hey what's going on everyone this is Sam Kwak one of the Kwak Brothers real
estate investor and entrepreneur and in this video I'm gonna go and break down
what exactly is a HELOC home equity line of credit now before I do make sure you
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I know a lot of guys know what home equity is I know a lot of you guys are
smart you guys are educated you guys are sophisticated but I want to make sure
that everyone's on the same page here so home equity is essentially to give you a
baby step definition home equity is essentially what your home is worth -
what you owe on the property so let's say your home value is $200,000 and
let's say you owe $100,000 as a mortgage consequently your equity is $100,000 so
you can do all sorts of different things with your equity again you can borrow
against your equity in this case you're using a line of credit to borrow against
your equity which you know this is what the video is all about you can also sell
your property and get your equity portion out as cash - of course any
expenses that are related to selling your property so equity is a good thing
we want more equity that's something we're looking forward
to now that we understand what a home equity is the line of credit portion
essentially basically takes your home equity and kind of pretty much turns it
into a credit card so going back to the early example $100,000 equity and if you
get a line of credit on that hundred thousand dollars you're essentially
getting the ability to use that hundred thousand dollars sort of like a credit
card so you can basically use up to hundred thousand dollars borrow up to
hundred thousand dollars pay back whatever you've used and reuse it all
over again again just like a credit card now
another important concept to understand is the concept of LTV which stands for a
loan to value now loan to values essentially how much
can you get in terms of your loan in comparison to your home value going back
to the $200,000 home value example in this case as it stands you have what's
called 50 percent loan to value meaning 50 percent of your total home value is
being owed on a mortgage so if let's say a bank offers you an 80 percent or let's
make an easier 90 percent loan to value home equity line of credit what that
means is we can borrow up to up to one hundred eighty thousand dollars out of
$200,000 because one hundred eighty thousand
90% of $200,000 so we're already at 50% we can only use 40% of the $200,000
value towards our home equity line of credit in this case this is called a
second position home equity line of credit because your mortgage that's
already there is your first position it comes before this new home equity line
of credit using the 90% loan to value we got ourselves an $80,000 home equity
line of credit so this is what's known as second position because we already
have $100,000 mortgage which is the first position it's been there and
$80,000 home equity line of credit is considered a second position so this
$80,000 a lot of people have this misconception that you get this $80,000
all upfront much like a mortgage well again it's like a credit card you don't
get the $80,000 upfront which you can choose to you can write a check against
your home equity line of credit and get it all in front which we don't really
advise that you to we don't recommend for that but you can it's totally up to
you but it's kind of like having a getting an $80,000 limit credit card
essentially and you can use whatever portion of the $80,000 for whatever you
like to do of course here in the coop brothers we don't condone you know you
go and spend that money on Las Vegas or getting a new car or boat or Justin
Bieber tickets I don't know but you guys can spend whatever money on whatever on
things but we don't condone that obviously we condone on using the home
equity line of credit to either pay off your mortgage to pay off your debt or to
acquire rental properties income producing assets that'll help you make
more money now speaking of which if you guys are interested in paying off your
mortgage within five to seven years using a HELOC we have a separate video
about 28 minutes long the videos right here click on that video and I'm gonna
go and explain to you guys how to use a home equity line of credit to pay off
your mortgage within five to seven years without how to make more money or
changing your lifestyle to cut back on your expenses so go and check out the
video if you guys are interested in paying off your mortgage using a home
equity line of credit again your line of credit essentially is like a credit card
different types of line of credit there's a personal line of credit which
is which doesn't use a home equity line of credit it's very it's kind of like a
brother younger brother actually say it's a bigger brother of your credit
card home equity line of credit the difference between a personal line of
credit and a home equity line of credit is essentially uses your home equity as
the portion that you can use for your line of credit there's also business
side credit if you have a business typically you can get a line of credit
if you have a low general legitimate business it works very similar to a home
equity line of credit again the difference is it's not attached to any
specific home equity now that you guys understand what a line of credit is as
well as the home equity a lot of you guys might be saying well Sam I know
what a HELOC is or I've been doing my research aren't home equity line of
credit interest rate higher than a mortgage which I'd say yeah it's
absolutely true typically home equity line of credit interest rates are higher
than your mortgage but here's a trick home equity line of credit the way that
the interest is calculated and applied is completely different as to how a
mortgage and the interest rate is calculated so when it comes to home
equity line of credit it uses a concept called average daily interest the reason
why he lops uses average daily interest is because you could take the money out
of the HELOC and pay it back so the way to calculate the interest to kind of
give you an illustration and I don't want to go too deep into this but it
takes whatever balance that you have of that day divided by 365 days times the
interest rate and you get what's called the average daily balance today you may
have let's say zero balance on your home equity line of credit which means that
you're not going to anything on your interest right but tomorrow you may
spend let's say $5,000 okay which means that you have now I have a balance of
$5,000 divided by 365 days times the interest rate that's the amount of
interest that you owe on that particular day the next day you may spend even more
money let's say you spent another $2,000 thus now you have $7,000 of balance
right now it's $7,000 divided by 365 days times whatever interest that you
owe the interest rate you owe on the HELOC
so every day your interest may may vary you
may have a different amount interest in one day in the next day you may have a
completely different amount of interest that you owe so that's why a home equity
line of credit if you use it properly and I'm gonna show you guys a breakdown
in the other video on how to pay off your mortgage I'm going to show you guys
why using a HELOC is a much more efficient and a much more effective tool
when it comes to paying off any debt that you may have like a student loan
and car loan mortgage personal loan business loan wherever the loan you may
have if you can take a home equity line of credit or any line of credit and pay
off an amortized interest which is different than your average daily or
simple interest it's a much efficient tool what's unique to Hilux versus a
mortgage is that he lops are considered non-qm loans mortgages in by general and
by definition is regulated heavily by the government so the government sort of
sets regulations and standards as to how banks issue out mortgages and how they
give out mortgages well when it comes to he locks up it's not quite as well
regulated or it's not as much regulated as a mortgage so what that means is that
the banks could sort of dictate and they have the freedom to change and customize
the features of the HELOC so basically what I'm saying is that not all he locks
are created equal you can go to a bank a and they may have
a completely different type of HELOC Bank B may have a different set of
features and different types of interest rate so wherever you go in terms of
where you shop for your he lock each banks are gonna have different types of
setup different types of features that foreign types of fees so it's really
important that you don't just go into one bank and they tell you what a HELOC
is and you think that's pretty much the he'll all across the board
it's simply not true there's different types of he locks that are out there and
it's really important that you read the fine print as well as the disclosures
when you're being presented with the he lock offer by a bank so just because you
don't like the one term or one feature in one certain Bank doesn't mean that
you can go and shop around for different types of he locks whereas in a mortgage
wherever you go it's generally the same they may offer different types of
interest rates or they may offer you different types of
fees but generally almost all mortgage or mortgages are operated the same way
they're offered in the same matter wherever you go HELOC is different banks
can again customize how they want different types of interest rates they
have an intro rate can you do a direct deposit into he log does the Gila come
with a checking account protection plan there's so many different types of
features that are out there so be sure to if you're shopping for a HELOC and
you're wondering where can i get a HELOC be sure you shop around thoroughly and
find out and do some research about where to get a HELOC so it's gonna give
you a summary again home I grew line of credit is essentially like a credit card
that is attached to your home equity we talked about what a home equity is there
are different types of London's like lines of credit personal line of credit
business line of credit and generally line lines of credit you can reuse pay
back you know you repeat higher interest rate
doesn't necessarily mean that you have to pay higher amount of interest it
definitely depends on how you use the home equity line of credit that's
ultimately going to dictate how much you will end up paying as far as the
interest and also different types of banks offer different types of heat loss
so be sure you go shop around for it so the next video that you guys should
definitely watch is how to pay off your mortgage within five to seven years
using a home equity line of credit that video is gonna be you right here go and
check it out you guys will find out you guys with a mind blown because the the
information and the strategy that I'm gonna break down for you guys is
literally gonna save you and help you shave off two thirds of the amount of
interest that you will pay and a two-thirds amount of time that you would
spend on paying alone so definitely go and check out that video and I'll see
you in the next video