Sam Kwak, Author at The Kwak Brothers - Part 2

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Pay Off Your Loan Or Invest? Know What’s Better For You

Time and time again, I see people choosing to focus either a mortgage or an investment but not both at the same time. But which option is better to start with? In this article, I will show you how you can invest AND pay off your mortgage without the diminishing effects of either process. I want to show you that it’s possible to pay off your mortgage and invest simultaneously. More often than not, such a decision often depends on your financial situation. While many people believe that paying off money is best since it saves on your interest payments, others may want to invest their extra

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BREAKING! The Eviction Problem Just Got WORSE 😧

The eviction moratorium has completely expired and the US Supreme Court ruled against the CDC wanting to extend the moratorium. In addition to this, recently the Federal Unemployment Benefit also expired this week and the Biden Administration has no intention of bringing the unemployment benefit back as the economy is starting to open up.  https://www.youtube.com/watch?v=uaTUQruQjKQ In this video, I’m going to unpack what this all means and how real estate investors could potentially benefit from the eviction

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June 29, 2023

Why You SHOULD Pay Off Your Mortgage (Not What you Think)

One of the long-standing debates in personal finance is whether you should pay off your mortgage early or invest the surplus money. While both strategies have their merits, there’s a compelling argument for prioritizing mortgage payoff – escaping the cycle of endless interest payments. (And it’s not what you think) Let’s delve into why this might be the most sensible approach for many homeowners. Front-Loaded Interest: A Costly Beginning In a standard mortgage payment schedule, your initial payments are predominantly servicing the interest on your loan. This is because the amortization schedule – how your payments are spread out over the loan term – is front-loaded with interest. If you take out a 30-year mortgage, the bulk of your monthly payments for about the first decade will go towards paying interest rather than reducing the principal balance. Only a minuscule portion chips away at the loan principal. This schedule keeps you in a state of perpetual debt, paying more to the lender than towards your home’s actual cost, especially in the early years of your mortgage. The Average American Move: A Costly Cycle Here’s where the statistics from the U.S. Census Bureau come into play. The average American moves 11.7 times in their lifetime, roughly every six to seven years. This means that by the time you’ve made significant headway into paying off the principal of your mortgage, you’re likely to move and start a new 30-year mortgage cycle. Starting a new mortgage resets the amortization schedule, pushing you back into a period of interest-heavy payments. The pattern of frequent moving and resetting mortgages leaves most homeowners stuck in a cycle of endless amortization, thus multiplying their total lifetime interest costs by three to four times! The Cost of Never-Ending Amortization By continually restarting the mortgage cycle, you can end up paying several times the cost of your homes in interest alone over your lifetime. This endless cycle of amortization keeps homeowners trapped in a perpetual state of debt, which can be both financially and emotionally draining. Paying off your mortgage early allows you to break free from this cycle. It reduces the overall interest paid, offers peace of mind, and can contribute to a secure financial future. Besides, owning your home outright is a significant milestone that provides a sense of stability and security. You also have to remember WHO benefits from having your money contributed to an IRA or a 401(k). Most financial firms and custodians make 1-3% off of YOUR retirement funds with wide-ranging “management fees”. So it’s no surprise that financial advisors and professionals DON’T want you to pay off your mortgage earlier because by you doing so, they make less money from selling you investment products. I’m not saying all financial advisors are evil or greedy. What I am saying is that there’s a clear factual conflict of interest for the financial advisor if more of your dollars are used to pay off your mortgage. I’m also not anti-investments either. I believe you should always factor in the opportunity cost, risk tolerance, and what ultimately makes sense for your financial future. But my goal by writing this is to highlight a less-known problem that most financial advisors or so-called experts don’t talk about. I want you to make well-informed decisions by looking at all pros and cons. Breaking the Cycle Paying off a mortgage early isn’t always easy, but it’s worth considering, especially given the cycle of perpetual interest payments and the financial burden that comes with it. Strategies such as making extra payments, refinancing for a shorter term, or utilizing methods like the Accelerated […]
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May 30, 2023

1st Lien vs 2nd Lien HELOC? What are the Differences?

When considering a Home Equity Line of Credit (HELOC), two types come to mind: a 1st lien HELOC and a 2nd lien HELOC. Both can offer financial leverage, but the difference between the two lies primarily in their placement in the financial hierarchy of your debt obligations. Here, we delve into these two kinds of HELOCs to help you make an informed decision. A 1st lien HELOC replaces your existing primary mortgage. It’s essentially a refinancing strategy where the HELOC becomes the primary loan secured against your property. This type of HELOC typically offers the largest credit limit because it’s based on the total equity of your home. It also holds the first position in line to be paid off in case of default or sale, hence the term “1st lien”. A 2nd lien HELOC, on the other hand, comes into play while leaving your existing mortgage intact. As the name implies, it is a secondary line of credit secured against your home’s equity, supplementary to the existing mortgage. This means in the event of a foreclosure, the 2nd lien HELOC will be paid off only after the 1st mortgage has been fully settled. The choice between a 1st and 2nd lien HELOC is dependent on individual financial situations, goals, and risk tolerance. If you have a low-interest first mortgage, you may want to keep it and choose a 2nd lien HELOC to tap into your home equity without disturbing your first mortgage. This could be a smart move if you only need a smaller amount or if you want to keep your existing low mortgage rate intact. On the contrary, if you have significant home equity and your primary mortgage rate is higher than the current HELOC rates, a 1st lien HELOC might be a better option. This can provide a larger credit limit and potentially lower your overall interest costs. Remember, both forms of HELOCs involve risk, as your home serves as collateral. Therefore, it’s crucial to weigh your options, consider your ability to pay, and consult with a financial advisor or professional to make a decision that best suits your personal financial landscape. Understanding the nuances between a 1st lien and 2nd lien HELOC empowers you to leverage your home equity in a way that aligns with your financial goals. At the end of the day, it’s all about creating a strategy that enables financial growth and stability, while safeguarding your most valuable asset—your home.
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May 30, 2023

Paying Extra Into the Mortgage vs. Using a HELOC? Which is Better?

You may have recently been introduced to the idea of using a HELOC, a Home Equity Line of Credit, to pay off your mortgage faster. But you’re wondering ‘why is this better or any different than just sending in extra payments to your mortgage?’. But, is this the most optimal route to financial liberation? Let’s dive into the comparison of “Paying Extra versus HELOC,” specifically exploring the transformative power of the Home Equity Line of Credit (HELOC) strategy, also known as the Accelerated Banking method. The Traditional Approach: Paying Extra on the Principal The principle is straightforward – the more you pay, the faster you chip away at your mortgage. Additional payments go directly toward the principal, reducing the amount of interest accrued over time. On the surface, it seems like a sensible way to reach financial freedom sooner. However, it presents a few fundamental drawbacks. The main problem with this approach lies in the rigidity of the mortgage contract. Money paid into the mortgage cannot be easily accessed again, thus your capital is locked away until the home is sold or refinanced. During financial emergencies, liquidity is crucial, but with this method, your hard-earned money is inaccessible. The Accelerated Banking Method: Utilizing a HELOC In contrast, the Accelerated Banking strategy (also known as Velocity Banking) utilizes a Home Equity Line of Credit. A HELOC is a revolving credit line secured against the equity in your home. With a HELOC, you pay down the principal rapidly, thereby saving a substantial amount in interest payments. Unlike the “extra payments” approach, funds deposited into a HELOC remain accessible. This feature provides the flexibility to deal with emergencies or seize investment opportunities as they arise. Unlocking the Power of Reduced Average Daily Balance with Accelerated Banking Central to the Accelerated Banking strategy is a powerful, yet often overlooked concept: the reduction of the average daily balance. With a HELOC, interest is calculated based on this balance, rather than the principal. This unique feature can be maximized to great advantage through Accelerated Banking. By depositing your entire income or savings into the HELOC, you immediately reduce the average daily balance, thereby lowering the interest you owe. Think of it as a strategic game where your money is working for you round the clock. Since every dollar in your HELOC counts against your debt every day, your money is constantly chipping away at the balance, regardless of how long it stays there. Even if you have to withdraw money to pay for expenses, the time your income spent in the HELOC has already contributed to reducing the balance and, consequently, the interest. So, while the balance will fluctuate with deposits and withdrawals, the key is that it’s generally lower than it would be otherwise. This aspect of Accelerated Banking supercharges your ability to pay off your mortgage faster, while maintaining the flexibility and control that traditional methods lack. With this strategy, you effectively turn your mortgage into a tool that can expedite your journey towards financial freedom. The Accelerated Banking method, thus, is not just about making smart payments; it’s about creating an intelligent system where every dollar works towards your financial liberation. Remember, in the battle against your mortgage, it’s not just about how much you pay—it’s about how and where you keep your money before you pay it. The Power of Flexibility and Control By consolidating your income, expenses, and debt into one account, the Accelerated Banking strategy offers a holistic financial management system. The key advantage lies in its dynamic adaptability – the HELOC acts as a checking account where you deposit […]
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May 7, 2021

Can You Really Pay off Your Mortgage in 5-7 Years?

You may have stumbled upon videos or other articles that claim that you can pay off your mortgage in 5-7 years. Many times, such methods involve using a HELOC, a Home Equity Line of Credit, to pay down the mortgage quicker. While it’s a bold claim, is it actually possible to pay off your mortgage in 5-7 years? Is this legitimate? You may feel confused by the explanation of such a method. Perhaps you have questions. So let’s dive in. What Exactly is this Method? The method has many names from Velocity Banking, Mortgage Acceleration, pill method, Replace Your Mortgage, and more. The official name of the strategy is “Accelerated Banking”. The goal behind this method is to help homeowners and property owners pay off their mortgage faster while saving money on the mortgage interest. This method may seem new to many but it isn’t. This method is widely practiced in other countries such as New Zealand and Australia. In Australia, they actually have a financial product designed for this strategy called an offset account. Here in the United States, banks don’t offer offset accounts. So a few banking and financial experts had a clever idea of mimicking the same method that the Australians are using by adopting a HELOC instead. The idea works by taking your entire income and/or savings and depositing it against the HELOC’s principal balance. By doing so, you now owe less interest on the HELOC. But because a HELOC is a revolving line of credit, you’re able to withdraw the money out of the HELOC at any time through online banking or an app. A HELOC is truly flexible in many ways. By lowering the HELOC principal balance for a long period of time and delaying any withdrawals, the borrower CAN save money on the interest while simultaneously being able to use the same income for living expenses. This is quite clever. Not only does it allow you to save money, you’re now able to treat your HELOC as a “savings account” – allowing you to deposit money and withdrawing it for emergency use. But by leaving your savings in your HELOC, it allows you to save money in the meantime because of the lowered principal balance of your HELOC. What if the HELOC gets Frozen or Shutdown like 2008? During the 2008 market crash, it is true that many homeowners had their HELOC shutdown or frozen involuntarily – forcing many homeowners having to make a large payment to the bank. This is known as a “margin call”. Banks typically do this when the homeowner has done something illegal or the use of their property is illegal. Another common reason is that if the homeowner owes more on their mortgage than what the home is actually worth (underwater), then the banks reserve the right to freeze or shut down the HELOC. In extreme cases, the banks may demand payments to lower the balance. The problem with the 2008 market crash is that many homeowners financed their homes with 80% LTV mortgages while simultaneously getting a HELOC to cover the 20% down payment required. Hence, homeowners were able to get 100% loans to finance their purchase. However, much of this has gone away since the 2012’s passing of the Dodd-Frank Act. Plus, many banks have stopped lending 100% of the home value. And since the method suggests that you’re paying down the debt (not increasing it), you’d actually be in a safer situation than what happened in 2008. What About the Higher & Variable Interest Rates on a HELOC? So, this is a BIG myth to […]
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