this is Sam Kwak, one of the Kwakbrothers, real estate investor, and the author of the book, fire your boss and inthis video I want to show you guys how you can pay off your mortgage withinfive to seven years.
Now, Before I go on with the breakdown and the explanationof the strategy, I want to make sure you guys get some disclaimer so that youguys are protected and then I am protected as well so real quick I am NOTan attorney I am NOT a CPA nor am i a financial planner so anything that I sayor mentions of legal tax or financial planning advice please don't take it asan advice but rather as a suggestion based on my own experience and my ownunderstanding of the strategy now this is gonna be also a short 15 less than 15minute video so make sure don't try this alone okay if you guys have anyquestions if you guys any need any help if you guys need some personal help I'mgonna leave a link down below at the end of this video I'm gonna give you a linkto go to to see further explanation and I'm also gonna give you guys a littlemore breakdown in that in the link that I'll send you to at the end this videoso make sure you guys understand that I get it there's other videos that willshow you this strategy but remember it's really crucial that you get some help athird party or a third pair of eyes sort of speak to help you guys use thestrategy so the purpose of this video is just give you an overview an idea apossibility on how you can implement a strategy in your own situation so thatyou don't have to pay you know a huge sum of interest and spend all the timethe world trying to pay off your mortgage so let me go ahead and flip thecamera around and I'm gonna show you guys using a marker and piece of papergive you some illustrations and how these how the strategy will actuallywork all right guys I'm gonna flip the camera around so I'm gonna show you guysto break down and and these explanation as far as how this strategy works nowbefore I get to the actual strategy I want to show you guys how and whymortgages work right and why I think they are inefficient so I'm gonna breakdown the mortgages in a chart for you in relation to interest versus principlenow for those don't know what principal is principal is the actual loan balanceso if you have a hundred thousand dollar loanyou're bound your your principle balances $100, 000 get it interest is isthe expense that you pay to use the bank's money okay that's basicallybank's profit so I'm going to draw the chart for you herethe x-coordinate it is time so we're gonna label with zero months this isgonna be 30 years and right between is 15 years okay this is gonna be yourmonthly payment amount monthly payment so let's say we're gonna give it a givea good example here a hundred thousand dollar loan okay five percent interest at 30 years a ssin it's gonna be justaround about four or four hundred dollars right and guys don't quote mehere I don't have the amortization calculator in front of me but based onmy experience it's around four hundred bucks for principal and an interest ofall so with that four hundred dollars in mind this curve here is gonna be yourinterest payment and this curve here is going to be your principal balance so ifyou guys notice that first you know the first half fifteen yearsbulk of your hundred payment is actually interest payments right in the earlymonths very little is gain taken out of your actual hundred thousand dollarprincipal balance so in that four hundred dollars most people think thatif we make that four hundred payment our loan is going back down to ninety ninethousand and six hundred bucks right guys that is not the case in fact maybelike fifty hundred bucks if not even less are gonna be the actual principalpayment that's gonna go and lower the the balance from a hundred thousand toyou know the principal payment whatever we're subtracting here so do you guyssee how the first fifteen years you guys are actually not making much progress asfar as paying off your loan in fact the first ten to fifteen years this is wherethe banks make money thanks profit does that make sense guys sowhat's really interesting and for me it's kind of entertaining most bankerswill come to you and say hey you know it's been about 10 years how would youlike to refinance your mortgage for a lower payment how would you like to pay$350 instead of $400 right most people would say wow you know I'm saving $50that's actually a pretty good thing but what sucks is that and what they don'ttell you is that we're basically resetting our clock back to zero monthsand we're paying all of this interests all over again kind of sucks isn't itright we're actually paying more interest by refinancing by resetting aclock back to zero right because if we did a refinance and continues and paidto 15 16 17 18 and so on we're actually gonna be making more that principalpayment and we're actually gonna be doing much better in our progress as faras paying off our our principal balance now what's really important is that thisis something that you should know if you guys are taking notes or if you guyshave pen and paper in front of you the lower the principal balance right as theprincipal balance gets lowered so will be interest right I'm a huge Star Warsfan so I'm gonna make this reference if you if you destroy the shield generatorthe Death Star is open to being a you know vulnerable I know guys I'm a geekI'm in there I wanna that's the best reference an analogy can give you sokill the principal and you'll also kill the interests too so it's reallyimportant that we take the principal balance down so that we're not payinginterests does that make sense so that's one of the pillars or I should say thecore kind of supporting you know methodology to making this strategy workokay now the other ins illustration on a hundred thousand are alone at fivepercent interest okay I know I can't spell here 30-yearmortgage EMAS ation most people think five percent interest is not bad okaybut little do people know that actually will amortize and will become compoundedto actually be coming around 80, 000 to $100, 000 on interest alone so on that hundredthousand dollar loan that's the principal balance on a 30-year Bogey's30-year amortization five percent interest we're actually paying hundredthousand dollar interest alone plus our original loan amount is gonna be aroundone hundred eighty thousand to two hundred thousand dollars we paid to thebank now guys if we're gonna pay her thousand dollar interest we just boughta bank another house right we got a house and they got a house so you knowyou guys can see how mortgages kind of suck doesn't itright we're paying a lot of interest take so long 30 years that's like youknow that's that feels like forever it really does right I'm actually scaredthat some of these banks are coming out with fifty realization for you know thepseudo pseudo loans that is crazy right that is insane that's ludicrous thisshouldn't be the case and that there has to be a better way in paying off ourproperty there has to be a better way to buy houses without paying 100 percentinterest to the bank there is there is a methodology there is a strategy that I'mgonna show you and this is why you're watching the video right to pay off yourmortgage faster and you guys probably already know this right this is allgonna be in what's called Truth in Lending statement banks will give youthis and though they won't tell you the truth and how mortgages worknow there's another debt instrument that that I like to use to pay off yourmortgage way quicker and with this strategy we're gonna accomplish arethese these are the objectives or I should say the overall concept overallfinished touches as far as how the strategy work so this strategy is calledvelocity banking what we're doing is we're we're accelerating how our debt isbeing paid and it is known that about sixty six percent interest savings withthis strategy we've got about sixty six percent of time saving as well and it's something some cases 5 to 7years of total payment amount and we're gonna keep the same amount of expensesalright we don't have to incur more more loss we're not paying a penny more onthe mortgage trust me and same amount of income so I'm notgonna tell you to go get a better job not gonna go tell you – you know skimpand save right save and save every single penny right I'm not gonna tellyou to go clip coupons guys what I'm telling you here what this strategy willhelp you is still keep the expense the same still keep the income the same sameway but we're saving 66% an interest and 66% on time of of the payment periodcool and some of you guys might be saying this sounds way too good to betrue this has to be some sort of scam right or something guys may say this istoo risky this is two different guys I'm gonna show you the overall generalconcept as far as how this work and the math behind it now this is the onlygonna be a short video you're not gonna get the full understanding I get it mostof you guys want that's what I'm gonna I'm gonna share a link at the end ofthis video on on a live example I'm gonna actually show you a spreadsheet anExcel spreadsheet and give you guys the actual breakdown as far as how thestrategy will work in numbers but for now I'm giving you guys the concept soI'm gonna introduce you guys a new debt instrument a new way I knew I should saya revolution right but this has this actually has been around for a littlebit and most people don't know it's called home equity line of credit also known as a HELOC now the banks havebeen selling this product for about 15 17 years it's been around for a littlebit but the reason why bankers don't tell you about this instrument isbecause remember huh you remember our illustration with this you know theywant you to make you know all this crazy they want you to actually pay rightwhere to go I'm trying to give you guys theillustration again they want you to pay a hundred percent right they want you topay this amount interest they don't want you to save interest it's not that's nottheir interests right that that's funny that's not their interest right therethat's that's not what they're after they want you guys to make ton ofinterest payment so they can make money even though the interest rate is gonnabe variable and and it's gonna be higher than a mortgage why those two thingsaren't gonna matter as much and it's actually gonna save you more money thisway okay I want to show you I know it's a little backwards and it could beconfusing I'm gonna show you guys number one the distinction between a mortgageversus a HELOC here we go so lowest mortgage versus a HELOC first of all keylocks are open are open-ended and your mortgage your mortgage broker slashbanker will know this open-ended and this is gonna be closed ended what thatmeans is let's say for example you make a payment of thousand dollars to thebanks I'm gonna draw the best bank as possible there you go right that moneycannot be on a mortgage situation you can't use that again right you can't useit okay but on a HELOC you make the thousand dollar you made a thousanddollars on the HELOC principle payment you're gonna be able to use thatthousand dollars again does that make sense guys so it look it works just likea credit card credit card you have a limit and a home the whole nine yardshere in the mortgage you're not you're kind of stuck right you pay the thousanddollars that's it it goes to the principal and interest the end on theHELOC you use thousand dollars you pay it off again you use five hundreddollars pay it off right just like a credit card now the next thing thedistinction is that he locks the the the interest is calculated and applied onaverage daily balance and what that means is that every day so Monday let'ssay you have a hundred dollar balance on Tuesdayyou have $90 balance and on Thursday let's say you have $50 balance right soeach day you bring down the daily balance so well your interest go downsomeone who's really quick show you guys how the average daily balance workslet's say you have a hundred dollars just like the Monday's example all rightit's gonna be multiplied by the interest rate so point zero seven get it and it'sgonna be divided by 360 days it's the commercial lending year and whateverthat is is gonna be the average daily interest right and that's gonna getapplied every single day as long as you have hundred dollar balance so let's sayfrom Wednesday through Friday you have hundred dollar balance from Wednesdaythrough Wednesday through Friday whatever this amount is getting appliedeach day but let's say from Wednesday to Wednesday you had 100 bucks balance onThursday you have 90 dollar balance well guess what guys the next day this is notgonna be hundred bucks this is gonna be ninety dollars so on Monday or I'm sorryWednesday you may have had let's say I'm trying to calculate here let's say fivedollar interest well the next day because the balance is lower Thursdaynot Tuesday we're going backwards here Thursday you may have more like a thirdfor dollar interest so you see how the balance on a HELOC every day it mattersokay the longer you have lower balance the longer you'll have smaller amount ofinterest going out okay so this is the key this is one other key a secondpillar so you know you can call it that to understanding why he laughs arebetter okay so let's go ahead and show you guys the actual strategy this is mylast sheet of paper so I better do a good job all right so what we're doingis there's really two ways to skin a cat here okay there's two ways to do thisstrategy I'm gonna show you guys one way okay like I mentioned earlier I'm gonnashow you guys the full illustration of this method and in a link that I'm goingto put down below at the end of this video so let's say back to the example$100, 000 mortgage $100, 000 balance okay this is a mortgage okay what we're doing is we're gonna goahead and open up a home equity line of credit so obviously this is gonnarequire a little bit of equity to have so let's say we have we were able toraise or I should say and open a twenty five thousand dollar limit HELOC so whatwe're doing here is some people might say we just got another twenty fivethousand dollar loan that is not the case here guys so if you have this islike getting a twenty five thousand dollar credit card we didn't get anymore alone so what we're doing is we're taking that twenty five thousand dollarcredit credit line that we have with the HELOC and we're making a principalpayment principal payment of $25, 000 so now our ending balance is gonna beseventy five thousand dollar balance here and this is gonna be a twenty-fivethousand dollar balance so seventy five thousand plus twenty five thousand westill have hundred thousand dollar dollar balance in terms of debt okay wedon't we didn't incur any more debt all right a lot of a lot of people seem toconfuse that HELOC they think it's another mortgage or equity loan productit's not okay so we we take in the principal balance and and and put ithere does that make sense and what we're gonna do here from now is we're stillgoing to continue to make our mobile payment every single month okay we can'tforget that all right unless we want a foreclosure which we don't want whatwe're doing here is that we're gonna take our entire income okay so you guysthink I'm gonna be crazy here let's see our we have our income our monthlyincome is five thousand dollar income and make a principal payment against theHELOC so our balance now is twenty thousand dollar balance and we still have a $75, 000 balance heredoes that make sense but here's a trick guys out of this twenty twenty thousanddollar balance we still have expenses every monthdon't wait right we have kids we gotta pay for diapers right we have to pay forgroceries so what we're doing is we're paying you know groceries here rightgroceries we're paying for kids expense all right we're paying we're stillpaying our mortgages when we our mortgage monthly monthly mortgage rightwe're paying for other bills but we know that this all of this is not gonnahappen like right away next day so remember our average daily interestbalance concept right we're not gonna go and deposit five thousand dollars onMonday and next day on Tuesday we're not gonna incur forty five forty fivehundred dollars of of expenses it's gonna happen you know it's gonna spreadout right it's gonna be hundred dollars here 105 hundred dollars there $700 nextweek so between I'm gonna do my best to explain this part here so week one wehave let's say we spent five hundred dollars on groceries that means we havea new balance of twenty thousand five hundred dollars on HELOC right but ourtotal balance is twenty thousand five hundred plus seventy five thousandbalance that comes to ninety five five hundred total debt does that make sensenow guess what guys using it knowing what we know about average daily balancewe're getting up our interest is getting applied on twenty thousand five hundreddollars not twenty five thousand dollars of an imbalance so even if we do haveI'd say a seven percent Interest okay which is usually he laps are higher thanmortgage interest that 7% interest is now getting applied to twenty thousandfive hundred dollars instead of twenty five thousand dollar balance so if thiswas a mortgage balance of ninety five thousand five hundredwe just saved a whole crap ton of interest around right right there Plusthat $20, 000 principle payment we did or $25, 000 principle payment we did on themortgage we not only we saved interest there but we also saved like close toman had to say about five to seven years on that single $25, 000 paymentprobably be more I might be even be confident to say 10 years we just saved10 years of that mortgage the mortgage does that make sense guys say in week 2we spent additional $2, 000 on whatever expenses you may have you know grocerieskids you know they all add up right so at the end the total balance nowincluding the mortgage balance and the HELOC balance is give me ninety seventhousand and five hundred dollars so essentially our he life is now becominga checking account right nothing has changed right we're still making thesame expense the same income now the one thing that I forgot to mention is thatyou do need to have leftover money at the end to have the HELOC balance comedown as well they know the principal balance of the HELOC right in othercases that you should not be spending more money than what you're making so ifyou are if the expenses it let's say is $4, 500that $500 is what's bringing down the balance so over time that HELOC balanceis gonna come down zero all right it's gonna come back to zero the balance andbut again we still have that limit we're gonna take another $25, 000 and bringthat $75, 000 let's say you know over time we're gonna have balance come downin $60, 000 anyways because we've been making that mortgage payment right overtime so by now you know what by the time this becomes zero right this would havecome down as well to $60, 000 so now if you take another $25, 000principle payment against the mortgage we're gonna be back down to $35, 000 youguys see that's gonna probably chop off another ten years does that make senseguys right you can you guys see how quickly we can pay off your mortgageusing things to the average day balance right and we're chopping this down wayway way quicker so we're doing is this is interphaseshit and converting it to what's efficient you can save so much moneymore money on this side then letting it sit on a schedule and having it payevery single month now some people will argue with me and saying Sam why don'twe just take the extra money that you you have you know in this case fivehundred dollars and just make an extra payment on that mortgage well guys thatdefeats the purpose of having lower lower average daily balance in this casewhen we brought the five when we introduced the idea of $5, 000 incomeprinciple payments against the HELOC we brought the average daily balance frombalance from twenty five thousand to twenty thousand right and like Imentioned you're not gonna be spending up that forty five hundred dollars worthexpenses the next day right you can be spending hundred dollars here onehundred five hundred dollars there two thousand dollars you know next week sobetween those spending you're saving that interest just like our earliermicro example Wednesday into Thursday between those two you know between yourspendings that's where you're gonna save the interest right we're cutting themortgage balance from back end instead of front end if that makes senseso guys if you guys need an actual illustration I do have another link I'mgonna put it down below right underneath underneath the video if you need areal-life example if you need real figures I have actually made a longervideo about 30 minutes with actual spreadsheetsI made an actual example with real interest rate current market rate I'mgoing to show you how the strategy actually works on an excel sheet themath does not lie my numbers don't lie I'm gonna show you in an Excelspreadsheet how this strategy actually works in number sense I know I explainedit in a very conceptual way you know I've made a really quick diagram but ifyou guys are like like me and you're a numbers person you're very analytical ifyou guys want to actually see the real number behind this you know this thisconcept I'm going to show you it's called chop my mortgage calm so I'mgonna write this sooner there you go I'm running out of papersso I'm gonna write it right here so go to a chopOh chop my mortgage.
com go to that link guys have emojis calm I'm gonna also putit you know underneath this video you can also look in the link descriptionbox if you're watching this on YouTube I'm gonna give you guys real liveillustration also because I'm a real estate investor I want to show you guyshow to use this strategy also on rental properties so you guys can pay off yourrental properties and I will also show you guys on ideas on how to take thisHELOC strategy the velocity banking strategy and turn it into an incomestrategy isn't that cool so what you thought was it was a strategy to pay offyour mortgage quicker I'm gonna also show you guys how to use the this thismethod here to also increase your monthly income so if you guys areinterested in in saving your same your time on your mortgage payment if youguys are interested in you know paying 66% less on interest you guys areinterested in possibly and potentially doubling your income using this strategygo to chapman mortgage comm i'm going to show you guys some real-life examplesplus i'm gonna give you guys an opportunity to interact with me on aphone or skype and you know we could chat on how you can take this thisillustration this concept and apply and you're in your own life so go to chop mymoves calm i will see you guys there i will be waiting and and i'll see you inthe next video alright take care now.
