velocity banking can the velocity banking strategy actually help you pay
off your mortgage faster? can you really use a HELOC to pay off your mortgage
within five to seven years and can you get results like this this and this so
in this video we'd go break down what exactly is velocity banking I'll give
you the step by step explanation as to how velocity banking works and how much
money in time you can save using the velocity banking strategy as well as
stick around to the end of the video because I'm giving away our free
velocity banking calculator it's an excel file we can download it punch in
your own numbers to see how much money in time you can potentially save using
the velocity banking strategy hey what's going on this is Sam Kwak here one of
the Kwak Brothers and in this video you can go unpack the full details of the
velocity banking strategy and how can actually help you pay off your mortgage
faster using a home equity line of credit and just like what I mentioned
earlier be sure to stick around to the end of video because I'm giving away the
free velocity banking calculator and before we get into the video be sure to
subscribe to our channel if you want to learn more about the velocity banking
strategy how to pay off your mortgage faster using a home equity line of
credit and learning how to invest in real estate we are the number one
channel for home equity line of credit so be sure to stick around and check out
some of the other videos that we have about this topic so to set the stage
let's go and talk about what is a HELOC and how is it different from a mortgage
now with a HELOC it is often known as an open-ended line of credit so it's
open-ended and what this basically means is that you can take the money out of
the HELOC and pay it back take it out pay it back and over and over and over
and kind of like a credit card with a mortgage however a mortgage is
closed-ended meaning you cannot take the money back out once you make a payment
this is a significant advantage with the HELOC and this is very important
throughout the whole entire strategy so do remember the home equity line of
credit it's open-ended very important for you to remember that through the
rest of this video now even with the heat long category there are two types
of heat loss that we often talk about here in our youtube channel and that is
the second lien position HELOC and there's the first lien position HELOC
and many times when individuals explain the velocity banking strategy they often
go and talk about the second link HELOC of chunking down principle
balances and we'll talk about that I'll give you the full breakdown but I also
want to talk about how the first lien position HELOC will work with the
velocity banking strategy so throughout the rest of the video I'll give you two
scenarios what it would look like to use the velocity banking strategy using a
second lien position HELOC in a first lien position HELOC now you might be
asking so what are the differences with the first lien and the second lien well
a second lien position HELOC you have your existing mortgage that you're
looking to pay off and on top of the existing mortgage you get a HELOC and
that is known as a second lien position HELOC with the first lien position HELOC
what you're doing is you're completely replacing your existing mortgage with a
giant Gila so you know what I'm gonna have a mortgage so to speak in your home
now you just have a HELOC and that is the only debt on your home so let's go
and first talk about how does the second lien position HELOC works with the
velocity banking strategy and this is the traditional velocity banking that a
lot of youtubers and different presenters talk about so the way that
this works is you have a second lien keylock okay and you have your checking
account alright and preferably you want the checking account in the second lien
HELOC in the same bank it just makes it easier for you to transfer money back
and forth okay so traditionally you have your income coming in to your checking
account okay let's say for the for the example of this video let's say your
income is five thousand dollars a month now with the second lien position he
lava Lassa to baking strategy what you're doing is you're taking a small
chunk of your principal balance on your mortgage and you're simply moving it
over to the second lien HELOC so what that looks like is you're gonna write a
let's say the secondly he locks at fifty thousand dollar limit okay and when I
explain this to some of the clients as well as my subscribers in our YouTube
channel I typically suggest that you only use 30 percent of the second lien
key loss so just for simplicity's sake let's say we're gonna go and take
$10,000 for my second lien P lock and make a principal payment against the
mortgage so we're gonna transfer the $10,000 into the checking account and
then from our checking account we're gonna go and do a principal payment
against the mortgage so what we've done is we've taken ten thousand dollars
worth of principle balance and we sort of transferred it into our second lien
position HELOC from there our income of five thousand dollars what we're doing
is we're going as soon as it hits your checking account we're gonna go and take
all of that into the second lien position HELOC such so that we can
reduce the balance on the secondly he long this is where the magic of saving
your money is because now we reduced from tenth we went from ten thousand
dollar balance down to five thousand dollar balance the
banks are going to say hey there's only five thousand dollar balance of the
HELOC so we're gonna go and charge you an interest as if you had a five
thousand dollar balance so I'm gonna go into live in more details and I'll give
you a little bit of a secret strategy that no velocity banking presenter or
other YouTube channel talks about so you definitely want to listen to this very
carefully now what we're gonna introduce is a credit card on this side here okay
alright and what you're gonna do is you can do all of your expenses on your
credit card as much as you can I know some of the bills utility bills you
won't be able to pay with the credit card so you're gonna do your food your
groceries right diapers you name it put it all on the credit card now why we do
this is with the credit card we don't typically pay any interest right away on
those expenses usually there's a delay of 21 to 30 days where the interest
actually crews all the expenses and expenditures on the credit card so what
we're doing is we're parking all of our expenses on the credit card and we're
leaving the balance at $5,000 on the home equity line of credit as long as
possible so that the interest calculation on the second line HELOC is
based on this as long as possible so let me paint out another hypothetical and I
think this is where you guys going to understand the power of the velocity
banking strategy let's say on the first day of the month okay your income comes
in $5,000 just hypothetical illustration I just want to give you guys right and
that that income goes into paying off the HELOC okay and then you're using
your credit card to do all of your expenses
okay this is your credit card now back to the other example of having a 10,000
dollar balance on your home equity line of credit
now we because we've put in all of our income a $5,000 it is now $5,000 balance
okay now we have a credit card bill because we've done all of our expenses
on a credit card right groceries gas you name it now on the 30th day of the month
or one of the next billing cycle is due for the credit card we're gonna
completely pay off the credit card leaving the zero and we're gonna elevate
the expenses just a bit let's say your expenses at $3,000 right now our balance
went up to $8,000 okay but this is the third this is on the 30th day right on
the 30th day we have an $8,000 balance on the HELOC but guess what
the next very day is another first day when our income goes into the home
equity line of credit right so kind of refreshing here we have our 8,000 that
we started with the $8,000 balance this time we put in $5,000 balance in the
next month this balance is now $3,000 again for the next 30 days because all
of our expenses that we're doing is on a credit card so the idea here is that we
want to put our expenses on a limbo where all of our expenses are not
crewing an interest and we're not drawing any money out of the HELOC until
the 30th day the day between the first day and the 30th 30-day the balance was
sitting at $3,000 right and the banks are gonna calculate the interest based
on the $3,000 balance instead of 8,000 or 10,000 dollars does that make sense
so that $5,000 worth of difference there in terms of the keylock balance that's
gonna save you extraordinary amount of money in terms of the interest and any
interest that you're not paying because of this effect that money can now
contribute to the principal balance of a HELOC even more so every month you're
gonna see a compounding effect all the savings you get because of this loop
that we discovered as to how the bank calculates the interest when it comes to
the average daily interest so that's a little bit of a secret version of the
strategy that I often don't share on YouTube but there you go you guys have
it but I also want to show you this scenario with the first lien position
he'll on so just like with the second lien position
last scenario this time we have a mortgage okay mortgage and we have our
checking account okay instead of getting a HELOC on top of the
existing mortgage we're gonna go and completely replace the mortgage with a
HELOC so you no longer have a mortgage so to speak a traditional 30-year fixed
or a 15-year fixed you now have a HELOC and what you're doing is you're dumping
all the money into the HELOC you're putting all of your savings into the
HELOC and I know some of you guys are looking at me and saying Sam that's
crazy I am NOT gonna put all my savings into the HELOC but my argument there is
well what is your savings account really paying you like point zero to five
percent right point one percent I mean the inflation is at two percent right
now so technically you're losing and your money is eroding away on inflation
so instead of trying to save money with it saves account right why not throw
that extra money into the home equity line of credit where you can potentially
save anywhere between three to six percent Interest because now you're not
having to pay the interest on the amount of savings so if you're taking twenty
thousand dollars and I'll use a different color for this let's say you
have a savings account that was once earning you maybe like point two five
percent APY right you're taking let's say twenty thousand dollars of your
savings and you're transferring and making a principal reduction on the home
equity line of credit thus now you're not having to pay whatever three or
three to six percent on that twenty thousand dollars does that does that
make sense so instead of focusing on okay I would I want to make point two
five percent on my savings account where literally it's enrolling your way by
inflation now you transfer it over to the home equity line of credit where
again remember the whole open-ended conversation we had earlier you can
still take the money out of the home equity line of credit when you truly
need it but right now it's just sitting your savings account not doing anything
for you right so instead take that amount the savings you have put it on a
home equity line of credit where we can later still access it whenever you want
to right and get the savings you need with the home equity line of credit so
that's the first lien HELOC strategy I actually love the first lien heel off
because once you pay off your mortgage or in this case pay off your he lock you
will have an open first lien he lock where you can go and buy all the rental
properties you can buy businesses you can invest in other things where it may
yield more than three to six percent on the interest so the first thing he lock
definitely gives you more liquidity if you see more safety net during a
recession which I have a completely separate video as to how a first lien he
lock can actually protect you from a recession and gives you liquidity for
future investment and also gives the ability to smash the like button by the
way and turn that like button below and even with the first lien he lock you can
introduce the credit card into the picture where you're doing all of your
expenses right gas groceries kids expands all the everyday expenses that
you'll do you do it on the credit card so you're gonna rack up balances on the
credit card but remember all the expenditures and expenses that you do on
the credit card won't accrue interest into the next billing cycle so for 21 to
30 days of a grace period with your credit card you're letting the he locks
it at a much lower balance so that the interest calculation on the HELOC is on
a lower balance instead of the higher balance if you have not put all of your
income into the home equity line of credit this is why I believe that the
velocity baking strategy is actually better than doing extra payments because
if you do extra payments of let's say 300 or 500 dollars it's only reducing
your principal amount and it's calculating the interest based on a 300
or 500 dollars reduction but with the velocity banking the interest
calculation is on the entire income that you put into the home equity line of
credit and you still get to use that money again and allowing your expenses
to not accrue any interest while it's sitting in your credit card so friends
this is the first lien and the second lien HELOC velocity banking strategy and
I also throw some golden nuggets in there with the whole credit card to the
mix my clients and I call this the hybrid strategy where preferably you
want the credit card to give you points and cash back so if your expenses are
three thousand dollars a month and you put that on a credit card that gives you
points but now you're paying off the credit card with the HELOC so you don't
owe any interest on the credit card so you literally get paid to do this
strategy in fact I have a student right now that's using this very strategy as
we speak and what they're earning on the
credit card the points and the cashback is overriding the interest that's
occurring on the HELOC so it's a net zero effect where the credit card is
paying them enough points and enough cash back to where the the interest that
they're paying on the HELOC it's getting paid for because of the credit card
which is incredible so that's the velocity banking strategy
on a nutshell obviously have more webinars and videos where I go even
deeper as to how the equation works in terms of mathematics behind the math and
also how you can use the HELOC as a protection against some of the damages
from the recession and also I'll show you how to use a HELOC to then buy more
rental properties increase your income expand your cash flow Empire I'll have
those video links down in the video description down below now my skeptics
watching this asking questions like this will never work this doesn't make any
sense isn't the HELOC interest rate variable
aren't HELOC interest rates higher how does that make sense right why are we
using a higher interest rate HELOC to pay off a lower interest rate mortgage
right well with a first lien position HELOC a lot of times the interest rate
is very comparable to a lot of the 30-year fixed in fact I had one of my
students just close their first lien HELOC on a 3.75 percent and they fixed
the rate for the next five years and it's also on LIBOR so it's considerably
lower than the federal fund rate and another question I often get is Sam what
if the bank shuts down my HELOC or what if they freeze it or I'm unable to get
my money out of the HELOC well that has more to do with what happened back in
2008 through 2012 where banks were giving out 100% financing for the
purchase of property and on top of that banks were giving out key locks as a
bonus for the homeowners and home buyers so obviously back in 2008 through 2012 a
lot of individuals that had a HELOC were already tapped out they were over
leveraged they had way too much debt so obviously it makes sense for the banks
to shut them down as well as close out their HELOC and shut them down but my
overall suggestion in my opinion is that if you use this strategy to pay off your
mortgage faster as long as you're within seventy percent loan to value again just
my opinion you're gonna be rather in a safer position than obviously the folks
that had a hundred percent or 120 percent debt when compared to their home
value another thing is with the first position HELOC I often seen from my
research that a first-in HELOC has less chance of a foreclosure the line of
credit getting frozen or shut down because the first lien position HELOC is
deemed to be less risky in the eyes of the bank I mean it's the only lien or a
loan on the property and that's the only payment that the borrower has to make so
from the bank's perspective a first thing HELOC is definitely less risky
than a second lien HELOC although if you use a second lien HELOC properly you can
avoid some of the adverse situations that I just described a minute ago all
right so you stuck around to the end so I do want to give you guys a free
calculator and this is where you guys are gonna go and get the calculator so
it's chop my mortgage.com so go to chop my mortgage calm it's gonna actually
forward you to another website called accelerated banking calm we just like
chop my mortgage calm because it sounds obviously easier to remember go to chop
my mortgage calm and download our Excel calculator for free to punch in your own
numbers to see how much money and time you could potentially save and the
calculator does support both sucking lien position HELOC as well as the first
lien position HELOC as well so you can kind of play with both numbers and see
what works up better and after you download the calculator I'll go and
invite you to a free 50 minute class where we go deeper into how does the
velocity banking strategy actually works how does it protect you from a potential
recession and next five or 10 years how can you use that strategy to buy more
rental properties as well as expanding your equity and your financial empire so
as a gift for sticking around to the end go to chop my mortgage com download your
free calculator and I'm looking forward to seeing you in our free 15 minute
class be sure to subscribe to our channel as we are the number one HELOC
channel as of now and we share lots of tips on how to pay off your mortgage
faster as well as buying rental properties and investing in real estate
so definitely go and check out those videos and I'll see you guys in another
video