I never dreamed I would write a book someday. Let alone a book exposing why mortgages are bad and what to do about it.
I was a mortgage lender for fifteen years for Gods sake. I had helped thousands get into a mortgage. What changed you might ask?
Pure and simple, information. It was a conversation with a wealthy mentor of mine that lead me on the path of what I call God's work. Helping homeowners pay off their biggest debt in 5-7 years on their current income.
Today I decided to write a blog post sharing the over all problem of a mortgage and what to do about it. Hope you find this information as life changing as it has been for myself and my own family.
I am going to assume you own a home and like most homeowners, you have a 30 year mortgage. It's no secret that the first five to seven years of a mortgage you are paying mostly interest. You have seen how your principle almost doesn't even move. Painful right?
When you signed up for your mortgage did you see the page where it shows the total cost of the loan? Basically you are buying one home for you and one for the bank. Don't take my word for it. Pull out your documents you signed.
What's bad is your home will more than likely never be worth what you are paying for it if you keep your traditional mortgage and make your payments as normal.
While making extra payments on your principle is one of the 3 ways to pay your home off faster (which I discuss in my book), there is actually a much faster and more efficient way to pay off your home and save thousands more in interest payments.
So what do you do instead?
Instead of a mortgage, replace your mortgage with a home equity line of credit (HELOC). Typically this is used to make repairs on someones home but almost all banks will let you refinance into a first lien position HELOC. Now, they would much rather sell you a mortgage though because of what I said above.
Below is a video when I was a guest on a local news station talking about how this works.
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Just by using these tips, we see clients paying their home off in a third of the time. It's crucial that you get the right HELOC and know how to use it effectively though.
How is a HELOC different than a mortgage?
A HELOC is a simple interest open-ended line of credit. This means you only pay interest on the balance remaining at the end of each day. So, as your daily balance decreases your interest on that balance decreases with it.
Money can move in and out of a HELOC freely 24/7 during the “Draw Period”. It gives you the ability to dump 100% of your income into a HELOC and still have access to the principal reduction at any time. Where a mortgage is closed-end and only allows money to go in and NOT come out.
A mortgage has a fixed payment for the life of the loan based on an amortization schedule where the bank front loads interest. This gives the bank full control of the allocation of principal vs interest on each payment.
A HELOC has a variable payment (usually interest only). The payment decreases as the balance decreases. Every penny above the minimum payment will go towards the principal much like a credit card.
What are the qualifications of getting a HELOC?
They are very similar to that of a mortgage where equity, income and credit scores play a huge role. A good rule of thumb is if you qualify for a mortgage then you will qualify for a HELOC.
HELOCs are not government loans like 99.3% of mortgages offered today. Hence, each bank can set their own requirements for a customer qualifying for a HELOC and banks are typically more flexible with underwriting than the Fannie Mae, Freddie Mac, FHA, USDA or VA.
If you have an extremely low score (below 500), you may not qualify for the loan. If you have an excellent credit score (above 700), you should qualify for the best rates and terms. To qualify for the prime interest rate, you should have a credit score of 620 or higher.
How do I pay off my mortgage with little equity in my home?
Many banks offer 90-100% financing in 1st lien position. This means you can literally refinance your existing mortgage and replace it with a Home Equity Line of Credit. This is not a loan on top of your existing mortgage. It is simply replacing your current mortgage just like any other traditional mortgage refinance.
Even if you cannot get a HELOC, we can show you how to perform our strategies with any open-ended line of credit including a credit card. However, we recommend a HELOC above all other options.
Well, that's up to you. I wanted to write this blog post for my friends to show them that there is a better way to pay down their biggest debt. I hope they get value from it.
My biggest suggestion is to do your research first and if paying off your home is a big priority to you and your family, take action and replace your mortgage with a HELOC. At the end of the day,it's math.Not magic.
Michael
Dave Ramsey is great but does he have it wrong on home equity loans? Should you pay cash for a home even if you can? We talk about it here. Hey - Do you agree with me? Disagree and think I am way off base?
Hey, folks. This is Michael Lush. Recently came across an article where Dave Ramsey's talking about a home equity loan. Quite frankly, I don't disagree but I think there was a miscommunication there because he's giving his listeners information regarding a home equity loan and most of those listeners are thinking that pertains to a home equity line of credit.
Again, they're two separate things. Dave's talking about folks using a home equity loan to pay off debt or payoff credit card debt which creates bad habits. They already had bad habits. All they're doing is taking out more debt to pay off that debt and they still have the credit cards and they still rack up more credit cards.
Again, I don't disagree with him. I have the most utmost respect for Dave Ramsey, son of a Christian. Dave Ramsey misses the mark on a couple concepts. Again, he's focusing on a home equity loan. That's an entirely different product of what we talked about.
A home equity loan is extra debt on top of your mortgage. What we teach is using a home equity line of credit to replace your mortgage. I would not encourage you to get a home equity loan but I would encourage you to get a home equity line of credit to pay off that mortgage.
What's more risky? To have a 30-year mortgage where you buy your house and one of the bank or have a home equity line of credit where you pay it off in 5 to 7 years? Let's take an example of a 250,000 mortgage at 4.25%.
If you finance that on a 30-year mortgage, you're actually going to pay $206,000 of interest. You're actually going to pay $456,000 for that $250,000 house. Now, if you got to ask yourself, at what point is my $250,000 house going to be worth $456,000? The most common answer is a long time, if ever.
Is it worth it? We have to change our mindset to look at the total cost of a home versus just the purchase price because the purchase price does not dictate the total cost of a home if you're financing it.
Instead, if you're going to take that same $250,000, use the cash flow strategies that I teach, you're going to actually get it paid off in 5 to 7 years, instead of paying $205,000 of interest, you're going to pay $53,000. Again, it actually takes less discipline to do it my way than it does to segregate your money and make separate payments to your mortgage over 30 years.
Again, if you like this video, be sure to comment below. Whether you agree or disagree with me, it doesn't matter. I'd like for you to comment below and let's debate this. Again, subscribe to our channel so you get more videos. Take care. God bless. Thanks for watching the video.
