Enjoying your podcast? We'll be brief. If you're looking for the perfect holiday gift, give Scratchers from the California Lottery. With so many to choose from, you're sure to find the right gift for anyone on your list. Now that your holiday shopping list is figured out, enjoy this bird singing Jingle Bells.

Give the gift of Scratchers from the California Lottery. A little play can make your day. Please play responsibly. Must be 18 years or older to purchase, play, or claim. Today on Radical Personal Finance, I've got a unique interview for you. There's a concept called mortgage acceleration that I was asked about on a past episode of the show.

I was recommended a book. I read the book and I did my best to rip apart the idea and I decried it as being a waste of time and not very useful. Now today, we've got the author of that chapter of the book here to defend his strategy and to rebut my points.

So we've got a little bit of a debate on today's episode of Radical Personal Finance. I hope that you will find this show enlightening. Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheets and I am your host. I am your--I so much want to say virtual financial advisor.

Fine. I am a virtual financial advisor. The SEC is going to crack down on me for using terms like financial advisor. They're going to call me a fiduciary because I'm creating media in the future. I'm just your friend here with you walking on a rich life today and walking the path to financial freedom in 10 years or less.

I'm joking about that SEC thing but not really. There's changes going on as I release this show here in March of 2016. We're dealing with all this hoopla over the fiduciary rule and anyway. I'm not a fan of the SEC. Recognize they do a function. Just not a fan.

We'll deal with that another time. Several listeners have asked me about my opinion on it and I don't want to talk about it yet. So let's talk about what we are here to talk about, which is the concept of mortgage acceleration. I really hope you enjoy this show. I like to have a good, vigorous discussion about things.

I like to – I like a good debate. Now, it's really challenging because in my personal life and all of our personal lives, I think debating is utterly futile. You never win an argument, so don't even bother. But if you can find someone who is knowledgeable and who can – who's knowledgeable and experienced and practiced, then that person is able to often in a vigorous back-and-forth format, is able to bring ideas to light.

That's what today's show is. Bill Westrom is my guest. He is the founder of a website called TruthAndEquity.com. He's going to talk about that. But my previous exposure to this concept, I decided it was mixed. I invite you to go and listen to episode 133 of this show. If you have not heard that episode, at least about the first 40 minutes of it, which are focused on this idea, I invite you to do that.

I think you'll find it much – this show much more valuable if you start with 133 and hear what I originally said. Because then you'll hear me talk with Bill about that and he listened to it and he's got to rebut some of the points that I made to him.

But I was definitely not in favor of the actual outworking of this, and I called Bill. You'll hear in today's interview I called him on some of his data and things like that. But this is an interesting concept. We'll explain it right in the beginning of the interview. I admire and respect Bill for coming on the show.

I love it when people are willing to put their money where their mouth is. They're willing to stand up and defend what they believe. To me, that is a valuable, valuable resource. I'm going to play that interview in just a moment with me and Bill. Before I do so, the sponsor of today's show is YNAB, the You Need a Budget budgeting software.

That is the budgeting software that I use each and every day. Just this morning, I reconciled all my transactions. I'm still using the old version, which doesn't do auto import. I prefer to do that because it forces me to engage with each of my expenditures. Nothing wrong with the auto import.

For a lot of people, that's the sticking point. But for me, I want to – at this stage of my financial life, I don't have 4,000 transactions a month. I want to engage with each expenditure to force myself to be aware of it. But YNAB allows me to budget my money and see how much I have and how much I don't.

It forces me to spend the money that I actually have. In short, it's the best budgeting solution that I know of. I wish that I had been using it for the last decade because today I would be able to point to perhaps tens of thousands of additional net worth.

Simply because of more effective budgeting. So try it for yourself. Go to RadicalPersonalFinance.com/YNAB. That is a tracking link where I get a commission when you download that software. Thank you for doing it. You don't have to pay for it. You can download it for a 30-day free trial if you check it out.

If you want to buy it, great. If you don't, it's up to you. Download a fully functioning, full-featured version of the software at RadicalPersonalFinance.com/YNAB. You need a budget. You know that. Some kind of budget. Try out the YNAB software. Bill, welcome to Radical Personal Finance. Thank you, Josh. So I'm going to tell the back story of how we wound up at this interview here because I want to make sure that the audience knows.

It's kind of an interesting story. Many moons ago on episode 133, I had a listener who asked me a question, and the question was regarding the idea of using a home equity line of credit to pay off your primary mortgage as a method to pay off the loan faster and cut your interest costs.

And in that question that she said, it might have come from a book called Master Your Debt. In researching the answer to her question, I bought the book, found the chapter, read it, and I released episode 133 of the show, which is a Q&A. And it was a Q&A, and I said what I thought about the strategy, which we'll get to in just a couple of moments.

But I was pretty hard on it. I ran into some unknown guy at a conference, and you started – you introduced yourself, and we started talking a little bit, and you said that basically you do this mortgage acceleration program. I said, have you ever heard of a book called Master Your Debt?

And you said that you wrote the chapter or at least you contributed to the chapter. And now – and your name is indeed on the front cover of the book, Jordan Goodman, the author, with Bill Westrom. So we got Mr. Bill Westrom here who is the expert on the subject.

So this ought to be a good conversation because I want to give you an opportunity to present the idea and share with us what mortgage acceleration is, why you're such an advocate and fan of it. But also I was quite critical of this chapter in your book. So I'll be again critical in this interview but give you an opportunity to show me where I'm wrong, and we'll let the audience choose.

So go ahead and introduce yourself. Give us a little bit of your professional background and tell me how you got involved in this mortgage acceleration idea. All right. Well, we got to step back about 20-plus years when I first got into the banking and mortgage financing world. Long and short of it, I was a mortgage broker.

I worked inside banks. I worked independently, but I was a mortgage broker. And this concept was introduced to me by Macquarie Bank when they introduced their asset manager hybrid first lien line of credit. They opened up a wholesale mortgage operation called Macquarie Mortgages USA. And the concept was pretty simple.

You have a first lien line of credit. You deposit your income into it. And you can – now, theirs was a hybrid, so you could actually direct deposit your income into the line. You can direct pay, auto pay, e-bill pay out of the line. But the premise was this.

Knowing that interest is charged based on the balance of the loan, when you put your income into that loan, it drops the balance dollar for dollar and reduces that loan's ability to charge you interest. So you create interest savings immediately. And because it's a line of credit, you can go in and get what you need to pay your bills.

You go in and get what you need to pay your bills. And the difference between what you put in and what you took out, you would consider that your net payment against the debt for the month. Pretty simple concept. And that's how I was introduced to it back in 2002.

And I've devoted my career to it ever since. And through that process, Macquarie recruited me and asked me to represent them in Tampa. So I was an account executive. My job is to go recruit brokers and introduce the concept and have them go sell my product for me. I realized very quickly I was going to starve to death, allowing those guys to earn my living for me.

So I figured if I could get this to the public, I could build a business out of it. So I grabbed a broker that got it. We shook hands. I quit Macquarie and Truth and Equity was born in 2006. So that's the back story and that's why we're here today.

So what do you guys do at Truth and Equity? We're a coaching, training and support business because we're no longer mortgage brokers. We're not in the loan game anymore. We're just loan experts. And so what we do is when people come through our website and they provide their basic financial information, what do they owe, what do they spend and what do they bring home per month, we can run an analysis to see if they're a good candidate for this or not.

We put in a lot of time, Josh. We work a lot harder trying to keep people out than we do getting people in because this is a new financial strategy. And that's all we're talking about is a financial strategy. And we can determine if you're a good candidate or not.

If you're not a good candidate, we'll let people know and keep doing what you're doing. But if you are a good candidate, we'll go through a demonstration and online meeting and go through the numbers with their actual numbers. So it's nothing as arbitrary. And we just show them and teach them how it works and what their life will look like.

And if all the planets align and they want to move forward, we help facilitate the loan process because we know the HELOC market better than the HELOC market knows itself. And we know the right HELOCs to get and those to avoid. So we'll help facilitate that process. Once the loan's in place, then we teach homeowners how they're going to run their life day to day, week to week, month to month within the confines of the strategy.

And we provide ongoing support to where we'll monitor their activity, evaluate their performance, make sure they're doing everything we're teaching, making sure they're getting the most out of the program. And we'll guarantee those results for six months. So at the end of six months, if they're doing everything I'm telling them to do and we're working with accurate figures, if it's not working as prescribed, I will refund my fee.

And beyond the six months, our relationship does not change. My fee is a lifetime retainer and we'll continue to provide the support, training, and everything anybody needs to ensure that they're achieving at the highest level. Describe to me the perfect--if I were your perfect customer, the type of scenario that you just dream of.

I assume if I put in information on your web form, this would pop up and it would pop up on your iPhone. What would be the email that if it popped up on your iPhone from your web inquiry application, what customer profile would just make you say, "This is perfect"?

Lendability for one thing, right? You got to be able to get the loan out there. So we need a good credit score, which would be minimum 680. Need to have positive cash flow, but that's not always the case 100% because a lot of times we can create cash flow.

When somebody's got credit card debt, installment loan debt, student loan debt, those are cash flow killers because they're to service that debt so much money is going away from our bank accounts to satisfy those debts that if we can consolidate some of that and get it under one umbrella, we can create cash flow.

But cash flow is critical to the whole process. And other than that, desire, right? I mean, hell-bent desire to get rid of debt. Not I'm thinking about it, I'm curious about it, or if everything was just right, I'd get myself out of debt. You got to have desire. You got to want it.

Okay. Next kind of preliminary question and we'll get to some of the specifics of the strategy. But where I had first heard of this was when U First Financial had their money merge account system. That was where I first heard of it. And it had a lot of popular press for a time.

It was also roundly criticized by some people. I had an interaction with a broker and I spent a lot of time trying to understand it. And I thought I could see pluses and minuses. I don't know the full back story on what's happened to the U First Financial structure.

Could you comment for just a moment on that because I think that's probably a name that many people would have heard. What happened with them? Where did they go right? Where did they go wrong? And how did they compare to what you do currently? All right. Yeah. U First Financial, they were the 800-pound gorilla when we got started.

They were back in '06, '07. They were rocking and rolling. They were promoting and preaching the same strategy. The difference between us is our business models. They were a multi-level marketing software sales business. They weren't in the finance business. They weren't lending experts. Their whole model was all based around recruit agents, sell them the software and have them recruit more.

So their business model failed them more than anything else because the strategy cannot fail itself because it's basic mathematics. They failed because of their business model. That's my opinion. When they were rocking and rolling, I'd make a phone call and I'd play customers so I could see what my competition was all about.

And when you got some retired school teacher from Nebraska that can't explain any of it, of how it works, except that the software is really cool, that's a big red flag right there. Right, right. And the strategy didn't fail them. Their business model failed them. And why am I different?

Why am I still here and they're not here? Because of my business model. Because I understand what it needs to succeed. I understand what the consumer needs. And they need coaching. They need training. They need somebody to take them by the hand and say, "Okay, you're doing this wrong.

You're doing this right. If you're doing it wrong, let's make some corrections." You know, and just hand-holding. And that's been the secret of our success is bringing our expertise to somebody else and not leaving them up to their own devices. And I've got dozens of customers that have U-First Financial software sitting in there, sitting on a shelf that they've never even opened.

Right. So certainly there's a need for it in anything. There's a need for individualized hand-holding. So let's dig into the nuts and bolts of the strategy, and I'm going to give you my layman's perspective and correct me or expand on anything that you perceive that is wrong. So if I come to you and I say, "Bill, listen, I've got a great credit score.

I've got a house. I've got a little bit of equity in it. I put 20 percent down on my house." Let's just go with this example. "I put 20 percent down on my house. I got an 80 percent loan. It's conventionally financed, 30-year mortgage, and I've got positive cash flow, and I'm interested in pursuing this strategy.

And I understand that what you're basically going to do is refinance my primary mortgage with a large home equity line of credit. So the advantage to me is instead of having an amortizing mortgage where the interest tables are going to be calculated based upon a normal amortization schedule, rather now I'm going to get the interest that's going to be charged to me based upon the average daily balance of the loan.

So in a $200,000 house, I start with a $160,000 loan. Each month, the home equity mortgage company is going to run that calculation. Now, pretend I have $5,000 a month of income, and so the strategy is I have $5,000 a month. I write every month a $5,000 check toward that home equity line of credit.

So that decreases the balance from $165,000 to $150,000. And then throughout the month, as I pay my bills and go through my normal spending patterns, I steadily take withdrawals against that line of credit. And perhaps if I'm spending $4,000 a month normally, then at the end of the month, my balance is going to have increased from $155,000 to $159,000.

And then the next month, I'm going to do it again and again and again. And so the idea here is because the balance is lower, because of the large chunk of money into the home equity line of credit, I'm paying a little bit less interest in the short term.

And because I'm keeping my excess money in the home equity line of credit, over time I'm getting rid of that debt more quickly. Was that an accurate representation of the idea? Yes. Is the scenario that I described with an 80 percent mortgage, is it possible in today's home equity line of credit markets to refinance all of that onto a HELOC?

Guaranteed. So to me, that is the biggest benefit of this. I would love it if – so I owned a home at the time that I was reading this. I no longer own a home, but for me, I would love it if all of my financing strategies – if I could have mortgages that did not amortize, so I'm pretty disciplined with money.

If I could have – on that basis, if I could have mortgages that didn't amortize but I always had the option – I'd love to have one of those pick-a-payment loans where I could just pay the minimum interest payment if I wanted to. To me, that's a huge benefit in and of itself right there.

So tell me about – I've never really heard, though, that this is widely available. So how available is this? Well, it's – and I get that question quite a bit. When you ask availability, it's available to everyone, right? Because when you talk about who does and who can or who cannot, in availability, you're trying to pinpoint it to a particular source as in a bank, right?

And I get the question all the time. What banks are doing this? Well, all of them are because they are – we're just using basic financial tools that you can go out and get every day. It's just they don't know how to teach it. They're not in the teaching business.

They're not in the financial advice business. They're in the ordering business. That's one thing that a lot of people need to understand. When you walk into the lobby level of a bank, you're not talking to a banker. None of them are bankers. The bankers reside 25, 30 floors up.

Bank employees – the people at the lobby level are bank employees, right? And they just have a menu that they offer up – checking account, savings account, CDs, mortgages, loans. You know, they just – that's all they do, right? So from availability standpoint, it's available to everyone if they just have the education and the knowledge of how to operate this.

And now I want to go back to your example here real quick. And it's a common assumption that the only way to do this is to get into one big first lane line of credit. Well, that's only one option, but it's my secondary option these days because so many people have refinanced over the last five, six years, and they've got sub-4% interest rates.

And we all know that HELOCs are variable rate loans. And exposing – and we know that rate is going to go up because it can't get any lower or much lower. They just bumped it in December by a quarter, but it's still at extremely low levels. But it's going to go up.

And why expose the bulk of your debt to a variable rate when you don't have to? So more often than not, what I'm doing is people are going – I'm having people retain their first mortgage, and we just get a smaller second mortgage HELOC behind it if we have the equity or an unsecured line.

We don't need HELOC. We need line of credit. That's the key because it's got the revolving door. So what we do in that case is we would take chunks of the second and throw it at the first conventional first mortgage. And when you make that big drop, big payment against the first, well, your payment is not going to change because that's contractual based on the promissory note.

But now the division of principle and interest of that payment has changed dramatically. And oftentimes I can save – I can show people they can save more interest on their first payment than they'll pay on the second. So you have a net interest savings. It might be on paper, and you might not experience it in your checkbook, but you've got net interest savings.

And then we just run the program through the second until that amount is paid off, and then we just wash, rinse, and repeat until it's all gone. And interestingly enough, that setup will perform better in most cases than a first lien line of credit. And the beauty of that as well from a risk standpoint is since you're in control of that second mortgage and how much you're going to pull out of there, depending on the rate environment, you choose what you're going to expose to the debt or to the rate.

So there's an immense amount of flexibility and control built into this in that two-loan scenario. It's always difficult to have a verbal discussion without spreadsheets to dig into. But what would be the – just from a gut feeling, what would be the interest rate differential at which this type of thing would make sense?

The scenario that you just mentioned, pretend I've got an 80/20 loan, $200,000 property, $160,000 first mortgage, 4% fixed rate. What would be the interest rates at which you would say this is working really well versus where you would say, "We've kind of lost our arbitrage opportunity"? Interest rate does not dictate that.

Cash flow does. Expand on that, please. Teach me what you mean by that. Okay. When we look at interest rates, and this is based on what we've been taught decade after decade, generation after generation, we assume that the interest rate should dictate our financial decision, which I'm not saying that interest rate is not important.

It is important. But interest rate is just a number. It needs something to feed off of to create a cost. And that number is the balance. Balance is the villain, not the interest rate. So with your question, there's no definitive answer on that question because everybody's different based on their own personal economy.

Every person I work with, every program is customized to that specific person. If you look at everybody from the outside in, we're all virtually identical. We go to work, direct deposit, we pay our bills, we chase our life around. But once you get within the walls, well, now everybody's different.

Everybody's different. You know, I'm just dealing with a family. They just dumped six grand on a violin for their daughter, a virtuoso. Well, that's not everybody, but that has to come -- looking forward and additional costs, that has to come into play. I mean, so there's so many variables that come into play to answer your question specifically.

But to be as specific as I can, interest rate is not the determining factor. It's how we structure it and the cash flow and the speed by which they can accelerate whatever debt balance we have. Now, when I do my projections, I build in a half point increase per year.

And, you know, I can do any rate increase I want. We can go a quarter per quarter, half point every six months, half point every quarter. I can play any rate game that I want. And when I go through that, that's kind of a protective mechanism that I've built in.

Because if your personal economy cannot outpace those rate increases -- I don't care if we start at four or ten -- if your economy cannot outpace those rate increases and the interest cost starts eating away at the acceleration process, it's going to stop eventually and it's going to start moving in the opposite direction.

Now, if I can look into the future in my analysis and see that, you're not a candidate. I'm not going to help you do this and you probably shouldn't do it until you're on more stable ground. But, you know, I've got people that have 3.5% first mortgages and 5% HELOCs.

And they're still far, far, far and away better off doing this with that rate differential than if they didn't do anything at all. I've got people at literally 12% unsecured lines of credit. Now, that's a temporary fix, right? It's just to get us going because they don't have the equity.

But even at that interest rate, their positive cash flow is enough to drive that balance down fast enough that we can still accomplish the goal. So let's talk about the specific examples because I love – conceptually, I get it and I love it. But let's talk about what my objections were to the chapter in Master Your Debt.

First, just so I know, were you responsible for the majority of the content there or were you just simply contributing a little bit of help to that? Was Jordan responsible for that chapter or were you? No, that's 100% me. OK. So here were my two major objections to what you did in that chapter and why after reading – simply after reading the chapter of the book, I wrote off this strategy not as conceptually invalid but as practically invalid.

When I tried to compare in your book here, I tried to compare your original current economic structure as compared to the proposed mortgage accelerator line of credit. This is how you put it. I've got it right here in front of me. I found two major differences in these scenarios and the two differences were these.

Number one, looking between scenario A and scenario B of both of your examples for which you put charts in the book, there was a decrease in interest rate from between the primary mortgage and the home equity – and the second – it's called the line of credit. So in the first example, the primary mortgage was at a 5.25% interest rate.

In the second – in the first example, the line of credit was at 4%. And then in the second example, the primary one was at 6.25 and the line of credit was at 4%. So there was a major – there was a reduction, significant reduction in interest rate. And the second thing that I noticed was that there was a lot of excess cash flow reflected in the line of credit illustration that wasn't reflected in the original illustration.

So in the original illustration, the example case was they were making a mortgage payment of $1,808. But in the proposed line of credit, there was – I'm just looking for the number here in my notes. There was a much higher number that they were contributing to it and in both examples.

So when I went back and I created some amortization tables – I've since dumped them, so I can't pull them up right in front of me. But I went back and I said, "Let me see if I could do this manually." And when I just simply compared a traditionally amortizing mortgage under the scenario A, the person that just had a traditional normally amortizing mortgage, to a traditionally amortizing mortgage at a lower interest rate with an extra payment equal to the monthly cost of – differential, the extra money.

So they're putting in a $7,500 deposit in net income, but they were only spending $5,000 a month, something like that, where they were having an extra money into it. When I did that into a traditionally amortizing mortgage, I came up with the exact same payoff amounts. Now, I fully acknowledge there's not the same amount of flexibility there because once the money is sunk into the home mortgage, it's not easily accessible without a line of credit.

But I didn't come up with any savings in running the amortization schedule from the different structure of debt from the traditionally amortizing mortgage as compared to the home equity line of credit. I came up with the savings and the mortgage being paid off quicker because of the reduction in interest rate and because of all the extra money left in the mortgage, which could be done manually with extra principal payments.

So why did you make those assumptions? And the one I have the real question on is the interest rate because my understanding is in general, home equity – line of credit interest rates will be higher than traditionally amortizing mortgages. And how could you prove to me that there is actually a savings just from the structure of the debt?

>> Okay. Excellent questions, right? Being able to prove to you would take – it would have to be an analysis where you can actually look at the numbers, et cetera, all right? Now, the rate differential in that book, keep in mind that book was written in '09, published in '10, all right?

So it was before the rate environment. So those numbers are actually true and correct because the rate – when I was writing that book, the rate – the prime rate had fallen, all right, down to that three and a quarter. That's what prime was. Banks were offering 4% prime plus a half, what have you.

And I just kind of picked an arbitrary rate there as well. But what I knew I could get in the market. And at that time, it was pretty common for people to have 6.5, 5.5, 5% mortgages. I mean that was what the market was. So when you look at that rate differential, that's real life at that point of writing the book.

>> Right. >> And obviously at that point – and again, through – after the bubble blew up in the last six, seven years, hey, HELOC rates were below or equal to conventional rates. So there was really no delta, no spread between them. >> So let me just ask a question because – so I didn't know that.

That's one point. HELOC rates were actually below conventional rates? How – is that still the case or was that just a temporary anomaly? >> Pretty much a temporary anomaly. >> OK. >> But I mean the prime rate – the prime rate right now is at three and a half.

It was at three and a quarter for six years. And because the banks need to make money, they start setting floor rates. And the floor rate on most HELOCs is 4%. So even if the rate jumps another quarter to 3.375, their rate is not going to change. All right?

Because the floor is – they might have the – on the note it says prime plus zero. So they're offering a prime plus zero note, but they have a floor rate of 4%. So the rate is going to have to move three quarters percent before that 4% is going to jump.

You understand that? >> Right. >> OK. >> Right. So – and HELOCs are not – they're not a secondary market loan. They're not like a Fannie or Freddie loan. So any bank writes their own rules and their own ticket on those HELOCs because they're going to portfolio those loans.

So – and for example, one of the major banks that I send people to, I send them through one guy in Cincinnati, and he's a national mortgage guy. Well, he can get me a HELOC for 399, right? For anybody in the country. Now, if somebody in San Diego goes to a branch of the same bank, they're going to get San Diego rates, and they're going to pay five and three quarters to 6% because the bank will price their loans per the market.

>> Right. >> So the HELOC market is all over the place, and you can't look at it as a standardized loan, one to the next. Because Wells Fargo's rates are going to be different than B of A. Their repayment demands are different than U.S. Bank, and everybody is a little different.

The functionality, what you can or cannot do is different bank per bank per bank. So keep that in mind if you're looking and considering HELOCs. They're just not the same animal, and whoever you're talking to at the bank doesn't know everything there is to know about even their own HELOC.

So it's buyer beware for sure in that regard. >> I'll interrupt you just simply to affirm that I believe what you're saying in this regard because having worked at large financial institutions, the average person who's an employee of a large financial institution has no sway and no knowledge of anything other than what they've been trained on thus far.

And when you find somebody who does have experience or knowledge in a specific area, that person will give you dramatically different answers even though somebody is with the same financial institution simply because they have knowledge. These institutions are so large, and the individual person has no – it's not like going down to your local bank where there might be – maybe there are seven principals there, and they're all involved and they all know what's going on.

You got thousands of employees. There's no way for an individual person to do anything other than quote what's on their instruction sheet for that day. >> Yeah, amen to that, brother. You got that 100 percent correct. And another thing people need to understand is that when the banks – banks want to make loans because that's their business, but they don't want to be in the real estate business.

They have no interest in the real estate. They want to create a note, and that note is an asset that they're going to sell to Fannie or Freddie so they get that money back. But they're not in the real estate business. They're not in the payment collection business. It's the last thing that they want to do.

And most people don't understand that. And they think they've got – they own their home free and clear, and they want to go borrow some money, but they can't prove the ability to repay it. The bank doesn't care about your real estate. They don't care if they've got 90 percent equity.

If you can't pay back what you're borrowing, they have no interest in you. And that's what the public just doesn't understand. But anyway, back to Chapter 6 and your comparisons. There's a formula that we've got on our website, and it's the most basic thing on the planet. And it's – here's the formula to paying back debt quickly.

And I don't care if it's Truth and Equity, Dave Ramsey, Suzy Orman, or any other guru. There's only one universal law. And here's the formula. Balance divided by surplus, positive cash flow, divided by 12 equals payoff in years. And I don't care what kind of debt you got. It is credit card, whatever.

But if you make the minimum required payment and throw X number of dollars at that note continually, you're guaranteed to hit the payoff result. So try $100,000 divided by 1,000. You could throw 1,000 extra dollars at it per month. That's going to leave you with 100. Divide that by 12, and you'll pay off 100 grand in 8.33 years, guaranteed.

All right? I can't skirt the universal law any better than anybody else can. So when you make the comparison that you did of throwing that extra cash flow through a conventional amortization table, and if I threw it through my amortization table, yeah, we might come to the same – exact same number.

Because it's the $5,000 that's the kicker. Right. All right? So, you know, hey, I've lost lots of business based on that same argument. When people say, you know, I don't understand what you're doing 100%, and I just don't like HELOCs, so I'm going to do it on my own and just throw that – you know, throw everything I got at it.

All right? And they'll probably accomplish the goal. If they don't hit it right on the mark, well, they're going to get closer. If they're throwing extra at it, they're going to get closer than if they wouldn't. And I can't – I'm not going to argue or dispute that because it's 100% true.

However, there's a psychological side to this thing that people don't pick up on. All right? And you said it earlier. It wouldn't be wise to throw everything you've got into somebody else's treasure chest. That would just be stupid. Right. And 10 out of 10 people wouldn't do it. All right?

Because of the structure, because of the model by which you're participating. And that's a big thing that – it's my biggest challenge to get people to understand it and get them to change their perspective. Don't look at it as rates and payments and don't look at it from the outside in, the top down.

Look at it from the inside out. All right? Let's look at the model. All right? And it's not just a matter of throwing more money out of debt. Let's not forget about our income. It's important for the financial resource we have at our disposal. And we work our butts off every day to get it.

But we've been taught to participate in this model. And again, as I'm talking about the model, that's all we're doing. People want to vilify the banks. Why vilify an industry that's got one of the most successful business models on the planet? And they taught us how to do what we do because it's the most profitable model to follow for their business to be as profitable as possible.

So it's just a matter of our participation in a business model that feeds the machine. All right? So if we look at that model, and all the banks do is leverage our income into interest-bearing activities, whatever it is, loans, the market, they're nothing but a hedge fund. And I'm telling you what, they have trillions of dollars flowing through Wall Street daily, far more than they're lending to the rest of us.

They want that money in the market. And they'll take a half percent because a half percent on a trillion is a pretty good return on your money. But that's all they do. So why don't we look at their model, and that's what this truth and equity thing is all about, is just tweaking the model to where you're the benefactor of your resources instead of them.

So again, the only tool available to us out there to accomplish this goal is a HELOC or a line of credit because it has the revolving door. It's nothing more than a debt instrument and a checking account combined. So if we look at how we operate today, and I do this with everybody, calculate how much money you've deposited into your checking account over the last 60 months, and then calculate your financial return on those deposits.

And 9 out of 10 of us, it's going to be zero. Well, that's just not smart. That's just an infallible resource. And so if we can tweak the model to where we can get all that income suppressing debt, even if it's just to create an interest savings environment, that's smarter money.

That's all we're talking about, be smarter with the money, because a checking account is nothing more than a bucket. It just provides us convenience, some place to put it, some place to pay our bills. Well, a line of credit offers all the same benefits. It's a bucket. You can go get what you need to pay your bills.

But while you're not using the money, once you leverage it against debt and create an interest savings environment, that's just smarter money. So, again, back to your example, nobody in their right mind would give 100% of their discretionary income to a first mortgage and give up everything they've got, because life's going to throw a curveball.

And when life throws a curveball and you're thinking, "Boy, I sure wish I had part of that $50,000 sitting around so I could live my life," well, it's gone. Well, if it's in a HELOC, I don't care if it's first lien, second lien, if it's in that HELOC, you're liquid and independent.

You've got the resources you need to live your life and keep things moving. And I've had dozens of customers. I mean, I've been doing this a long time, and I've got people that went through the bursting of the bubble, lost jobs, had to take a cut in pay. I've got customers that -- one gal in particular, she had a stroke a week after we did this.

And to this day, she still says, "It saved my life," because she was out of work and she just lived off that equity in her home. Did that -- you know, that stopped and slowed the acceleration process? Yeah, it did. But you know what? She didn't lose her home.

Her credit score didn't go down the crapper. And instead of the, you know, $1,000 that she was obligated to pay people before she met me, now she only had to give them $200 to keep them off of her back. You know, so there's a psychological benefit to doing this above and beyond the financial, and it flows right into the financial when the need arises.

I do believe that the psychological benefits of this can be large, and I'll give two aspects to that. Years ago when I had met with the U-First financial representative, the primary impression that I had going away from their office, the primary impression that I had was that the software was awesome.

Now, I don't know if it was actually or not. I never got it. I never used it. But the software was awesome specifically for its ability to adjust my behavior. And the example that I came up with was wouldn't it be cool if we had a -- if I had a fork that every time I put the fork in a piece of chocolate cake, it showed instantly how much weight that piece of chocolate cake was adding to my body.

It showed how my lifespan was going to be affected and how the quality of my life was going to be affected based upon some measurable basis. I'd probably eat less chocolate cake if I had to look at that number every time and eat more salads. So the immediate payoff, I believe that many people, if you can harness the power of psychology, and here's where when there's a goal to pay off debt, and the best example of this would be to look at what Dave Ramsey has done with his discussion of his process.

The major benefit that people get from being involved in Dave Ramsey's program is the psychological focus of paying off debt. Now, with many debts, there can be major – there can be many other things that you could do with the money that financially in a logical, rational world will have a higher return than eliminating the interest rate of the debt.

But because it causes the person having a single-minded focus, because that causes the participant to be focused on changing spending decisions, reducing spending, curbing spending to reach their goal, they're going to get out of debt far faster because they have a clear goal. And I always thought it was cool because as that software package was represented to me, it was represented as being my version of that fork where you could see, ah, if I go out and I spend $100 on this expenditure, that's going to cost me this amount of money in interest.

Or if I don't spend $100 on this evening out with my family, then I'll be out of debt in 1.2 months quicker or two weeks quicker. Well, if I had a chart that every $100 I spent, it showed me that I was two weeks quicker to being out of debt, to me, those two weeks would be really valuable.

So the psychological behavior modification I think is extraordinarily valuable, and it does hit on one of the things. Any regular listener of the show – and I'll just tell this to you, Bill, assuming that you haven't listened to my perspectives on real estate. When I sold my house, one of the major things I learned is I resolved in the future that I would be very disinclined to make small extra payments towards the principle of a house.

Because what I realized was if my house is fully paid for, there's a large benefit to that because I've eliminated a need for cash flow. If I have a mortgage balance of zero on my house, then by definition I've significantly reduced the risk in my life because I've eliminated, say, $1,200 a month of cash flow obligation.

So if I lose my job, I'm going to be in a much better position. But if my house is 60 percent paid for with a traditionally amortizing loan, I am in no safer of a position than I was when my house was – had an extra $20,000 of debt because every month I still need that $1,200 of loan – excuse me, $1,200 to make my loan payment.

So I realized that my safest – two safest positions in property ownership are to have a mortgage balance that's at the highest possible loan to equity value and as much cash and capital outside of – in an external checking account or to have a mortgage balance that was zero.

Both of those positions are safer. But the whole in-between ride, it's really, really bad because I'm basically putting my money into something that's very difficult to get it out of and I'm eliminating my flexibility and I haven't adjusted my risk profile because I still have to make those cash flow payments out.

So I certainly can see if it were possible to do this with a HELOC. I certainly can see both the psychological benefit of curbing spending decisions based upon a tangible goal of getting the mortgage paid down and how putting extra money there, knowing that I could get it out, then that way I'd be willing to keep more money paying down that whole micro-equity line of credit.

I can see and grant your points freely on the psychological perspective. Yep. Well, I'm glad you – because that's – I'm glad you do because that's my biggest challenge. And again, it's – this is not a one-size-fits-all. I'm not here to say that everybody should be doing it because I've walked away from millions of dollars from telling people I'm not going to help you do it.

But again, it comes down to perspective of getting out of the consumer – taking off the consumer lens, right? Because we've been taught to do things a certain way, and we're continually finding different ways to work within that same model. But regardless of what you do in that model, it's only going to produce so much.

It's like a biweekly payment program. I don't care who you are, size of your loan. If you make biweekly payment programs, you're only going to cut eight years off because that's only – that's all that that thing can produce, you know? And again, you got to look at the model.

You got to look at the model, and you want to be lean, liquid, and independent, meaning however your financing is structured, you want to be as lean as possible, meaning as little going out to somebody else as you can muster. You want to maintain as much control of as much of your debt as possible because then you can control the terms of repayment and its use.

And then you want to be liquid and independent. You want to have money behind you. Even if you're paid off, if you've got a free and clear mortgage, get a line of credit. Get a line of credit because in the example you used, Josh, if you're mortgage-free and you lose your job, right, well, now your income is gone.

It's nice you don't have a mortgage payment, but you've got all that equity in the house, and now that you can't prove you can repay it, you're not getting access, right? So even if you're free and clear, go get a $200,000 line of credit. You don't need to use it if you don't have to, but I tell you what, if you lose your job and you need to support the family, well, let the house support you for a while.

You spent 20 years paying it off and supporting it. Let it support you. Yeah, you're going to have a little bit of debt? Yeah, but it's better than having your credit score go to hell and lose the house, but you can watch the family starve when you can rely on that house to support you.

And again, back to changing the model. If your income is sitting around doing nothing, well, then you're just playing into somebody else's hands. You're playing their game, you know, and for those people out there that just hate the banks and the banks are screwing us and this, that, and the other thing, well, you have a choice.

You don't have to participate. You don't have to deposit your check in a bank. You can get cash. Money orders and a stamp still pay the bills. If you don't want to be inundated with debt, well, then don't go buy a house. Don't buy a car. Don't go finance anything.

You don't have to participate if you don't want to. If you're going to participate, then look at the model by which you're participating. See if you're getting the most benefit out of it, which you're not if you're running conventionally, regardless of interest rates, regardless of all the bells and whistles and the accoutrements that we all talk about.

Look at the model. If you're not getting as much out of it as you want to, then you've got to look at changing the model. You can't continue to, you know, maneuver within the confines of the model because it's only going to get you so far. And so when you look at something like truth and equity, is it perfect for everybody?

No. Does the math work? It has to because it's nothing my calculations, right? And you look at the you first thing. Oh, they're nifty software and algorithms and this. It's not needed. I mean, the first time I sold one of these, I did it on a cocktail napkin on a plane.

Balance divided by surplus divided by 12. There's your answer. And how are you doing? Look at your statement every month. It's going to ebb and flow. It's a living and breathing animal, just like your life, you know, and life throws you a curveball. And, you know, you spent $500 more than you did the last month.

That's life. What would you have done otherwise? You still would have spent the 500. And if you didn't have it in cash or you even if you had the savings, people protect that savings. They prefer to put it on a credit card and deal with that debt. Then go dip into their savings.

It's true. You know, it's because, oh, well, I got to have the savings. I got to have the savings. Well, I'm not saying savings are bad, but, you know, you shouldn't be saving money. But, again, look at the model by which you're going to participate, you know, and it just boils down to that.

And just good analysis. And, again, that's what I do. I spend so much time verifying accuracy of a profile. I don't take anybody's word for it. Nine out of ten of the profiles on my website are submitted incorrectly. Nine out of ten. And one reason being is that people -- you'd be amazed, Josh, at how many people I ask, "What does your net take home pay?" I don't know.

What do you mean you don't know? Well, it just gets direct deposited. We don't even look at the pay stub anymore. I'm 52, right? If I started working at 290 an hour, I'd have to go to the bank, stand in line, fill out the paperwork, and stand there and look at that check.

I could tell you to the penny every week what I made. But that's not the way it is anymore. I don't know. It just goes into my check. Well, what's your positive cash flow? Well, I really don't know. And I'm talking -- I'm not talking mom-pop kettle here. I'm talking lawyers, doctors, dentists, you know, highly educated, high-earning people have no idea.

And it's not because they're dumb. It's not because of any fault in their own except for the fact that the system has built convenience so deep that we're not even paying attention. It's just money in, money out, money in, money out. Well, when you get into this kind of program and it's a new model, you're focused.

Okay, this is -- I paid money for this, and I'm going to focus on it. And that's a big reason why I've got my ongoing service, you know, and the guarantee that I have. But that guarantee is participatory. If you don't send me statements, I don't know what you're doing, so I can't help you.

All right? I don't know if you're doing it right or wrong because you're not participating. But I can take a look at that statement, and I can just -- the activity, in and out, I can say, okay, you're still running it like a consumer, not a banker. We need to tighten the screws here.

We need to do this. We need to do that. And I'll evaluate the performance. You know, and anybody -- you can look at the statement. I started here, and now I'm here. Why? Well, it's all because of the ins and outs. But, again, it's just -- I can't stress it enough.

It's a matter of perspective. It's not a matter of, you know, guarding against and protecting what you've been doing for years because you're just doing what everybody else is doing and what you've been taught. And it's a hard thing for people that think they're pretty financially savvy to say, I'm not as smart as I thought I was.

That's a tough thing for people to do. And it's not that you're not smart. It's just you're just following the path. And I'm just exposing an alternative. And it's just -- and I can prove it again and again and again that from a psychological standpoint, you don't have to change anything about your budget, your lifestyle.

You don't have to change anything if you don't want to. Now, people do inherently because they see the power of a buck on each statement. They're just like, whoa. I mean I've had husbands call me and say, where did you put my wife? Because this woman I'm living with isn't even a mirror image of what I used to have.

I got another couple. They didn't talk for eight years over finances. Never on the same page. As soon as they got involved in this, within two months, they're sitting down together and they're looking at numbers and they're just going, hey, wow, fantastic. What more can we do? You know?

And then it's just a life-changing event and it's just because they've tweaked the model. They've identified an alternative that works better than what they were doing before. Now, will they hit the exact mark that if I tell them eight years and six months, will they hit that mark? Probably not.

Because my projections are based on what ifs as far as rates, et cetera, et cetera. But I've had people that have paid off right to the month. I've had people that paid off two years faster than I predicted. And I've got people that have lost around -- you know, they've lost four or five years.

But they've lost the four or five years not because they've been fiscally irresponsible. And that was one condition I didn't bring up earlier. One of the conditions of the perfect customer, fiscally responsible. I can't -- I can't -- I can't fix stupid. And if you're just financially dumb, you know, you're going to get what you're going to get until you change your ways.

But fiscal responsibility is definitely a key. But, again, it's a life-changing event for those that participate. And, again, those that participate, I got the right of refusal. So it's not a matter that everybody's going to do well. It's a matter of this is who you are based on these numbers.

You probably shouldn't or you should be doing this. You've got to look at the model. You've got to just change your perspective, put away pride and ego and say, all right, these guys at the banking industry, they've got a model that's pretty darn good. What can I learn from them?

What are they doing that I can do as well? And leveraging income is the number one thing they do. And it's the number one thing everybody else can do. And everybody does it already with a 401(k), right? You're just leveraging a portion of your paycheck into an interest-bearing activity.

Everybody does it. Everybody gets it. They just don't understand how to do it on the debt side of the ledger, and that's all truth and equity is bringing to the party. You can do it. Right. All right. So at this -- I agree with you. The psychological influences I can see being extremely valuable.

I also can see it being extremely valuable to have terms that allow you to keep your excess cash flow in a debt reduction space rather than doing what I would do, having the extra money on the side because it certainly is inefficient. However, there are some risks. So let's talk about risks, and let's not talk too much about the personal risks as far as which are obvious.

If somebody is not disciplined with their spending, if they're just going to spend more, no, they're never going to pay off their debt. You have to mathematically put more money at it than not. Let's not talk too much about credit score risks. Let's just -- let me focus on some of the financial risks for an ideal consumer, a rational, thoughtful person.

Two major ones that jump out at me, and I want you to go over any additional ones as well, is what you mentioned already, the fact that HELOCs are generally -- I don't know if they're always, but they're at least generally going to be an adjustable-rate mortgage, and secondly, that HELOCs will often have terms -- perhaps they'll be callable, perhaps the bank will be able to -- it's happened to a lot of people when the property value has declined, the bank can decrease the line of credit available simply on their own decision, not involving you, and that could put you in a difficult spot.

Talk about those risks and any others that are applicable to this strategy. Okay. You're 100 percent right, and I'll get into it. The human factor is the biggest risk, fiscal irresponsibility and treating it like a piggy bank, right? When it comes to the interest rate, yes, they're variable-rate loans.

Now, some banks offer fixed-rate options, but you've got to be careful because sometimes that fixed-rate option will change a great deal of the functionality as far as liquidity, repayment terms. You know, it's almost kind of like taking a cash advance on a credit card versus just a regular purchase, right?

So that can change. There are a couple of banks out there that offer fixed-rate options all the way. You know, it doesn't change the functionality of the HELOC. You're just going to pay a little higher rate. I think those are probably averaging 5.75 to 6 percent for that fixed-rate option.

Line freezing and capping, that's probably the biggest one, all right? When the bubble blew up and values dropped like a stone, there was a lot of line freezing. B of A, for example, they just froze everybody, all right? Other banks, they did what they call an automated valuation model throughout their lending footprint and determined the percentage drop in particular areas.

If you had a loan within that particular area, they're just going to assume you lost 30, 40 percent, and they're just going to freeze it. But every bank will give you a remedy, right, because they're not doing it to harm, in punishment. They're doing it to protect you and themselves because they don't want to be upside down in the loan any more than you do.

But they will give you a remedy. So if you go get it, prove to us that your house is worth more than what we're saying, and we'll consider it. And I had customers that we did that, and the lender said, "Okay, you're right," and they opened it back up.

Others that couldn't do that, you know, just because Bank A was freezing lines doesn't mean Bank B was. So there were several opportunities where a Macquarie loan got frozen and value didn't drop so much, and we went over to another bank and we got another HELOC, and away we went.

They're not going to inform you that they're going to freeze the line because they don't want you to go empty it out as far as equity. And I had some customers that had just got their income into the line. Well, they were -- again, the bank's not there to punish anybody.

They were able to call the bank and say, "Hey, look, if you look at how I've been running this, I get my income into it, you froze the line, can I get that income back to live my life?" And that income got pushed back into their checking account. So there are remedies around the capping and freezing, but if it does occur, you know, your money did just get locked into your house.

But, again, for those that had HELOCs frozen, they still qualified for an unsecured line, so we went and got an unsecured line of credit, a little higher interest rate, but, you know, analysis dictated that's okay. You know, we still got plenty of positive cash flow. We can still keep the train moving.

We're just going to do it out of a different bucket. We're going to drive down the balance on the frozen HELOC or the first mortgage. We're going to open that thing, that equity back up, and we'll go back and get the HELOC reinstated. So the capping and the line freezing is probably the biggest risk, but, again, it's just a matter of keeping an eye on the market and what's going on and just being aware of your surroundings.

- Are the terms, the adjustable terms of the HELOC, the way that the types of loans that you're writing, are they infinitely adjustable in the sense that they're very responsive to rates month by month or are they adjustable on a certain schedule with certain caps? - Very good question.

Now, a HELOC or a line of credit is a variable rate loan. It's not an adjustable rate mortgage. An adjustable rate mortgage is going to adjust on an anniversary date of when you signed it, whether it be five, six, seven, ten years, what have you. And there are restrictions and guidelines per those adjustments.

Maximum adjustments generally can't go over two. With a HELOC, it's a variable rate loan, and that rate is attached to the prime rate. Pretty much 10 out of 10 HELOCs are the index is the prime rate. And as we know, when the bubble blew up, they dropped that rate to its lowest possible level, and it stayed there for six years before they made the last adjustment of a quarter.

Now, pretty much 10 out of 10 HELOCs, the maximum rate they'll allow is 18%. And that scares the dickens out of people. But, again, change your perspective. Don't look from the outside in. Go from the inside out. The Federal Reserve controls the prime rate. Right? The reason they dropped that rate to 3.25 when the bubble blew up is it's like the accelerator pedal on a vehicle.

They dropped that thing to the floor to juice the economy. If people are not borrowing money, the whole economic structure we survive upon will go belly up. It survives on people borrowing money. And that's why they kept it so low. They need people borrowing money. They raised it up just a fraction here a couple months ago because economic indicators dictated that they could do that.

Right? Because it's a real conundrum. What's good for the consumer is not good for Wall Street. What's good for Wall Street is not good for the consumer. It's a real conundrum. You know, thank God we don't have to make these decisions. But, you know, they need Wall Street churning along, and that's one reason they bumped the rate, because economic indicators show the consumer can handle it.

Right? Now we're going to have to sit and wait. How is the economy going to -- over the, you know, short and long term, how are they adjusting to the rate increase? Because there's always going to be an emotional knee-jerk reaction by the public. Right? No different than the stock market.

It lives and breathes by the emotions of the consumer. Right? And so we might sit here at 3.5 for another four years. The next move could be back down to 3.25. The next move could be up to 3.75. But we need to understand that this is not an arbitrary rate that somebody is waking up in the morning and saying, "You know what?

I think we need to earn 10% today." We're not going to do that. So we need to look at the rate environment realistically and say, "Okay, well, what if it goes up a half a point per year?" You know, in my projections. That's why I do what I do from an analysis standpoint to say, "Okay, if it gets to its worst-case scenario, will you be okay?" And if you're not, I'm going to tell you.

And I can prove by looking at the numbers. Even if it hit 12% and even if that 12% was in the next five years, but you paid off three-quarters of your mortgage debt within that time frame, you don't care what the interest rate is because you're balance-driven. You know, interest rate doesn't lead us by the nose.

The balance leads us by the nose and we focus on balance, balance, balance. And that's one reason why we don't do the one-loan scenario because if it did get out of whack, I mean, I'm telling you what, a half a point on 200 grand is a whole lot different than a half point on 20.

And that's why anybody that's thinking or considering doing this, don't think that, "Oh, my God, I've got to put everything in one big line of credit." That is not what you have to do. You can start small and you can stay small, i.e. a smaller line of credit, and control every dime that you're exposing to that variable rate.

And if, you know, my projections, I determine, you know, "Hey, your economy dictates I would take 24 grand out of the line and throw it at the first mortgage and we'll pay it off." Well, let's say for sake of argument, that rate rose by 3% within that year. Okay, well, now let's not take 24.

Let's not expose 24 grand to that higher rate. Let's just take 12. So now we're controlling our interest cost and we're going to pay it off in exactly the same amount of time because it's your positive cash flow that dictates the acceleration, not the interest rate. Interest rate is just a number and people should not fear it.

And it's amazing how, you know anybody that's got a fixed rate 401(k)? No. No. Everybody's 401(k) is variable. But everybody's okay with it because there's visions of grandeur because on average the stock market has been up 17%. Right. But it's a speculative investment. I don't care if it's been up 17% on average.

I just took a 25% hit. And now I've got to wait. It's got to go up 42% for me to get back to your 17% average. But everybody's okay with a variable rate investment that has no floor. Right. It's amazing how we've been taught and been given this -- taught that the stock market is where we need to go.

And we all throw our money in there like it's all risk capital. Like it's okay if we lose that money because that's the kind of investment we're in. There's no floor. If you lose it all, you lose it all. And there's no moral hazard to anybody. And I think it's a dangerous game.

But on the other side, on the debt side of the ledger, a variable rate is not something you need to fear. It's the balance you need to fear because that's what's going to cost you the money, not the interest rate. A couple of more questions and we'll wrap up.

Number one, did I miss any -- are there any other major risks specifically, especially financial risks that I'm not considering? No, no more risk than anything else because -- and this is an interesting subject. Borrowing and lending is a risk-based game, right, for both parties. And it's all contingent upon income.

You think of the banks and all of us. When we sign a 30-year note, we're banking on our income not going away. And that's something we have zero control over. We can lose it tomorrow. If, you know, the owner of our firm that we work with just got a DUI, his name's all over the paper, something horrible, whatever the case, and the business goes bye-bye, well, so does the income.

So the biggest risk for any financial move you make as far as financing debt, it's based on the income, right? So that's really the number one risk point with all of this. But moving up the chain, rate, yeah, there's a risk there, but it's something that we can control and not let it control us.

Capping and freezing of lines, yep, that is a big one. You had mentioned that, you know, the loan being called, they can't, you know, that calling a loan, yes, it's available, but that's disclosed, and it's not very common. Those virtually went away during the Depression. As long as you're -- because it's a contractual agreement, right?

I promise to pay. And as long as you're paying as agreed, they can't do anything. They can't just -- if they're having a tough month, they can't call up Josh and say, "Hey, Josh, you know what? We really need the 200 grand." They can't do that. And it's no different on a HELOC.

As long as you're living up to the terms of the agreement, they really can't do anything to you. One tax question for you. I mean, does -- and I'll make it multifold and just allow you to answer. Part A, does having a HELOC instead of a traditionally amortizing mortgage negatively impact you from the perspective of the mortgage interest tax deduction at all?

And part B is can -- I have to run an analysis. I'm just asking the question off the top of my head. But could it actually positively impact you in that you have a higher amount of interest that is deductible? Because in a traditionally amortizing loan, you pay so much up front with interest, you have a large interest deduction.

But on the back end, even though you're paying high payments, you have a relatively small amount of interest that you're paying. Could this actually positively affect the amount of interest that you're paying by any chance? I'll tell you what. When it comes to the letter of the law as far as the IRS is concerned, IRS publication 936 will tell you everything you need to know.

All right? And basically what that says is that all interest that is accrued for acquisition costs, right, the purchase price of the home, what you borrowed to purchase the home, that's 100% deductible. All right? It doesn't say anything about what type of loan it has to be in. So if you converted your 30-year into a first lane HELOC, is that still acquisition cost?

I would say so. Yes, it is. So that's 100% deductible. On the other side, on the secondary side, if it's a second lane, it's going to be based on home improvements, you know, up to a certain amount. About $150 million in today's world, about $1 million of acquisition costs and $150,000 of other debt.

Is that right? Yeah, something close to that. Okay. But now keep this in mind. All right? If we've got your conventional first over here we're maintaining, we've got the second HELOC, and we take 24 grand from the HELOC and pay down the first, which was all acquisition money, would you consider the 24 grand that we used to pay back acquisition money that's still acquisition money in that second mortgage?

I would, yes. Is that tax deductible? I would. I'd deduct it. Is it tax deductible? Yeah. Now, I got another answer to that. Your answer is off the record sitting at the bar. All right? Let's go back over the last, and keep in mind of the letter of the IRS law.

How many people over the last 15, 20 years plus cashed out, paid off cars, paid off credit cards, paid off boats, and now all that interest is landing on their 1098 form on their new first mortgage? About a million. Millions. Right. And guess what? That 1098 form goes right to the CPA.

Do you think the CPA is saying, "All right, Josh, we need to break this down"? No chance. No chance. The IRS, per their publication, has got the right to audit millions of homeowners. They're not going to chase after the nickels. It's not worth their time. So, the off the record answer, if it shows up on a 1098 form, put it on your tax return and let the IRS figure it out.

And even if they come back after you for it, it's nominal. It's going to be nothing. All right? So, that's my speech on deductibility. Now, on favoring paying more or paying less, I think the mortgage interest deduction, as a tax plan, is the biggest sham on America. Because if you look at it this way, if you spent 10 grand in a year on mortgage interest and put that on your tax return, what is the net benefit to you in a round number?

What do you think you're going to hang on to? Sorry, I don't understand the question. All right. Well, you can't write $10,000 off your tax bill. Right. That $10,000 is coming off to figure your adjusted gross income. Correct. Right? Correct. So, your net benefit really is you get to hang on to $2,500 to $3,500 depending on the tax bracket.

All right? And let's use $3,000 as a mid number. Sure. All right? You spent 10 to keep 3. How much did you lose? Seven. So, I wasn't making that argument. I was simply making the argument – I was thinking through the fact of if I were accelerating a mortgage, let's say I put a HELOC and a traditionally amortizing loan side by side.

At the latter point – so at the beginning point of a – I need to run the spreadsheet. I guess the idea that was in my head was just simply the fact that so much of a payment in a traditionally amortizing loan is interest up front that is dramatically more than, say, a 5% interest rate.

If it were expressed as an interest rate, it's a much higher interest rate. The 5% is over the life of a loan for a traditionally amortizing loan. But on a HELOC, if it's at 5%, it's calculated at 5% every month. So, on the back end of a loan payment schedule, my guess would be that the HELOC would be generating more interest.

If the values were the same between the traditional mortgage and the HELOC, my guess would be that the HELOC would be generating more interest deduction than the other, and I could be wrong. I don't want to get lost in the weeds on that. I was just kind of thinking it through and wondering the question.

Yeah, no, no. That's a good question. To be honest with you, I'll be 100% honest with you. I don't dig that deep, right, from the standpoint of it's paralysis analysis through paralysis or paralysis through analysis. I'm all about that balance. Balance, balance, balance, balance. The lower you can drive that thing, whether it be in your first or a HELOC, well, you got to look at the effective interest rate as well, right?

It's not just what the note rate is because if you had 15 grand in a HELOC and you ran conventionally and you just made interest-only payments on it, and your interest cost is 400 at the end of the year conventionally, right? Your interest is whatever it is, right? But if you pay that amount off in six months, right, and if you look at your effective rate for the year, if the note rate was four but you only paid 2% in interest over looking at it over that year's time, your effective rate is cut in half.

Your interest rate is cut in half regardless of what the note rate says because the note is only there or the note rate is only there to calculate what do we owe or what does he owe for the month based on his average daily balance. That's all it does, right?

So if you can affect that average daily balance, yeah, you're always going to pay the note rate on what is owed. But if you can affect how they calculate that per the balance, well, then you're beating the game. You're paying less in interest over time than you would by running conventional.

So it really comes down to more of an analysis and it's all driven by cash flow. How fast are we driving this thing down, right? And it's all different for everybody, you know. But is it 500 or is it 5,000? It depends on your cash flow. If you only got $500 extra per month, then we're only going to pull so much out of the line.

And again, this is a matter of control, right? If you got a $30,000 line, a lot of people say, "Well, do I pull the whole 30 grand?" No, don't pull the whole 30 grand because it might take you six years to pay off that 30 grand. And then you're going to subject that 30 grand to a variable rate.

And we don't know what the bottom line is going to be until we got it all paid off. But again, I don't dig that deep because the bottom line is balance, balance, balance. And how effective is your income against that balance? I developed a little formula to help people kind of say, "Well, should I or shouldn't I do this?" And let's look at income, and it's the income efficiency ratio.

How efficient is your income against the debt? And one way to do that is take your conventional mortgage payment, break out the principal portion of the payment because that's the only thing that's going against debt, and then divide that by your net income. And I'm telling you what, if you got a 15-year mortgage, it's going to be higher.

But if it's a 30-year mortgage, you're going to come up with about 3% to 5% of your income is actually working against the debt. And you can do this on a credit card, a car, any debt that you have, and you'll determine only a small percentage of your income is being applied against debt, playing by their rules.

Now, when you look at the truth in equity model, 100% of your income is working against debt 24/7. There's your choice. Which one do you want? You want 30% of your income working against debt and let it churn interest every minute of every day with your money sitting in your checking account?

Or do you want your income working against that debt to get it to its lowest possible level? I mean, I can structure things to where you won't pay any interest on the HELOC debt. I can make it an interest-free loan if you do what I teach you to do.

Cool. Well, I'm going to let that one dangle. I was trying to decide whether to make you-- All right. I'll bite. So how would you structure that? What would be the variables that you would manipulate? It all comes down to the economics, people's-- What's the cash flow? What's coming in?

What's going out? And how are we going to operate moving forward? To answer that question, I mean, maybe I shouldn't have thrown that out there because-- It's like the ultimate marketing tease. I was going to be polite and just let you have that as a hook, but now you've got to explain it.

Well, again, I can't explain it fully because it gets into the complexities of how things are structured and what somebody's specific finances look like. And this is why I'm still here and why I didn't go away with U-First Financial because this is a consultative process. It's just as important as sitting down with your financial planner and formulating a game plan for your retirement.

This is the exact same way because everybody's different. It takes analysis of who you are, where you're going in life, what stage in life you are, and all the idiosyncrasies of what you've developed before the day we met, whether it be child support payments. Today, well, they're not lasting forever, and breaking those out and just going through the analysis process-- it has to take place for me to answer that question that I threw out there.

But just know this. It's possible to be able to structure this thing and run it to where you virtually pay no interest on the HELOC. Now, that's in a two-loan scenario, not in a one-loan scenario because in a one-loan scenario, we've got that big balance that we have to deal with.

So you're never going to get away--have a no-interest payment on a first lien HELOC with that big of a balance. We're strictly talking a two-loan scenario there. So last question. Describe--so I'll let you off the hook with the-- I'll let you off the hook in the chapter on the interest rate, although I would have preferred you used an equivalent interest rate.

I recognize when you're writing a book, you've got to have some marketing. Your job is to write a book for marketing. So that's what I do in Radical Personal Finance. And I do think that at the time that you wrote this, these were legitimate scenarios. And I don't necessarily think that in selling you have the responsibility to provide every alternate scenario and say that, yeah, you can go and compare this to a 3.5% fixed rate.

I'll also let you off the hook as long as it's on the addition of money simply because you're saying that is the power of it. I would love to try to still understand, I guess, the idea of the average daily balance. I'd love to see a spreadsheet run there.

But you're right in your point that you can't really compare it because if I've got a traditional fixed-rate mortgage and I don't have the money, if I don't have the HELOC, I've got to keep myself flexible. So you're right. So I'll assume that the structure is good, et cetera.

So for some subset of listeners, this could be a good thing. Describe your company, Truth & Equity, because we still have to overcome the fees. Describe how you calculate fees. Is it just you? Do you have a bunch of people doing this for you? How do you guys calculate fees and how much do the fees wind up being after somebody has gone through the consultative process?

OK. Again, Truth & Equity has been around for 10 years. And we weathered the storm. I've got approximately--I've got a staff of six that work for me that work in varying capacities. But I've got four actual financial strategists that do the analysis and help people into the process and teach and train them.

Our process is this. You start with a profile because we've got a favorite saying, "Prescription without analysis is malpractice." It's like going to a dentist. He's not digging into your mouth until he's got x-rays and does a full exam before he knows where to go. That's how we operate.

It starts with a profile. And the profile, there's no sensitive information beyond numbers. I just need to know what you owe, what you spend, and what do you bring home. And I can conduct the whole thing from there. Once we have that in hand, we'll reach back out. We'll conduct a free online meeting to where we'll verify those numbers, make sure they're accurate.

We'll build a worst-case scenario. I never show anybody the best. I always show them the worst-case scenario. So if somebody says they know without a shadow of a doubt they've got $2,000 a month positive cash flow, I'm going to base my projections on 15 or 1250, right, because I want to be able to cover contingencies that we can't see today.

So I go with a very conservative number there. We'll demonstrate how we structure, how we would propose things be structured. We'll show them how the math works line by line with their numbers. And it's an educational process because we want people to understand what they're doing and how it works.

Even if they don't understand it fully, we want people to know so they can make a qualified and quantified decision for themselves. And if the plan is aligned, then we'll go help facilitate the loan process and get them into the implementation process. And you guys are not operating as mortgage brokers receiving a mortgage commission, or are you?

I am not. We let our licenses go away eight years ago. I hate the loan business. I hate it. I understand. I hate the financial business, and I'm a former financial advisor, so I'm with you. Yeah, and I don't want any part of it. No, we are not compensated in any way, shape, or form in that process.

Okay, good. Our fee is $3,000. Okay. All right? It's a one-time fee, and it's not paid until we have a loan in place. So I'll go through all the effort and all the work to get to that point, and if we don't get a loan for whatever reason, it's either going to be credit or it's going to be something that was found during the underwriting process.

Well, if you can't get the loan, you can't do what I do, and I can't charge you. Right? So I don't collect -- you know, I used to collect money up front, and then when we couldn't get the loan, I'd have to give the money back, and it just cost me $100 to take it and give it back.

That doesn't make any sense. So I just don't collect any money until we actually have the tool in play and we're ready to go. And then that's when the implementation period starts. That's when the clock starts ticking on the guarantee. After the six months, I'll never charge you another dime, and then the service will not change.

What I promise you from the first day, I'll deliver to you until the last day. So it's a one-time fee, and that's it. No percentages, no nothing. It's just let's take care of it now. We don't have to worry about it for the rest of our relationship. Cool. Bill, you sound like a pretty radical guy in terms of some of the tenor of your comments.

Any other cool ideas that would fit the radical personal finance audience? Any other nifty little money-saving things that you do that are not very mainstream but have a proven track record? God, if you open up that door, pal, we're going to be here for three hours. All right. Well, I'll tell you what.

Think about it because I think--I mean, you're not connected with radical personal finance. We met--I mean, we ran into each other randomly. I guess it was FinCon, wasn't it? Yeah, it was FinCon six months ago. But I think you'll enjoy the response from the audience to this show because this is the type of thing that we get into.

And so maybe you hang out in the comments section. Listeners will have questions. You can respond to them and answer them. And then if the response to this show is good, we'll have you on to talk about some of your other radical ideas. We're always looking for radical people around here.

All right. Well, I'll tell you what. I got some good ones for you. Awesome. Cool. We'll tease it for next time. Bill, thank you for coming. Your website, again, is TruthInEquity.com. And I would ask you, Bill--listeners, feel free to come by the show page for today if you've got further questions.

If you haven't listened to episode 133, go back and listen to 133. You'll hear how critical I was of the book and everything. Bill and I haven't spoken more than about two minutes. Everything you heard has been recorded. And so you can judge for yourself and some of you feel free to check it out and see if it's something that's useful to you.

Thankfully, I don't have a mortgage anymore, so I don't have to worry about this strategy for myself right now. But who knows? In the future, I might. Well, I'll tell you what. I'm going to interrupt you real quick, though. Even though this whole thing is all about debt, debt, debt, mortgage, mortgage, mortgage, this financial strategy can also be used for investment purposes.

So even if you don't have a mortgage or you've got a home that's free and clear, I can teach you how to use this same strategy to build your retirement portfolio. So by establishing a line of credit of some kind in order to invest with? Is that what you're--?

You bet, man. I mean it's banking at its finest. It's arbitrage at its finest. If you've got that equity, again, if you can pay back 24 grand in a year, hey, go take 24 grand and go stick it in an investment someplace. Run the program, and you've got it paid off in 12 months, and now the investment's working at 100% strength.

And you can do it again and again and again. I've got people that are funding their kids' college educations, their retirement, all sorts of crazy stuff that people are doing as well as still-- They're serving two masters. They're still accelerating the payoff of their debt, and they're building their retirement portfolio.

A HELOC in this strategy is the most powerful financial discovery you'll ever make. You just got to understand how to use it right. We'll consider doing a standalone episode on that at some point because there are some great strategies with regard to borrowing money in order to invest. There are also associated risks.

So we'll save that one for the next time. Bill, thank you for coming on the show. I appreciate you being willing to step up and argue with me today. Josh, I appreciate the opportunity. I always love a good fight when it comes to this. I bet you would love it.

I don't know who your biggest financial nemesis is, but I bet from back-- I mean, I haven't seen this concept much in the news these days, but I bet you would love to get on and talk to some of the people that have criticized your work and the You First Financial folks in the past, wouldn't you?

I'll tell you what. If Susie and Dave are listening, here's the challenge, baby. And every news organization out there, put us on screen, one, two, three, and it will be a show. I'm telling you. Well, that's why, Bill, this is what-- I was going to say it in the outro, but I'll go ahead and just do it here.

This is exactly why I started Radical Personal Finance because I was always interested in mainstream personal finance topics, and I would come across things that I thought, "This would be interesting." But the problem was sometimes important concepts are difficult to convey in a three-minute soundbite. And so I'm willing to be wrong in any opinion I have, but I want to have the time to find out and to search into something.

And so I like that here in a podcast format, I mean we're an hour and 28 minutes in discussing this topic, and I think it's shed a little bit more light on it than it's accomplished with a three-minute discussion. So, cool. So, thanks again for coming on, man, and I appreciate it.

Yeah, you too, Josh. I really appreciate the opportunity. As we go today, I hope that you found the conversation enlightening. I hope you were challenged and found some useful concepts. I need to say this, and I should probably say this more frequently, but I am trying really hard to bring on a diversity of guests, diversity of opinions, things like that.

When I'm doing a show by myself, if you hear me say something, you'll know that's what I believe, and that's my clear opinion. And I always try to be as forthright and clear as possible with opinions. But with any of these things, caveat emptor, it's your money. Buyer beware.

It's your money. You must take control of it. You must do your own research, and you must be confident with it. Feel free to disagree with me or to agree with me on anything you want. I don't care a bit about that. What I do care about is when you make decisions with your money, you've done the research for yourself, and you're confident about it.

The reason I'm harping on this is because when you make a decision that you've researched, you've thought through, you've done your homework on. If it turns out to be a great thing, awesome. But if it turns out to be a bad thing, then you can't engage in this exercise of blaming other people for a mistake you've made.

Rather, you get a chance to learn personal growth. Hey, I made a mistake. Own up to it and recognize and learn from it. We all make mistakes. I've made so many mistakes with money. I have lost so much money in my life on stupid stuff. It makes me ashamed.

It really does. But at least if you're going to lose money on something, learn from it. You've heard the conversation with Bill. If I still owned a house, based upon what he said, I would probably have him. I would investigate it. But you've got to figure out your situation.

You've got to see if it's right. So feel free to check out Truth and Equity. I'm not endorsing them or disavowing them in any way. But see if Bill's – see if they can do something for you. And then, hey, if you've done this or if you haven't done this, if you had bad experiences, good experiences, I'm happy to hear about any of those things.

Keep me in the loop so I can be a knowledgeable resource to publish and publicize some of these products and ideas. But hats off to Bill for coming on. I hope you enjoyed the interview. If you'd like to support the show, please consider becoming a patron of the show, RadicalPersonalFinance.com/patron.

I've got some bribes and benefits there for you to do that, support me directly. It's really important, really, really important for me to be able to maintain my independent objectivity that you, the audience, supports me directly. RadicalPersonalFinance.com/patron, and I thank you for that. Don't just dream about paradise. Live it with Fiji Airways.

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