First Lien HELOC - The Basics - Replay

Okay, so we're going to have Anthony Rushing here. He's going to be talking to us about the First Lien HELOC. My name's Anthony Rushing, guys. I work for a bank called First Savings Bank. So, we'll come learn about First Lien HELOCs, guys. It's a relatively unknown mortgage product that the people use to really achieve financial freedom in a lot of different ways. So, so what I hope that you'll get from this is that you'll learn about a mortgage product that's helping people across the world and across the United States. I hope that you understand how it works and who it works for and to see if maybe it could be a better option for you. So, that's kind of what I'm hoping to accomplish today. So, first thing like what are people doing? Like what what are they achieving? So, first they're paying off their homes really really quickly. Our tagline is, you know, 5 to 7 years. As compared to an amortized mortgage, people are are becoming not just debt-free from a consumer debt, but holistically debt-free in a much faster period of time. They're saving tons of money by not giving it to the bank in amortized mortgage payments. Some people are using it to invest. They're using the the available equity in them to to leverage that for income-producing assets. It creates an emergency fund that you wouldn't have otherwise. And all in all, it it simplifies your financial life in a way that that other strategies don't. So, this is really what people are accomplishing day in day out. We probably talk to upwards of 15 to 18 people a day. And when it works, these are the outcomes that they're achieving. So, what is it? It's it's a home loan. It's it's a type of home loan that's out there. It just works differently than an amortized mortgage does. So, a lot of people ask like why haven't I heard of it, right? It must not be used anywhere. Well, it's the main type of home loan that people use in Australia. It's the main type of home loan that people use in South Africa. And across Europe and and Eastern Asia, it's just another option that people choose when it's the best option. Another thing is people say I've never heard of this, you know, it must be brand new here. Well, it's not. As you can see, I made this PowerPoint in 2023. So, anyone that's just noticing my amazing timeline that I've got here, I need to update that. But in 1913, the amortized mortgage as we know it today was built was created. Before that, there was still financing on homes and on farms and they were open-ended lines of credit that were secured by the farm. And what farmers would do is farmers would borrow from this line of credit before the season and they, you know, buy their livestock, they'd buy their seed, they'd fix their equipment. They'd have the season, they would harvest, they'd sell, they'd profit and put the money back into their loans secured by their real estate, right? That's an open-ended loan. That's the structure that we have. So, this structure in terms of home financing has actually been around since before the amortized mortgage as we know it was created. So, it's not even new here. So, what am I here to do? What what do I do? I teach people how to leverage this product. I teach people how to use this product to its absolute best capability to help them reach their goals. And I help them figure out whether or not this is going to be the tool to help them do it or if it's not. But really, I advocate for this. I educate on this. We share about what this is because it can be an amazing amazing opportunity for the right person. So, what is it, right? So, if if we talk about the kind of HELOC that Chris usually talks about, it's it's a second lien HELOC, a regular HELOC. And what that is is that is where you have your mortgage and you open up this second lien HELOC, this second this line of credit on top of your existing mortgage, right? And then you do velocity banking through that. That's not what we do. Ours is different than this. So, here's what ours is. You've got your mortgage. Ours comes in and pays off your mortgage. It's a refinance. And what happens is it it provides this very large line of credit. It's an open-ended line of credit just like a just like a regular HELOC, right? Except it's very big. So, right now, if you see the green part, that would be the balance from your mortgage, right? That this new HELOC has. But then on top of that is this unused line of credit, unused equity, which you can access if you want. And it's very core, this is your emergency fund, right? It serves as your cushion. And so, what this means is now you've got a very very large line of credit that takes on the mortgage's balance and anything else you loop into it. So, that's how this is different than the traditional way that people think about a HELOC. When we talk about first or second lien, really all that means is that if it's in the first lien position, it's the first loan to get repaid if someone defaults. So, in the first scenario, when you keep your amortized mortgage, the amortized mortgage would get paid off first before the second lien HELOC were to get paid off. This is just one big loan. So, again, it's in the first lien position. So, how are people paying off their homes in as little as 5 to 7 years with this First Lien HELOC? Well, this is a term you guys are probably super familiar with because I know it's what Christie focuses on. Our strategy is a little bit different than hers because it doesn't involve multiple financial vehicles. It just involves one. So, the velocity banking strategy with a First Lien HELOC, you'll actually be very familiar with. It just doesn't involve the other vehicles. It doesn't involve a manual checking account. It doesn't involve an amortized mortgage. So, then the question is, you know, what what does that look like? So, so first, in order to understand the strategy, we really have to understand how is it different because the only reason why there's a different strategy that you can implement here is because a First Lien HELOC works differently than a mortgage does. And that's it. And so, the question is how does a First Lien HELOC work? Cuz all we do is we teach people how to leverage those differences to your benefit. And so, we have to understand how does what things are we taking advantage of? What things are we leveraging to our benefit for a First Lien HELOC? So, there are two main differences between an amortized mortgage and a First Lien HELOC. One has to do with money flow and the other one has to do with interest calculation. So, if we think about money flow, with your amortized mortgage, an amortized mortgage is is a closed-ended loan, which means money can only go in. And once it's in, it's locked away. It's just how it works. A First Lien HELOC is an open-ended loan. So, it's different. So, that means money can go in, so you can pay as much into but everything you put into it, you also have the ability to take back out. That's one main difference between the two, which is that you have an open-ended loan with a First Lien HELOC. Money can go in and out freely. That's the flow. The second difference that we know about and that we leverage to our benefit is how it calculates its interest. So, with a mortgage, it uses a monthly interest calculation. So, what what this does with your amortized mortgage, it looks at the balance on the last day of the of the previous month. And it uses that balance against your rate to calculate your payment. And that's just the way that it does it. For this strategy to work as it should, the First Lien HELOC needs to have this calculation. It needs to use a daily calculation. I don't know if every single First Lien HELOC in the world or in the United States does it this way. So, the bank let me know I can't say that everyone does it because I don't know if it's true. So, anyway, we do know that in order for the strategy to work as it should, the First Lien HELOC that you choose really should have a daily calculation. So, instead of using the previous month's end balance like your mortgage does, the right First Lien HELOC will take the average balance of the month. So, it's you got a bunch of balances during the month, right? Take the average balance during the month against your rate and that calculates your payment. So, what does that mean in terms of of taking advantage of this? Well, if your average balance is higher, your payment's higher. If your average balance is lower, your payment's lower. If you want the lowest payment possible, you create the lowest average balance possible. So, now we're getting into, okay, okay, got to create the lowest average balance. Well, how do I do that, right? What I'm trying to do here, just so you guys know, is is show this pictorially, right? from the concept. So, here we've got 30 different tick marks that represent 30 days. And this line in the middle is the average cuz we're trying to get to the lowest average balance. Well, if I want the lowest average balance possible, I need to create the most number of days with the lowest balance and that results in the lowest average balance. So, how do we do that? How do we create the lowest average balance? Well, we start on day one. We start on the first day we can possibly start with. And we drive in and we and we create the lowest balance possible. Well, how do we do that? Any money that we have at any point in time has to go in the HELOC as fast as it can. Now we're getting to this probably something that you guys are more that makes sense to you that's that's familiar with you guys because this is the concept of velocity banking. Drive in all your income, right? So, that leads into you deposit all of your money into the First Lien HELOC. What that does is that decreases your balance as much as possible as fast as possible because we need to create the lowest balance as quickly as we can. Well, now all your money's in there. And for anyone that you talk to, they're going to say crazy because now you have to pay your bills. And with everyone else, the kind of home loan that they're aware of locks away your money. You can't get to it. So, that sounds crazy to people that have amortized mortgages. But here, remember, you can take the money back out. Money can flow in and out freely. Everything you put into, you can take back out. So, now you have to pay for your bills. So, that's exactly what you do. You The second part of this is you use your First Lien HELOC to pay all your bills. This is velocity banking at its core. This is what Christie Van teaches. Minus having the mortgage, minus the the chunking, minus the moving the money yourself, which I'll get into as well, right? So, you use your First Lien HELOC to pay all your bills and that increases your balance. So, all in all, the dollars that you did not spend from your income, right? Cuz all the money goes in, that pays down your balance. You take out what you need, that increases your balance. Everything that you did not spend is simply still in there. Month after month, that's what pays off your house. So, if we look at an example, family A, we'll call them. We'll just say they owe $300,000 on their house. Let's say they bring in 10,000 a month and they have monthly expenses of 7,000. Now, if we think about this particular household, I would say this household does a really good job of living below their means. They make more than they spend. They're disciplined in their finances. In terms of this particular budget, if they're consistent with that, then I think that would be a fair generalization to give to this to this household. So, see what happens, right? They want to do the strategy. So, if you take a look, I've got this this sort of chart, right? Where principal balance is up and down and I've got the time, right? Month one, month two. So, they're starting at 300,000 and they're going to deposit 10,000. They're they're going to drive their income in, right? So, if they make 10 grand. So, when they do that, it brings their balance from 300 to down to 290. Well, now they have to pay their bills. So, what they do is they pull from the HELOC. And this household's bills and expenses, their their cost of living is on average 7,000 a month. So, when they do that, it increases their balance from 290 to 297. So, at the end of month one, they still have $3,000 still in their HELOC because those are the dollars they didn't spend, but those are the dollars they didn't take out from their HELOC for their lifestyle, right? Next piece, next month comes around. So, they drive in 10,000, which means their balance from 297 down to 287. Now, they have to pay their bills. So, they pull from the HELOC to pay their bills, which are 7,000, bringing it to 294. So, after 2 months, they've paid down their house by $6,000 in this scenario, right? That is what That is all that this is. So, if you think about what Kristy teaches, this is the second lien HELOC portion of velocity banking strictly in by itself. And that's kind of why I talked about how it simplifies your life, because you don't have all the other You don't have all the other vehicles to have to manage. You don't have a separate mortgage. This is your checking account. So, you don't have a separate checking account that you manage. You don't have a savings account. You don't have an emergency fund. So, this is your financial hub, and you strictly do the velocity banking strategy that Kristy teaches with one vehicle. That's the simplicity that comes with this. The second lien HELOC strategy is great, and it's amazing, but it does involve a lot more movement than this does, because this is just one centralized hub for everything. Um so, in this in this household scenario, if we look to see what that would look like, this payoff for this household, and again, if you look at some of the at the top, $300,000 balance, I'm using a 7.75% rate, 10,000 income, 7,000 expenses, they'd pay off their home in 7 years and 1 month. The total interest cost would be 90,148. Well, here's the catch, guys. If I went around and offered someone who had a $300,000 on their house, if I said, "I will offer you a home loan with a 7.75% rate, and you'll pay $90,000 roughly on it, would you take it?" And most people would say no because of the rate, right? Most people would say, "I will not take that cuz the rate's too high, right?" Knowing that it's going to that they will pay $90,000 to the bank, right? Well, here's the thing. I I ran into a lot of scenarios where I would tell people, "Hey, this is going to cost you 90 grand." And they're like, "What's the rate?" I'm like, "7.75." They're like, "Nope, I'm out of here." And I was like, "Oh, hold on, hold on, it's going to cost you 90,000, right?" And they're like, "I don't care. Like, it's it's 7.75, the rate's way too high, right?" And and I I would have to try and explain to them that the the relationship or that the how cheap, we'll call it, right? The $90,000 total interest cost against a $300,000 balance, how good that was. Well, that was tough, cuz now I have someone who's already on the way out, right? They don't like it. And now I'm I'm I'm helping them to overcome something, right? Well, I I thought to myself, I was like, "Okay, I know that $90,000 total interest cost against a $300,000 balance, I know that's really good, but I don't know how good it is." But most people don't look at the cost. Most people look at the rate. Well, it's back it's different here. The rate here can be a lot higher, and it still is a whole lot less expensive than what you're looking at, which is counter to the way that people usually think. So, what we did is I was like, "Okay, what What if I could take this total cost against that $300,000 balance? What if I could calculate and show people how much what the rate would have to be for that to happen with a 30-year fixed?" And so, that's where we get this 30-year equivalent rate. So, although on paper this interest rate would be 7.75, which is high, with a scenario where someone were to pay off their HELOC and pay $90,000, 90,148, against a $300,000 balance on their home, that's the same cost as a 30-year fixed at 1.83%. So, I don't we don't focus on the interest rate. We focus on the overall cost, and then help people see how good is that total cost. Is it good or bad? Is it expensive or not? Is it Does it save you a bunch of money or not? Because that's one main thing that's that's hard to initially grasp, which is that there are scenarios where the interest rate can be higher, yet it still costs you less. And that's something that that we have to do on a daily day-to-day basis, which is help people work through that, understand how is that possible, right? How is it possible that a higher rate loan can result in a lower cost, because that isn't how it's supposed to work. Part of that has to do with the amount of time that you're paying interest. If you're paying interest for a really short period of time, it results in a lower interest cost, even with a higher rate. If you're paying interest on a really low balance, it can still result in a lower cost because even with a higher rate, because just because of the fact that the balance is lower. So, this is a loan that attacks your balance. It pays down your balance really quickly. So, you arrive at a low balance. This is a loan that when it works, you pay off your house in a very short period of time. So, this loan, when it works, addresses and attacks the other two factors that matter, which are your time and your balance, and the rate doesn't have the chance to be have such a great effect. So, so now let's look at a different a different household, right? Uh family B. So, this household, they also have 300,000, they also bring in 10,000 a month, but their expenses are 9,000. This household isn't isn't bad with their with their budget, right? They're not upside down, they're not living month to month, but they they don't cash flow as much, right? So, let's see what happens with this household. So, they're going to pay down their balance by 10 grand to bring it to 290. Well, their expenses are 9,000, so they're now at 299. So, in a matter of 1 month, they've gone down by 10, up by 9. So, at the end of month one, they still have $1,000 in their loan, right? In in their HELOC, which means their now their balance is 299. Well, that's the end of the month, so next month comes, they drive in their 10,000, brings to 289. They pay their bills, brings it to 298. So, after 2 months, they've paid down their balance by 2,000. If we do some quick math, this household, if they owe $300,000, and if they were to pay down their home on an average of $1,000 a month, it would take them 300 months to pay off. That is not a period of time that would be that competitive compared to a 30-year fixed-rate mortgage. And with a higher interest rate, it would cost them a whole lot more, too. So, all in all, when this works, and this is kind of what I'm trying to get to with this particular part of the of the presentation, is it works when people make more than they spend, when they when they live below their means, when they when they're disciplined with their finances. We can, you know, when they cash flow, when there's cash flow. We can consolidate that to create cash flow. And so, we can help you know, if there's a household that has fair amount of consumer debt, we can consolidate that into the first lien HELOC, which will free up cash flow. We can make this work with that. Even then though, it's still reliant on the budget decisions of the household. And so, if the household is one where we free up the debt, but the debt was there because of particular financial decisions that made it so the household spent more than it brought in, if that particular habit continues, just freeing up cash flow won't make this work. It it really relies on the on the habits or the the routine or the budget behavior, we'll call it, of the household. Uh but when that is one that they're extremely disciplined with their finances, and there's cash flow there, then this can be an amazing tool that works for people. So, initial understandings, using the maximized cash flow strategy, guys, that particular um s- uh word choice was one that we thought we would want to implement with as our like little thumbprint, and then we realized that velocity banking is just so big in this little world, right? It's like, you know, let's just if you if we're not going to beat them, let's just join them. So, I should have changed that to velocity banking. Please forgive me on that. So, um it allows for homeowners to save and leverage everything toward paying off their house. There's no faster way to pay off your house with the current cash flow. Um it only works when a household makes more than they spend. If they're super tight with their budget, it just won't perform an amortized mortgage. There's nothing wrong with that, right? There's nothing wrong with that. It's just the reality is that if the household is tight on their budget, this particular option won't be the best one for you to choose. But when it does work, homeowners can pay off their homes really quickly, and what's a lot faster than what's feasible with an amortized mortgage. And people can save tens of hundreds of thousands of dollars in overall interest costs um as compared to the amortized mortgage. If you want to know if it's a good fit for you, you can go to firstlienheloc.com/calculator. You can run your numbers. Um what you're going to want want to look for is your payoff time, right? You're going to want it to be 13 years or less, and you want it to to overall interest cost to cost less than your current mortgage. The outcome that you get is going to be as good as the numbers you put in. So, you're really going to want to dial in on that average income and the average monthly expenses. Um You can make the calculator look great for you if you want. You can do it, right? You can put in the numbers that you want to make it look good, and that and it'll show you a great outcome. But the way I like to think about it is, if I'm going to consider making any decision like this, I want to be bru- brutally honest with myself about my actual scenario, so I can make the best decision for myself. Um but that's a great way to learn about it. A couple bank qualifiers can go to 89.9% loan-to-value. Um that may or may not change in the near future, but I'll let Kristy know if it does. Um they go to 45% debt-to-income. Our minimum balance is 100,000. If you owe 90 on your house, and you've got $11,000 of consumer debt that we can loop into the HELOC, that would bring the balance to 101, which is perfectly fine, if that makes sense. Um if you owe 45 on the house, and you loop in 20,000, that would be 45 + 20, which would be $65,000 balance. That would be lower than the minimum balance that I can do. I can do all states except Hawaii, Alaska, Maryland, and Texas. Right now, I can only do primary residences. I can't do uh modular manufactured mobile, and I need we need to have less than 28 acres, and need a 4-year uh time period after like a bank bank foreclosure. Those are just some basic ones. If you want to learn more, you can go to firstlienheloc.com. It's it's a free educational resource, guys. You can go through that and read about it and understand more about it. You can also go to our YouTube page, which is here below. And we've got longer videos, we've got shorter videos, we've got explainer videos, we've got testimonials from some of our our customers and clients who who've had success with it. I'm biased for that cuz I help with that, so, you know, I think it's I like the videos, but again, I helped to to make them. But all in all, um it.

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