Is there a recession coming up?! and if so how do we protect our home by paying off
our mortgage faster hey what's going on everyone this is Sam Kwak here with one
of the Kwak Brothers and in this video I'm going to show you how to pay off
your mortgage even faster while protecting your home from a potential
a recession now before we begin with the video be sure to subscribe to our
YouTube channel if you want to learn more about paying off your mortgage
faster saving money the process as well as investing in real estate so what do
you guys think is there a recession coming up if you don't believe so then
tell us why and if you do believe there's a recession coming up tell us
why as well go and share your opinion down below in the comments section we'll
love to engage in a conversation with you guys but let's say there is a
recession coming up now whether this recession happens this year or next year
really doesn't matter we want to be protected regardless so in 2008 to 2012
in our last Great Recession people lost their homes due to two main reasons
number one is that they had too much debt they had more debt than seventy
percent of their home value so debt that is more than seventy percent of their
home value and the reason why I say this is that in 2008 and 2012 through 2012
the home value dropped as low as 30% in fact some states like California New
York it dropped even more in certain areas so what happened was that as the
home value dropped 30 to 40 percent they ended up owing more money than what
their home value is so for example if your home value is say $100,000 make the
math simple and right now you owe $70,000 in the last recession a lot of
people's homes if the value fell from hundred thousand to seventy or less so
what ended up happening was that people were pretty much tapped out when it came
to debt they had way more debt than what their home value was the second
ingredient to this mess was that people didn't have savings or the technical
term is liquidity now liquidity refers to the access to cash right how much
cash can you have access to now even the folks that has six months of savings it
was quick you know I quickly dried up right because I'll be
see people were struggling to find jobs or income their debt payment was high so
a lot of people felt this crunch in there and their their finances that they
couldn't pay for the monthly payment the bank may have came came to them said hey
listen mr. mrs. borrower it looks like that your home value in fact the average
of the home value in your area has fell well below 30 percent we want to make
sure that you're not underwater meaning you owe more than what your home value
is so a lot of times banks can come back and say hey listen you need to catch up
you need to pay a ten twenty thirty thousand dollars just so that you're not
underwater and of course people didn't have ten twenty thirty thousand dollars
to fork over I mean it was a recession right and plus the people didn't want to
lose their savings in their liquidity over just to pay for what the banks were
demanding to keep the mortgage current so this caused a lot of issues so my
argument is if there is gonna be a recession next year or if you believe
that there's a recession sometime in the next ten years I believe it's super
important for you to pay off your mortgage even faster and we also want to
have access to this liquidity and I'll show you and throughout this video how
to get access to liquidity while paying down your mortgage even faster now stick
around this video I will leave a little gift at the end of this video if you
stick around great you'll get the gift if you don't
blow up too bad but reason why we want to pay off our mortgage there's a couple
reasons and I'm not a big fan of the 30-year mortgage in the first place and
I'll show you why in a thirty year mortgage setting this is what's known as
the amortization chart the horizontal line you see here that goes from left to
right represents the amount of time you spend on paying your mortgage so zero to
thirty years right this vertical line represents the monthly payment you pay
every single month so again simple numbers let's go and say thousand
dollars a month is your mortgage payment that's principal and interest okay now
this line right here represents what's called your interest payment okay and
this is so the interest is proportionate to the monthly payment I'll explain if
you don't if you guys understanding this blue line on the draw here represents
the principal and I get a lot of flack on the misspelling principal quite a bit
there we go so this represents principal this this black line here represents
interest now out of the thousand dollars beginning of your loan so towards the
first ten years or so ten to fifteen years majority of your monthly payment
goes towards none other than the interest so I want you to take a look at
your mortgage statement right now if you guys are curious if you guys want to
fact-check me whatever you guys want to do majority of your monthly payment if
you just got started with this mortgage in the last five years I can I can bet
some vast majority of your monthly payment is going towards interest unless
you have like a two percent loan okay but in most cases a lot of you guys
watching this they're gonna pay off your mortgage you guys are ghosts of you guys
are gonna have a bulk of your make a monthly payment go towards interest now
this isn't a problem if you can wait until end of the thirty years but what
happens today is that the average American and this include Canadians and
Australians we move every seven to ten years whether it's to relocate for a job
or are our kids down you know go to college and we're downsizing we sell our
house or some of you guys may refinance which I have a separate video why you
should never ever refinance because that's a huge you know financial suicide
even if the low if even if you're refinancing to a lower rate I'll explain
why it's a terrible decision so bounce you know people get to seven
to ten year mark I'm gonna draw about an estimate seven to ten year mark
okay people either sell their homes or they go and get refinance now guess what
happens when they go and try to sell their house or refinance well they
haven't had a much time paying down the principal so the more closer the closer
they get to the thirty year mark the more principal balance the actual
balance of your mortgage is getting paid down in the early part vast majority of
your monthly payment goes to the interest
okay banks get to keep that money none of that is actually contributing to the
fact that you're paying off your mortgage so in most Americans are in
this perpetual cycle buy a house selling it not enough equity is built right and
the order refinancing and then they're doing this over and over and over again
never really get into the zone very few people I meet actually make it to this
part because they're sticking around for a long time so this is the issue
this is an issue where today not you know the culture and and in the economic
the culture has shifted right we don't see the day where you work for a company
for 30 years 40 years retire and the company takes care of ya we don't we
don't see that as much anymore you're more likely to have a new job every five
to ten years or you're you're switching jobs or you're relocating so the way
that 30-year mortgage is design is not necessarily adaptable to the time that
we need so how do we get around this so let me gonna introduce you to a new
financial instrument it's gonna help you pay off your mortgage faster without
making more money or cutting back on your expenses so I want introduce you to
guys something called a home equity line of credit and some of you guys may have
heard of this as a HELOC okay it's what's that's what's pronounced or you
know abbreviated as home equity line of credit people call it a HELOC now this
is completely different than a he loan okay a Hilo is completely different now
the word line of credit this is very important the difference between a home
equity line of credit versus a mortgage and I'll break this down for you guys
this is your mortgage okay and on the right side you're gonna put versus a
HELOC a mortgage is what's known as closed ended meaning when you make your
monthly payment you can't get that money back out you can't reuse the principal
portion of your monthly payment on the HELOC you can pay back and reuse over
and over again as long as you're within what's called the draw period
now with the HELOC it works just like a credit card now the difference with the
HELOC is that your home equity is collateralized with this line of credit
so mortgage closed-ended it's one direction once you make that payment to
your mortgage if you need that money back out again we have to refinance and
some of you guys already know why I don't like refinancing and we talked
about the front loaded interest okay front loaded interest was when bulk
of your monthly payment goes to the interest the front side of the mortgage
goes more towards the interest okay so with the HELOC here's what we're gonna
do okay we got you guys already know that with a HELOC it's payback reused
much like a credit card okay you guys have to remember that it's a very very
important part so with this HELOC here's what we're gonna do there's two
to go about it but with the recession in the context
this isn't how I'm gonna explain to you guys so we have a mortgage okay that's
closed ended we can't use you know we can't reuse and pay back right mortgage
okay now what we're gonna do is we're gonna go and replace this mortgage we're
gonna replace your mortgage with what's called a first lien HELOC okay
so let's for example for example say let's say we have a hundred thousand
dollars in this mortgage all we're doing is transferring that hundred thousand
dollars into a first lien position HELOC now from there I'm gonna use a different
marker color because I want to avoid confusion and a mess what we're gonna do
is we're gonna take all of our income and paycheck into the HELOC now some of
you guys are like well now or not we're gonna take all of our income and
paycheck into the HELOC why in the world are we gonna do that that sounds
ridiculous now here's why we do this the goal of the HELOC is we're trying to
drive this balance down as much as possible okay so let's say your income
paycheck is five thousand dollars well what we want to do is we want to lower
this balance as much as possible now with the HELOC it operates the way
that the interest is calculated in a HELOC it uses what's called an average
daily balance average daily interest so what it does is every day with the belly
depending what the balance is the bank's are gonna take a look at what your
balance is every day and it's gonna calculate the interest for that specific
day with a mortgage depending on how you set it up it calculates the interest
based on the monthly balance okay this is very important and you gotta keep
tracking so with that being said we're gonna throw all of our income and
paycheck into the first lien HELOC which by the way your conventional mortgage
and a first lien position HELOC as far as the interest rate there's not a whole
lot of difference there and and I'll explain why the interest rate really
doesn't matter when it comes to our strategy because our focus is not on the
interest rate our focus is on driving this principle balance down as fast as
possible but throwing all of our income and paycheck and savings in there we're
driving this balance down to $95,000 where I where as in 100,000
mortgage balance you're making very small principal payment every month
especially if you just got your mortgage does that make sense so I know that your
next question is how do we pay our bills so with the HELOC you can remember you
can really use that money you can draw that money back out right so we're gonna
cover our expenses okay and I'll let you on a little secret it's preferred that
our income goes in on the first day of the month preferred okay and some of my
clients that I work with when it comes to the strategy we try to customize this
as much as possible to you know some people get paid on the first day some
people you know they get paid on the fifth right so let's pretend that we we
get paid on the first day of the month and what we want is that the expenses go
out on the very last day of the month last day of the month okay
now what we're doing is if we if we bring the income in the first day of the
month and try to get all the expenses out by the last day of the month guess
what for the for the 30 days in that in that period between the first day and
the last day depending on what month it is 30 days the balance was sitting at
$95,000 there was one particular day where he had $100,000 balance and then
let's say you expenses like $4,000 do you have another particular day that's
the expense is gonna be back up - or the balance is gonna be back up to 90 $9,000
in a very next day because it's to paint your paycheck day it drops back down to
what ninety four thousand dollars do you guys see what's going on here so so for
30 days remember how I explained that the HELOC calculates the interest on
every single day right every single day the bank is saying okay tonight it's
still $95,000 okay the interest is this next day oh it's still $95,000 the
interest is that so so you're essentially carrying it almost looks
like you're your balance that's subject to the interest is $95,000 $900,000 when
things calculated it next month it's gonna look like ninety four thousand
dollars who's got that extra thousand dollars of cash flow that's sitting in
there so next month banks calculating that interest as ninety four thousand
dollars instead of $95,000 okay get it so so every on a mortgage
side make sure calculating off of that $100,000
$100,000 times 5% you get the number $95,000 times five percent it's a less
number so you can see here that Bible switching over to first lien position
HELOC not only do you have the advantage of driving the average daily balanced
and with this little mathematical loophole but when a recession happens
when an info recession happens you lose your job would you lose your income you
lose your business whatever the case might be whatever income source that you
have you have the ability to tap into this home equity line of credit almost
like a quote unquote insurance policy right you can go in tap in for that
emergency fund if you absolutely need to have it now I know some of you guys
might be saying well Sam I have a six month saving I should be alright I don't
need the HELOC well my question is why not just throw the savings into the
HELOC drive this balance down even further if your HELOC interest rate is
anywhere between four to five percent interest I mean what are you getting on
your savings account like two percent at most I know some people I talked to that
yet point zero to five percent interest so instead of trying to earn 0.25
percent interest on your savings account or 2 percent at most why not save 4 to 5
percent interest by parking it on the HELOC and still being able to access
that money in the future right so if your savings let's say is $20,000 park
your $20,000 savings in the HELOC drive this balance down even further to say
$75,000 now it's gonna be $75,000 times 5 percent which is significantly less
than $100,000 times 5 percent does that make sense
but you still have access to the the liquidity you still have access to cash
so this is this is your recession proof protection plan okay this is gonna be a
way for you to protect yourself in case you lose your job you know let's say
you're gonna have a no job or no income for 6 months well there we go right
while you're not gonna tap into the savings account now are you probably not
so when you need the savings account it's there for you write your that
savings money is doing that extra work of saving you 4 to 5 percent interest so
I know a lot of you guys might be asking at this point well what if they shut
down my HELOC like they did in 2008 or 2009 what
they suspended it what if they limited well with the first name position he
lock on like a second lien position he lock it carries a significantly less
risk according to the bank's right because if you accidentally default on
on the first lien position he lock well that's the only lien that's the only
mortgage that you have right with the second lien position he lock there's not
only the primary mortgage but now you also have a secondary key lock now
you're deemed to be a riskier borrower so I've done the research as far as how
many people lost their homes because of a first lien position he locked back in
2000 and 2012 the number that I found was zero not a single person that had a
first name position he lock lost their homes between 2008 to 2012 and again I
would encourage you guys to do your own research when it comes to that number
but a first lien position HELOC is significantly less in terms of risk
according to the banks and also you'll see a very relatively comparable
interest rate between your conventional 30-year mortgage and your first lien
position key lock so I did promise that I'm gonna give you guys a free gift at
the end of this video so what I'm gonna do is I'm gonna give you a free
calculator an excel sheet to show you how much money and time you can
potentially save by using this very strategy so what you want to do is you
want to go to chop my mortgage com go and download a free free calculator
after we download the calculator I'm gonna invite you to join me on a 50
minute class I'm gonna go even deeper as far as how do you use a HELOC to protect
yourself from a recession how do you how does the the numbers work I'm gonna even
show you the calculation of the average daily balance interest I'll give you fun
examples I promise them they're not gonna be you know boring math anything
like that I know I try to keep it nice and fun so go and check it out download
the calculator chop my mortgage calm and I invite you guys to take a free 50
minute class that I put together on how to pay off your mortgage faster using a
home equity line of credit and also use it as a recession proof plan to help you
through the hard time so going to have to check it out chop my mortgage calm
I'll see you guys on the other side