $5 500 directly to the mortgage he would pay off his loan faster AND pay less interest than with the HELOC
How does HELOC make money
So Jamel- should you save/invest extra money versus putting that extra money on the principal of my mortgage???
If you were doing the HELOC strategy, I'm fairly sure all of your income goes into it so there is no "extra" to invest or save it's all going to your principle on your mortgage.
@@matthewboone8406 Hey Matthew I need to hire you lol!! Thanks for your support just as a clarification the money you are saving is completely liquid which gives you the benefit of investing at the optimal time. So if there is a fix and flip for instance we can run the numbers to see hypothetically how much time it would add to the loan. Of course the purpose of using money for any investment is to return it back to the nest when you've made your profit. I hope this helps.
Whit Bank do heloc
Omg!
That's too high cash flow! that's not normal for average Joe on this presentaion.
HELLO IAM 64 YEARS OLD AND I WANT TOO OWN MY OWN HOME IAM ON A FIXS INCOME LOOKING FOR A 3 BEDROOM 2 BATHROOM RANCH WITH A GARAGE AND I WANT HELOCK WILL YOU DIRECT ME IAM A FIRST TIME HOME BUYER
He lost me when he said paying extra to a house doesn’t make it go faster because that’s not true. I pay extra to the principal and it knocks down the balance so the next payment more is going towards the principal. So he wasn’t correct
This is a scam. Instead of paying interest on a heloc, you can simply make extra principle payments and pay your mortgage off quicker.
Everything is not a scam. Did you watch the video?
@@jamelgibbs Yes, I watched the video and have been seeing this same heloc method for accelerating mortgage payments for years. As I said, why would you chose to pay interest on a heloc when you can just make those extra payments directly to the principle? This is why I say it's a scam. If you use a mortgage calculator and run the numbers yourself, you will see that you get the same results, except your not on the hook for interest payments on a loan.
I respect that. But my guest literally ran the numbers in the video to show how it can be more beneficial. Obviously it’s not for everybody, and it takes discipline… but it’s not a scam.
@@jamelgibbs No, your guest ran through the difference between using a heloc and paying a traditional mortgage and why a heloc helps beat the traditional mortgage. But your guest, if he had ethics, would tell someone to simply pay their principal down and you won't need the heloc. So this is where the scam comes in. If someone goes to your guest, they pay him a fee to show them how to get these business credit cards and other instruments to back these large payments, should anything happens. So now, not only are you paying unnecessary interest from the heloc, but you are paying a fee to someone to show you how to get untapped credit, when all you had to do is make extra principal payments. I understand that you don't want scam associated with your channel, but it would be prudent to vet these types of strategies that cause black people to pay extra money not needed.
@@CG-uk1vz Hello, I noticed the conversation and thought I'd chime in. First and foremost thank you for supporting the podcast. Secondly to address what you're saying I think you're missing the point of the concept. For the average person I would hope that the difference of their income vs their expenses becomes significantly larger than an additional mortgage payment after the mortgage payment has been removed so from that premise alone we're not comparing the same things.(EX. Household Income is 10K per month and their mortgage is 2600 and their expenses outside of that is 3K when the HELOC goes in place the mortgage no longer exist so the cashflow has increased by that figure giving the client 7K going directly towards the principal and then the interest being calculated on the backend.) When you make an additional payment on the principal you're still forgetting that the first payment is following the amortized schedule which may be sending 70% or 80% towards the interest on the mortgage payment the only way to change the schedule is to recast the loan and this isn't something you'd do monthly because it cost about 5K to recast a loan. Another variable that you may not be taking into consideration is that the mortgage often times also includes the PMI for many who are early in the mortgage that money goes neither towards interest or principal. Lastly I wasn't really sure what you meant by unnecessary interest as if the HELOC would continue charging interest even after the principal has been paid because Interest is codependent so if there is no principal there is no interest. perhaps you can provide clarity on the matter there.
As far as paying a fee to show a person how to tap into the the Line of Credit I'm sorry but there is no fee. I am a financial consultant so at best the client may pay a fee to learn how budget and different things but I assure you there is not one client who has paid me an ongoing fee for HELOC because I'm not a mortgage loan officer so I don't receive compensation from the loan. On that note though I will tell you that Lenders are not in a rush to to approve 1st Lien HELOC's the qualifications are much higher than a mortgage which means the people who get approved are already typically more disciplined. I can show you a backlog of all the people who were turned down for not have 680 or above or an under 45% DTI. People who are in a 1st Lien HELOC will not subject to the housing crisis where the mortgage companies wrote fake loans back in 2008.
I advise you to watch this documentary before you respond: ua-cam.com/video/sYmGNetu-UU/v-deo.html
We understand that peoples finances are precious and promise we've done far more than just one calculation to come to the conclusions you've come to.
One of the primary things of note is also understanding how predatory lending works so many people can't start their small businesses and generate income, people all over world aren't properly insured for a serious event, life isn't ran on a spreadsheet. The HELOC provides the security and opportunity to invest smartly into something that can increase your revenue, paying an extra mortgage payments only places people in a financial strain for an extended time and the number of mortgage foreclosures versus the 1st position HELOC proves that, I hope this helps and please in the future try to address your point respectfully.
Wow.. excellent vlog fellas .. you break it down in a pretty easily understandable way. Thank you
Look at these scammers, don't buy shyt from these people, they lie and make money off of your money that you use to buy whatever they are selling and say they making money from the real estate but it's really from people money that bought their books or lessons
You definitely on the wrong channel cause neither of these dudes have a book