First Lien HELOC / Velocity Banking: Answering Objections part 3

#firstlienheloc #hazeltinellc #velocitybanking
Here we respond to some standard objections to the first lien HELOC and associated velocity banking strategy coming from comments on one of our channel's videos explaining it:

Contact us:
678-201-1629

ARTICLES/VIDEOS MENTIONED
------------------------------------------------------------------------------------------------------------------
BetterWealth on simple vs amortized vs compound interest:

First Lien HELOC explainer video:

Velocity & Infinite Banking (with Denzel Rodriguez):

"Becoming your own Banker" by Nelson Nash:
------------------------------------------------------------------------------------------------------------------

MONEY SAVING IDEAS
------------------------------------------------------------------------------------------------------------------
Velocity Banking with a First Lien HELOC
Refinance your mortgage into a first lien HELOC, or buy a house with first lien HELOC to greatly optimize your paydown:

Costco Insurance Program
Switch your home / renters / auto insurance to Costco - I saved hundreds this way:

Health Sharing
Replace your health "insurance" plan with a health sharing plan and save a ton on healthcare – Crowd Health is what I use (my referral link):

Bank/Credit Card Sign-up Bonuses
------------------------------------------------------------------------------------------------------------------

Timestamps:
0:00 Rectifying numbers: 270K vs 222K principal
5:00 Simplicity of First Lien HELOC
7:20 Running alternate scenarios
10:30 Intangible benefits of the first lien HELOC
12:45 Interest rates impact mortgages much more than HELOC
16:00 People want to follow the crowd
22:45 Realistically most never pay off the mortgage
28:00 Running cashflow through the HELOC, not making extra payments
31:00 All of your income works for you in the HELOC
35:00 Benefits of automating your financial strategy
41:00 Correcting numbers
45:00 First Lien HELOC reduces risk and expenses
47:00 Life doesn't exist on a spreadsheet
50:00 ZERO foreclosures on First Lien HELOCs since 2014
52:45 First Lien HELOC improves your overall situation

[HazeltineLLC]

If you'd like to learn more, schedule time with us: www.calendly.com/tradfinance

[thomasxxxxxx]

2. Scenarios
To enable a fair comparison, scenarios must be comparable. Hence what must be compared is

A) Using a 7.5% HELOC to pay back 222K$ using all available cashflow as you suggest
B) Using the 4% mortgage to pay back 222K$ using all available cashflow

Just for reference, yes there could be the C) “do nothing” scenario where the person simply pays back the mortgage according to schedule (as you have done initially)

Now B is the most cost efficient of these scenarios, as the person will end up paying less interest and pay his debt quicker than with A. To give a sense, in the first year alone the person would save over $5 000 in interest with scenario B compared to scenario A. You’ve agreed with that in this video, so that is fine

With regards to scenario C, yes the person will pay more interest over the life of the mortgage if he keeps it for 22 more years. BUT it should also be noted that over the course of the 5.8 or so years (you have 5.83 in your vid) that it would take to pay back the HELOC loan using all available income, in scenario C he would accumulate some 190K$+ (that he would presumably invest to generate some income even if just in a deposit account with a fixed rate).
At the end of the 5.8 years he will have an outstanding mortgage debt of about $175K (meaning he could basically pay back the debt if he wanted to and be left with 15K$ + whatever gain/interest he accumulated on his investments).
This is because in scenario A he directs over $4100 to paying down the debt every month, while in scenario C he only directs about $1300 per month to the debt, leaving him with $2800 cash every month.

Note that as per your own XL (initial video, 36:00), the HELOC first month interest is 1387$ where as at that point in time (8 years into the mortgage) interest on the 222K$ remaining on the mortgage would only be $742. Even though the person is directing more money towards paying down their HELOC debt, the first ~3.5 years they will be paying more interest every month with the HELOC than with the mortgage

In summary, with such a high interest rate difference between HELOC and mortgage, it is more financially advantageous to pay extra on the mortgage or even, alternatively, to set aside the money that otherwise would be paid into the HELOC and decide after 5 to 6 years whether you want to pay down the mortgage with these savings.

Scenario A (HELOC): Loan paid off in 5.8 years, total interest paid ~ 50K$, no cash on hand
Scenario B (extra payments): Loan paid off in 5 years, total interest paid ~24K$, no cash on hand at the 5 year point, ~40K$ cash on hand at the 5.8 year point
Scenario C (no extra payments, no HELOC): After 5.8 years, mortgage debt of ~175K$, interest paid during 5.8 years ~ 48 K$ cash on hand ~190K$ + gains/interest earned

Scenario A is worst, what to choose between B and C is debatable depending on priorities and preferences

[thomasxxxxxx]

6 Interest on mortgage
You ask where I came up with the figure of $1687 in interest on the mortgage. This comes from your original video at 36:00 you show a spreadsheet where this number appears under the heading “interest payment”. You’ve corrected that in this video. It is a minor point

[thomasxxxxxx]

Gentlemen

First of all thank you for your response. It is much appreciated for you to put this time and effort to address objections and certainly is a good sign of your seriousness.

This said, there are still points to be addressed. I’ll try to summarize though your video is quite long so apologies in advance if my text is also long. Hence I will break it down into parts

For simplicity I will round numbers

[thomasxxxxxx]

4 Psychology
HELOC works better for some people because of intangible psychological factors, for example it motivates them to act and address their debt. This is probably the strongest argument for VB. If people are willing to act even though it costs them more, it is their choice. If this is the way they want to manage their debt, even it is less cost efficient, yes I agree with you, it is still better than doing nothing

[Halaster]

What about directing your entire income to a 2nd lien HELOC to pay off high interest debt? Then, once your debt is paid off, transfer smaller chunks like $10k or so from the 2nd lien HELOC to pay down your mortgage.

[thomasxxxxxx]

5 Risk

You ask what is the extra risk. Well for starters, HELOC rates are subject to increase, a risk which is non existent with fixed rate mortgages.
Yes rates could also decrease, but we are talking risks.
Secondly other HELOC conditions (such as total amount) could be changed by the bank.
Thirdly, to echo your psychology point, having a reserve of money handy can be risky for some people, as it will be hard for them to resist the temptation to use it and spend it on the latest gadgets or whatever.

[thomasxxxxxx]

1 Loan amount

Your original video compared a 270K$ mortgage to a 222K$ Heloc. You say this is because the HELOC was considered after this particular person was 8 years into their 30y mortgage and only owed 222k$ at that point.

Fair enough. But your original video SHOULD have compared a 22 year mortgage with debt of 222K$ vs a HELOC on $222K

[thomasxxxxxx]

3 HELOC advantages
You say that the advantage of HELOC is that it is a reserve of money that can be used in case of emergencies. Again fair enough.
However the cost of this reserve is quite high (again over $5 000 just for the first year)
IF the person needs such a reserve then there is nothing keeping them from having a HELOC, not using it (except for emergencies) and instead paying extra on the mortgage and thus saving the extra interest due on the HELOC
Note if the person uses the “reserve” that increases his interest costs, his total debt and therefore delays the eventual repayment of his HELOC/mortgage

Another advantage you cite for the HELOC is “automation”. Well it is possible to automate extra mortgage payments as well.. But in any case an extra mortgage payment is an operation to be done once a month which requires just a few minutes so it is not that complicated. And if you “miss a month” of extra payment, it is not a big deal, it would just cost you about $10 of interest for that month.

[thomasxxxxxx]

Gentlemen

First of all thank you for your response. It is much appreciated for you to put this time and effort to address objections and certainly is a good sign of your seriousness.

This said, there are still points to be addressed. I’ll try to summarize though your video is quite long so apologies in advance if my text is also long. Hence I will break it down into parts

For simplicity I will round numbers