How to Shred Years Off Your Mortgage and Avoid Costly Interest

0:00The the heliloc is a simple interest vehicle. So when you pay interest on a heliloc, you are paying interest on the average daily balance. So it might go high, it'll go low throughout the month. And it kind of creates this wave account almost looking thing. The interest that you pay is is based on the average daily balance right in the middle of of your peaks and your valleys. And so the way our system is is organized is it's really dependent on the timing of the payments, Kirby. So because our our shred account which is the line of credit that we use is the main thoroughfare if you will of the income income is being deposited in from a rental perspective once a month.

0:41If we're talking about W2 income it might be twice a month that it comes in or more. But as money gets deposited in it brings the overall balance of that HELOC down. Mhm. — And then throughout the month, you know, we leverage the heliloc a little bit if we're paying our expenses and those kinds of things, but what we're essentially doing is we're paying we're we're paying pennies to borrow dollars to shave off hundreds or thousands of dollars on the back end. So, while it may not make sense in the moment, like I'm borrowing three or $4,000 at 9% to pay it against a $300,000 balance.

1:17How does that make sense? Well, the reason it does is on on the 3,000 that you're borrowing, 3 or4,000 you're borrowing, you might be only paying $18 or $20 a month in interest on, but when you drop that on your mortgage, it might have you saving 12 to $15,000 at, you know, in one fell swoop because of the interest that you're not paying. So, seeing it in black and white and numbers in the software makes all the sense in the world. And we have folks who will say, "Oh my god, I cannot believe how fast the mortgage is being knocked down and just how much interest is being saved." And and what ultimately happens is they go, I know I'm paying interest on the heliloc, but it's super negligible.

2:00There's not a ton of interest going over there comparative to how much I'm knocking out on the mortgage or the rental property loan that I've taken out. So, you know, when you when you compare apples to apples, it is simple a simple interest vehicle borrowed in short bursts over short amounts of time compared to a 30-year amortized loan where the amount of interest on the front end is is massive. — that's the that's the biggest advantage in terms of why we're using the line.

2:32— Yeah. Yeah. And if your your mortgage is newer, it's even more effective, right? Because because the the amount that you're paying to debt as opposed to principal is just so much higher. So I I guess what why can't someone just do this on their own? Like what what benefit does shred provide then? — Yeah, God such a good question. And in the nature of full disclosure like I've racked my brain on how to answer this question because again being completely transparent, could someone do this on their own?

3:03Probably. You know, someone could go out and and and figure out how much can I send how much can I send in as a lump sum payment and all of that. I think what what our software and our course and the community offer is probably three-fold. Number one, the software itself does all the complicate complicated calculations for you. So we have created a really complex algorithm that takes your income, your expenses, your debt profile all into account and it's telling you on specific days at specific times send this lump sum amount to the debt that that makes the most sense.

3:41And what we've had, you know, from an experience perspective of our our members, they've said, I love the fact that I don't even have to think about how much I'm sending. I just send it and it works. And so so number one is we've done the math for you and the software tells you the community is amazing from a support perspective because there are hundreds of people in the community now that are all cheering each other on and saying hey here's what I'm doing that's a little bit different or I'm using this credit card versus this credit card to pay expenses.

4:12They're very supportive of each other in the community. And I think that in itself is is important because people can feel like they're out on an island if they're doing something different. — And it wouldn't surprise me if you know folks in your community probably have friends and family that are like you're crazy buying all those short-term rentals. You know, what are you doing going going into debt to take these on? The third thing that I would say is there is a behavior modification that has to happen and the software, the community, our coaching program helps people get over the hump of changing their behavior — and the behavior looks like decades upon decades of learning what to do with money from your parents, which is we live in a banker's business model.

4:58So if we want to buy something expensive, we go to a bank, we borrow a certain amount of money, the bank tells us how much the payments are and we dutifully make those payments without ever questioning is there a better way of doing this more advantageous to us. So the behavior mod looks like logging into the software, getting email blasts and text reminders on a regular basis of what to do and when. And and curiously enough, I think once people are with us for usually it's in like the 3 to 4 month mark, they go, "Oh, I totally understand what we're doing.

5:34I would never go back to the way we did it before." — Yeah. — because the behavior now is so ingrained in what they're doing, it's just easier and easier. I will make one more comment about, you know, why would someone use the system or why would someone use a heliloc in particular as opposed to just sending all their extra funds in. There was a book called the psychology of money written by Morgan Hel. It's probably on your bookshelf at some level. — I did read it a while ago. Yeah. — The the book in the book Morgan Hel said, you know, people will do not what is logical, they'll do what is reasonable.

6:09So, I've had financial adviserss who would say, "Well, logically, you'll make more money if you just put it all in the market." Right? And and real estate investors might say, "No, I'd be way better off just leveraging to the hilt and not worrying about paying debt off." And and there's a part of that that may be true. Like, at some point, if you're comfortable with a hundred or 500 or a thousand doors and you want to manage all that, great. But there are some folks out there that will say, "Listen, I just want really good cash flow to live on — and I'd like to be there in three to five years.

6:40How can I do that?" And with Shred, that's possible. So, our goal in using the line of credit is to make sure that there is money accessible. And so, what is logical is we'll just send all your extra funds into the to the mortgage to begin paying it down. But what is reasonable is someone would say, "If I do that, then I won't have any money left over and I'll be freaked out about what if something goes wrong." And so through our system, as you begin to leverage that line of credit, what also happens is you realize that you have accessible funds there that no matter the challenge you run into, if you've got capex, you've got a property that gets damaged in in weather, maybe tenants damage the the property, there's plenty of money there.

7:29You have you have it in accessible funds by way of the line of credit or lines of credit, depending on how many properties you have. Mhm. — So, you know, the the reason that we encourage people to get into our system is it is a reorientation of how your cash flow is running through your household, but also a remapping of your mindset around what is good. Having4 or $50,000 in the bank or having maybe 10 or 15 in the bank and 35 in equity that you can leverage anytime you want, but it's saved you, you know, 80 to 90 grand in interest over the life of the thing and increases your cap rate on every property.

8:07— Yeah. Yeah, that's such a great point and that's that's what I've been looking at too. And what really I think spoke to me about this program was something you alluded to earlier around timing with the HEL, you know, simple interest versus compound interest. I just I didn't understand the exact timing. And so to take that part of it out of it, the thinking part out of it and just have it set up automatically in a software that's been designed for this where it can just notify you, okay, make this payment now, pay off this thing, and then, you know, deposit your your funds here and to where it's going to optimize it exactly, right?

8:41That's that's so key to me. And you you kind of brought up something here, too, that I was going to ask you about. When it comes to paying off mortgages, do you — do you feel like it's always because I get this question all the time. Should I pay off my mortgage or should I keep leverage? And yeah, I'm curious what your thoughts are. Is it does it always make sense to pay off the mortgage or how do you how do you advise somebody to u make that decision? — Yeah, this this is like the age-old question. It's probably the million-dollar question we get asked inside.

9:13— And here's my maybe my two-part answer to this. Number one, some people are all about just how can I get to zero. — Mhm. — And and I think quite often that's because they came from a household where either some a parent was super overleveraged and maybe they had some negative experience with it or they their family was just anti- debt and so the goal is to get to a point where you're at zero. — Dave, — say that again. — A Dave Ramsey family. — A Dave Ramsey family. Exactly. And so if you are going down that that road, then I could make the argument that it's a great thing to pay your house off entirely.

9:51And in fact, we've done it three times over. We've we've lived in the same home for 15 years. We've paid it off three times. So paid it off, rates dipped. I was like, it makes all the sense in the world to go redeploy leverage. We went back, shredded it again, did the same thing again, and have now, you know, eviscerated the mortgage the third time. The the flip side of the coin is I think it does make sense to keep some leverage on properties and and where shred really comes in handy is maybe the goal isn't to get it to zero, but maybe the goal is to get your mortgage balance down to a point where the majority of your payment is going towards principal.

10:31— A very little bit is going towards interest. And we can reduce your payment down to the ridiculous where the cash flow on your properties is such that it doesn't really matter if you pay it off or not. — Yeah. — Right. I mean that your your tenants, your residents are covering way more than you owe on the property every single month. So your cash flow is significant. You know you're paying it down over time little by little and you're okay with having a little bit of leverage. In fact, I've heard from some insurance companies it's better if you do because then the mortgage company is on it.

11:03If something happens to that that property — that the insurance companies will go after the mortgage company first — or vice versa the mortgage company will go after the insurance company if something happens because they have an interest in the property. — Yeah. — so I you know as an example we held a number of rental properties for a period of time and when we started using shred we we started shredding the the pri the primary mortgage. So, we blasted our primary home down to a point, then recast the mortgage, which might be where we're going next, but we recast the mortgage and it ended up with a really, really low payment.

11:41And so, I live in a, you know, beautiful 5,000 foot home in De Mo, Iowa, and our payment was $335 a month. Okay. — Nice. — And you can appreciate this because, you know, immediately my mind was we should short-term rental this thing. — Yeah. You know, like do a week, a month, and and just completely cash flow this thing. — but then we started going after some of the rental properties and taking those down not necessarily to zero, but down to maybe a h 100,000 in in overall borrowed money because we knew that we could recast those mortgage and get it down to maybe a $600 or $700 a month mortgage payment.

12:20— And once you do that, we knew that those properties were going to cash flow tremendously. — Yeah. So, so you know, I could go both ways. I could say, let's make a case for going all the way to zero. And typically that's dependent on a coaching conversation that we would have at the very beginning of our relationship where I'd say, how important is it for you to be debtree? And if someone said it's a 10 out of 10, we'd create a plan to get them there really quickly. But if someone said, "I'm good with leverage. I just want to increase my cash flow." Then we'll create a plan for that, which may look like going after a property at a time until you get it to a point where you can recast that mortgage, create a really low payment, and then move on to the next one.

13:05— Yeah. Yeah. That's a great point. That's and it's a great way to look at it. I I've always been hesitant to pay off properties completely just because there's so many frivolous lawsuits out there and it I feel like you're just more of a target if they do a search and like, oh, this thing's owned with cash and there's no leverage on it. But if you pay down a mortgage, nobody has any idea what your mortgage balance is. They can just see that there is a mortgage on on the property. So, — so yeah, that's a that's a great point.

13:35Can you and I'm working through this right now, so I kind of know a little bit of the answer to this, but can you get a heliloc on a rental property? — Yeah, you the short answer is yes, you can. The longer answer is it really depends on the lender and you got to find one that's willing to play ball. More often than not, Kirby, this looks like you're finding a broker of some kind who has access to a product like that where they could they could get you into a a what they would call a a rental property or a non-owner occupied key lock.

14:11So it is possible. The the easier answer, the easier route to go if if our goal is to hit the easy button on this thing is for the LLC that you have that holds the property or properties is to go back to your lender and say, could I get a beock on this LLC? And the beock is generally going to be underwritten based on how much revenue is coming through your account on a monthly basis. So if you've got two properties or 10 properties that are that are owned by that LLC or at least funneling through that bank account, you can probably get a bigger line of credit than you could if you just had one property in an LLC.

14:50M — that being said, a lot of times the helocks are a four to six week underwriting process that look like an origination fee, a closing fee, getting an appraisal on the property, where a beock might look like just going in and saying, "Hey, can I just do a cash flow line on on the cash flow in my business?" and then we're going to say, "What is it for?" And I'd say every now and again I just have to do a minor repair here and there and I want to make sure that there's money in the account ready to do that just in case my tenants don't pay.

15:21But traditionally everyone's really solid. And I walked into a to US bank I don't know 15 years ago and I I tried this. I just said hey what would it take for me to get a beock just a cash flow line of credit? And the woman behind the counter she's clacking away on her keys and she's like oh interesting. Okay. I can get you $42,000. — H — and I was like on a signature? And she said, "Yeah, I can have have it available as a line of credit on your account tomorrow." So if you did the same and you went to go get a a home equity line, it again, it would probably take a four-week process.

15:58There's an appraisal, it's underwriting, they're going to attach a lean, that whole thing takes time. So from from a rental property owner perspective, it is almost easier to just go get a beock and call it good as opposed to having it attached to the property. There are reasons to do that obviously, but in the grand scheme of things, you're still probably writing off the interest as a business expense — in either case. And so it ends up being just a you know the path of least resistance ultimately.

16:30— Yeah. Well, I I thought I knew the answer to that, but I actually didn't. So, I appreciate you sharing that because I'm I'm going to look the beock option as well. One of your team members, and I I'm drawing a blank on his name, the guy that I I spoke with to get all set up on shred. He recommended Flagstar Bank and Zion's Bank as two that have done rental property helocks before. So, I reached out to Flagstar and they're in the underwriting process, but there was they did not flinch at all when I said it's on a rental property.

17:02They said, "Oh, sure. No problem." And — you know, I think the terms are a little bit, you know, not quite as good as your primary, which is expected, but — but yeah, I mean, it's we'll see. I mean, I haven't got the money in my my hands yet, but so far everything is checked out and so so listeners could reach out to them, but it is very spec. Most banks won't do it. — but I'm going to look into the beock option as well because that could be another another way to tap in even more.

17:34So, — and it's it's probably worth saying too, Kirby, that depending on how much or how little you can get, you know, I'm sure that's a kind of a a ringing question for people is, well, how much do I need in order for this to make sense, the majority of our shredders will start out relatively small. They might get a five or 10 or at most $20,000 line of credit. And because of the way our system is engineered, they're going to stay within a certain band. And we can we can control that a little bit. So, we could say, "Hey, we never want the heliloc to go above $3,500." And, you know, if you're doing the math on this, $3500, let's say it's $3,000 for easy math, and it's at 8% on the line of credit.

18:18Well, that means you'd have on average about $20 a month in interest that you might pay if if you had leveraged the whole thing. And because we're doing it where money comes in and money comes out, — on average you might spend more like eight to$14 a month in interest on something like that, right? — Yeah. — The the counter effect is if you're making big lumpsum payments based on the revenue that's coming through that that account, it might mean that you're saving 10 to 15 or 20 grand in interest, you know, over the life of that mortgage by using that in the first year.

18:52So, okay, we spent 240 in interest, but we saved 20,000 in interest long term. This is a real return. And it and it doesn't even take into account how much more of the the payment is going towards principal every single month.