It is YouTube’s Most Popular Mortgage Strategy. Now, Let’s Take a Closer Look at It!
On Sam Kwak’s YouTube account The most popular video has more than 3 million hits. It’s nothing extraordinary. A whole hour of Kwak talking about it. His only tools were a couple of sheets of printer paper as well as an extremely large black Sharpie. The public can’t help but be drawn by the thought of paying a mortgage quickly. More loan options are available via Oak Park Financial.
In a glass-enclosed conference space that has an unoccupied office behind him, the man announces “Mortgages stink.”
After attending a conference at which he was taught about the process, Kwak, now 28 years old, recorded this video in September of 2017. In the clip, borrowers could get thousands in savings in interest charges by paying off the 30-year mortgage in seven years. Since it was first released at the end of May and a revised version has been viewed over 950,000 times. This is a significant increase in traffic during the period of the coronavirus epidemic in March.
A technique referred to by the name “velocity banking” or “debt acceleration” has resulted in Kwak along with his twin brother Daniel one of the most famous proponents. In recent times, YouTube has seen an increase in the popularity of this strategy, resulting in hundreds of tutorials with more than 100,000 views.
The majority of the videos, such as Kwak’s are very easy to create. With whiteboards along with Christmas light strings, a woman guides us through the process by drawing sticks of figures. A man enters data into an Excel spreadsheet in a separate video. A few references to the Powerpoint presentations of the low-income borrower who has huge savings are common.
The tone suggests that you’ve been provided with the information to give the lender an edge. A number of people have referred to this plan by the name of “robbing Paul to pay Peter.”
Spreading your funds across different credit instruments is the basic principle behind reducing interest costs as well as increasing the money of money that goes towards paying off your mortgage’s principal. Paying less than what you make is your only option to reach this objective. There is a chance that instead of finding a mortgage that is low-cost but you’ll end up with a huge credit card from a costly loan credit. If you’re in a worst-case scenario you could even be forced to sell your home.
There are a few valuable lessons to learn from this experiment including understanding mortgages and how to make them work for your benefit. But, in reality, it’s an extremely risky game that professionals call arbitrage or leveraging slight price differentials (or in this instance interest rates) in your favor.
The Denver-based expert in mortgages Nicole Rueth quizzes you to assess your financial competence. “Devastating” effects might occur when the plan isn’t properly executed. “The second you fall, the whole house of cards collapses.”
What is the proper way to use velocity banking (and what can occur)
A loan is an initial step.
You’ve made a commitment to pay your lender $1,265 per month for 360 months if the mortgage you’re taking out is $300,000. It has a 30-year period and a fixed interest rate of 3.3%. If you’re able to see the deal through, then you’ll be paying 155,000 in interest.
According to Kwak, “You virtually purchased the bank another home while you were paying for your own.” (Kwak was right.)
It’s much easier to obtain a mortgage. The benchmark rate for 30-year fixed-rate mortgages stood at 2.68 percent at the end of December. which is a record low. It’s a bargain for the amount you can afford to pay in monthly payments.
A HELOC could be your next option.
It is the next stage to submit an application to get the HELOC (also known as a Home Equity Line of credit. A HELOC is an adjustable line of credit like a credit card, but it is secured with your home rather than the credit score. The financing of major home repair projects or other ongoing large-scale expenses is a typical use for HELOCs.
Lower interest rates for a HELOC do not mean an unrisky loan. The home equity line credit is currently offering the average rate of 3.92 percent, however, rates could vary significantly. The interest rates for the home equity line credit (HELOC) are, too, variable, which means that the rate will reset after a fixed initial date.
There is a high chance the interest rates will increase in the near future, making the math behind the speed banking plan more challenging. Due to the current economic crisis, the lenders haven’t yet shut off the customers’ credit lines. Your lender is capable of foreclosing on your house if you aren’t able to pay the bills in this particular line of credit.
Utilizing the HELOC to pay for your mortgage is the next step.
When you’ve obtained both loan approvals, the fun begins. The advocates of speed banking say that rather than redesigning your bathroom using your HELOC it is better to use it to pay down some of your mortgages from the beginning. “Chunking” is a term employed by those who advocate for it.
You’d be liable for $290,000 instead of $300,000 if taking out the 10,000 HELOC for your loan in order to settle your mortgage. You’d save $14,000 on interest, and you’d have 18 months left on your mortgage in just one additional payment.
How? The monthly interest payments for mortgages are calculated by following this method. The lender will divide the result by multiplying the outstanding amount by your loan rate times 12 in order to determine the amount you have to pay. In the initial month of the hypothetical mortgage, $750 of the monthly $1,265 payment will go towards the interest while the remainder will be used to pay off the debt.
If you make regular payments you will see a small portion of the total amount of your loan will go towards the principal every month. The use of HELOC is a method to accelerate the process of amortization and is the word used to describe this method.
If you are able to, as soon as possible make sure you make payments on your HELOC.
Utilizing the HELOC to pay off your mortgage leads to a move of the debt category to the next. It’s a red flag for the majority of people, however for those who believe in speed bank, it’s an integral part of the reason why they are so popular.
In order to calculate interest payments, the average daily value of a Revolving HELOC is taken into consideration. After two months of playing around using the Excel worksheet, Kwak finally realized that keeping your level as small as it can be throughout the month could save you cash on interest. Kwak suggests spending all available funds to reduce the HELOC debt in order to achieve this target.
He suggests you put all your expenses on your credit card in order to keep costs down for a long time. When you pay off your credit card every month in full gives you a one-month interest-free time. Be extremely cautious. Unintentional mistakes could leave you with substantial debt on the most expensive debt you can get in the event that you’re credit card’s APR is greater than 20 percent. It’s like having to juggle three balls including a mortgage and an equity line of credit and a credit card.
If you’re seeking an effective plan then you must be aware of how you structure your spending and income Kwak suggests. Kwak.
On the other hand, Kwak acknowledges that the entire procedure will only save only a couple of dollars. To achieve the results he promises in his and his videos, you have to continue to follow the steps.
In order for the strategy to be successful, you need to observe a reduction on your credit balance each month. To attain this amount of financial security you need to pay less than what you put in. The faster the process goes, the more money you will save. A number of videos on the internet demonstrate people earning greater than 25 percent of their annual pay.
Savings rates for individuals within the United States were about 8 percent in February 2020, which was just ahead of the coronavirus outbreak. Even if you’ve already accumulated enough to fund an emergency fund or retirement, this strategy could be suitable for you. Certain options are simpler than other options.
The best method of paying off your mortgage faster.
With a windfall such as the tax return, bonus or a tax refund, you are able to replicate the benefits from “chunking.” HELOC or similar advantages to HELOC could be realized by adding the amount of $10,000 to a mortgage of $300,000. The funds should be used to pay off the principal, not to pay interest.
For a mortgage of $300k and an additional $50 per monthly (so $1,315 instead of $1.265) could save you around $10,000 in interest. You can you can pay off your loan over 339 instead of 360. Ask your lender to make regular payments to ensure that you don’t need to fret about it.
Jack Guttentag, a former finance professor at the University of Pennsylvania, provides an online calculator to calculate the additional payments on the Mortgage Professor blog. Guttentag warns the idea that “big savings” need “huge payments.” If you are creating additional costs, “the challenge is to develop a schedule that works for you.”