E114: How to Actually Take Advantage of the Bank’s Money using Your Mortgage
In this episode, we discuss the ton of misconceptions that banks want you to believe about mortgages and interest rates. We’ll share what you ought to be doing instead.
- Why banks keep you in the dark
- Basic truths about the math of home mortgages
- Why paying a mortgage off early may not be in your best interest
- Questioning whether a home really is an asset or not
- What Robert Kiyosaki says about assets and the best way to define them
- What low-interest rates are really good for
- Why 15-year mortgages look “cheaper” than 30-year mortgages
- How to think about the value of current versus future dollars
- How to put your money to work for you instead of the bank
- How to Really Make Your Home Mortgage Work For You presentation
- Gain access to our Secret Banking Masterclass now FREE to listeners of the podcast here now
- What is Infinite Banking
- CREDIT: Episode art background photo by Sieuwert Otterloo
Podcast transcript for episode 114: Take Advantage of the Bank’s Money using Your Mortgage
Announcer: Listeners, Nate would like to offer you something special. He’s prepared a virtual workshop to walk you through how to make your mortgage really work for you. Go to livingwealth.com/mortgage, to watch the free on demand presentation. You’ll see the easy to understand numbers and full scope of what he and Holly are sharing with you in this episode. Go to livingwealth.com/mortgage, to watch the free on- demand presentation.
Nate: All right. Well, we’re about tackle a topic that we’ve actually probably talked about a couple of times before Holly, but it seems like it’s been maybe two years or something like that since we last hit this, maybe even longer, I don’t know. It’s been a while and this is a podcast focused on mortgages, how actually to take advantage of the bank’s money. And really there’s a lot of misconceptions that I believe banks want us to believe about mortgages and interest rates and what you ought to be doing. Mainly to benefit them and less focus on benefiting you. So we’re trying to paint this to say, “Hey, stop believing the things that are not true and understand the truth, so that you know what to do better.”
Because I do think Holly, there’s many things in many sectors, but probably the biggest one in the world of home buying. That banks want us to believe that we really should not trust them. I think a lot of people don’t really trust banks, but really in the world of home buying and mortgage, we all have a healthy level of mistrust for what they’re telling us to do. And really what we ought to be doing in light of the low interest rate environment that we’re in.
Holly: Yeah. And we are in that low interest rate environment, but because it’s so low and most of us have never really thought of the banks as anybody not out to get us, but why would they encourage something if it’s not good for me? Is a question you need to ask yourself, is this really in my best interest? And whether it be pushing a 15 year versus a 30 year mortgage, that we’re going to talk about and we have talked about, or whether it’s paying that extra principle payment. I sometimes doesn’t even come from the bank Nate.
For me, my experience was I had an individual that was doing all my mortgage documents, signing off telling me, how the best plan for me and ideas that I should make one extra principle payment a year on my 30 year mortgage. And I could pay my mortgage off two years earlier. And I told her, I would never do that.
Nate: Yeah, you drink a lot of the Kool-Aid, with us. Right?
Holly: Yeah. Yeah. [crosstalk 00:02:47].
Nate: Once you taste it, you don’t want to go back.
Holly: She’s like, “Yeah, but then it doesn’t take you 30 years to pay it off. It only takes you 28 and really not even 28, it’s just part of 27 years and a little bit.” And I was like, “I don’t want to do that. In all honesty, where did you hear that?” And she goes, “My bank told me this.” And it was a great conversation. And leading to why you shouldn’t do that, not just because I’m giving strong dollars away today, instead of paying it off with weaker future dollars. The best way of looking at an extra principle payment on your house is, would you ever take that same money and buy or purchase an investment that yields use zero percent rate of return? How exciting is that?
Nate: Yeah, I’d never do it, but that’s what we we’re to do.
Holly: Yeah, we’d never do it. Nobody would, they don’t do an investment for zero percent return on their dollar.
Nate: Yeah, absolutely not. And so, one thing we can probably dive in to do is, maybe the first myth here Holly, that almost all of us are kind of pushed from banks, is that a 15 year mortgage is better than a 30 year mortgage. Almost every time you go to a bank, for whatever reason, they’re pushing you to get this 15 year mortgage, which is surprising. I would think it’s set in this light that they’ve really got your best interest at heart because what they’ll pitch it to you is, “Hey, look at this. In the 15 year mortgage, here’s how much interest you got to pay us. And then here’s the 30 year mortgage and you got to pay more interest to us for the 30 year mortgage. So we would think it’s probably best if you take this 15 year mortgage.” There’s a lot of holes in that argument though, because the problem with a 15 year mortgage, I mean, there’s many different things. But the question that I would always ask people is, why is the interest rate on a 15 year mortgage typically lower than the interest rate on a 30 year mortgage? And the reason that it’s lower is because for a 15 year mortgage, it’s actually less risky to the bank to offer you a 15 year mortgage than it is for them to offer you a 30 year mortgage.
And so, if it’s less risky to the bank, it actually means it’s more risky to you. And somebody will be like, “Well Nate, how is a 15 year mortgage more risky to me?” Well, you have signed this agreement to make this payment for 15 years, set and fixed in stone. And that payment is greater than the 30 year payment. In other words, the only way you’re able to pay off a mortgage … If you take out a $300,000 mortgage to buy a home and you’re paying back it over 15 years. Automatically, that means your payment is going to have to be a lot more to pay that off in 15 years than it would be for the 30 year option. So you’re committing to pay this larger payment over this 15 year timeframe.
The problem is the bank has a lien against the full value of your home until the last penny is paid off. The reason it’s less risky to them is because you’re giving them the money back faster and faster, which means if they were five years into it, if they were to have to foreclose against you, you would have actually paid a lot of the principal back already in those five years. So it means that there’s less risk of them getting hit real hard with a foreclosure and having the house be worth less than the balance of the mortgage at that time. But the reason it’s more risky for you is because you are locked into this greater payment and you go in five years and then some sort of financial situation occurs, where you’re not making enough money, or maybe you lose your job or your business fails. And you’re stuck with this larger payment for this 15 year mortgage.
And so whenever you’re stuck with this larger payment, you come back to the bank. You’re like, “Guys, five years ago, you gave me the option to choose the 15 year or the 30 year I chose the 15 year. I thought it would be good. Well, now I’m in this tight place. I don’t really have enough money to keep paying on it. Is there any way I can switch it now to the 30 year option? In fact, can I get back all that extra money I had sent you for these five years? And can I just pretend now that I actually took the 30 year option with a lower payment now, and with that equity back.” And of course, they’d say, “No, you can’t do that. You have to go through the whole refinance process. And because you don’t have a job right now, you’re not going to get approved for a refinance, which essentially just means we’re going to foreclose on the house.”
So the 15 years actually puts you at a riskier place because you’re locked into a higher payment amount. And while you’re locked into this, the bank is going to foreclose on you, if you don’t pay it back in complete over that 15 years. So in other words, even in year 14, if you stop paying them, they’re going to come take the house. It actually is less risky for you to take the 30 year because then if you had to foreclose, first off, you have less of a payment owed and saying, you haven’t been building up as much equity to lose to the bank, and if they come take your house. So I would just say, first off a 15 year is not better than the 30 year, just because you’ll pay less interest. We have to see deeper than that. What else could we do, if we chose the 30 year instead of the 15 year mortgage, Holly?
Holly: Well, I think one of the other things that you honestly can do is, you can take that difference in the money you were paying and use it for a whole life insurance policy. Number one, that protects you and gives you death benefit. But number two, if you want to use that money and invest it, you can do that too. Plus a 30 year mortgage, it’s a great play. It’s weaker dollars in the future. I mean, Warren Buffet says that. That a 30 year fixed mortgage is a better play for the American dollar. Like use that to your advantage, use a 30 year mortgage to your advantage, 15 years more of payments, but they’re at a lower rate. It might be a higher interest rate, but actually most of us, we hear lower interest rate and we think it’s cheaper for us. And in reality, the only thing you get to deduct from your taxes is your mortgage interest. So by paying a lower mortgage interest, you’re also now increasing what you pay to the federal government on a 15 year mortgage versus a 30 year mortgage.
Nate: Yeah. That’s what really blows people away is that typically, let’s just say you’re going to buy a home and you go out and you get this price for … Okay, how much is the payment for the 15 year? And then we compare that to the 30 year. The 15 year is obviously going to be a higher payment. So let’s just say that the 15 year mortgage is a $1,000 a month. I don’t know what that mortgage amount would be. Let’s just say they offer you a 15 year mortgage. It’s going to be a 1,000 bucks a month, or you can take advantage of a 30 year mortgage. And the payment is only going to be, let’s say, $600 a month or something like that. And essentially what we’re saying is … It’s obviously true by the way, if you have a loan out for 30 years, you will pay more interest to the bank. That’s true.
However, you had to send them all that money, essentially $400 a month, you had to send them extra. That’s about five grand a year for the next 15 years. So you have to send them an extra five grand a year in this little scenario. The question you should be asking yourself is, what could I do with that 400 bucks a month difference? What could I do with that to produce value for me and my family, apart from just sending it to the bank, to pay off my mortgage quicker. And what Holly and I have found is that typically you could take the difference between the 30 year and the 15 year payment and just use it to buy an IBC policy. And actually, in 15 years, the policy could have enough money to pay off the 30 year mortgage.
So now if you want to, you can get out of your mortgage in 15 years, or you can continue using the bank’s money, leave it outstanding. Because as Holly said, due to inflation, every payment you make them 15 years from now, it’s not going to be the same dollars that it was today, but it’s locked in and fixed.
So that’s what we talked about. You’re getting to pay it back with weaker and weaker dollars, which means that you can use the good dollars here and now to buy assets that produce even more value than the mortgage. And right now, with these low interest rates, we ought to be calling the bank up, asking them to send us as much money as we can get our hands on because you’re getting it at two and a half, three, three and a half percent. And as Holly mentioned, that’s all tax deductible. The IRS is going to help you. Uncle Sam is going to help you pay your mortgage by letting you get a deduction for it. So that means that the real cost to you is even less than that.
The issue is, some people, “Well, I don’t like paying the bank interest.” I don’t either, but if I can use the bank’s money to go buy assets that produce more interest to me, that’s a winning game for me. That’s banking the right way, it’s using the bank to make money, not just as a losing money position.
Holly: I want to put it in dollar terms as well. That $400 difference a month or $4,800 a year. That’s $72,000 over 15 years. That’s a great investment in something else, then giving that $400 to the bank in the first 15 years, just to pay the mortgage off.
Nate: That’s money, that’s locked into your house. It’s not putting food on the table. It’s not producing any income for you. It’s sitting there in equity in the home. That’s really producing no value. That’s why we talk about it being a zero percent rate of return. Yeah, but sending money faster and faster to pay off a mortgage may feel good, but it just locks your money up. When instead you could have taken that same capital and bought other assets that might actually put food on the table. In fact, they might produce enough value, whether it’s a policy or something else to pay your mortgage payment for the next 15 years, without anything coming out of your pocket. This is called having money work for you, not just having to work for money.
Announcer: Are you still stuck in insecurity and uncertainty? Do you want to feel like a financial genius and confident about your future. Holly and Nate have prepared something exclusively for Dollars and Nonsense listeners, it’s called the Secret Banking Masterclass. You can gain free access to this course by visiting livingwealth.com/secretbanking. That’s secret banking, all one word. The course will share with you how the conventional system stacks the deck against you, and exactly how to break free from their system. We believe in challenging the status quo. We believe in defying conventional wealth tools while maintaining traditional values. After all, most of those conventional tools only ever seem to make someone else on the inner circle rich. Visit livingwealth.com/secretbanking. That’s secret banking, all one word. Ease your worry, and start your journey towards security today. Visit livingwealth.com/secretbanking. Now back to the great episode with Nate and Holly.
Nate: We talked about this infinite banking concept, and we’re trying to become our own banker. Some people think that that means we’re trying to pay off all debt. We’re not big fans of debt. And we don’t really like to use the banks. The only time we ever want to use the bank’s money, if it’s a winning proposition for us. I just bought a house last year. I didn’t have to take out a mortgage on the full amount. I could have put down a huge amount of money. I could not have a mortgage today, Holly.
Nate: I don’t need the mortgage. I could pay it off using my policy cash values, anytime I want to. The only reason I have the mortgage is because the interest rates are so low right now, I’m wanting to get as much money out of the house, keep as much money in my own pocket, so that I can use that money inside my policies to produce profit or take that money out of the policies and produce profit. Whether it’s buying real estate or buying precious metals or whatever it is I wanted to invest in. I just really believe that my interest rate of like three percent, that’s locked in for 30 years, inflation is practically three percent. And then I get a tax deduction on top of it.
So the real rate to me is more like two percent. For me to send money to the bank, whether it’s a 15 year mortgage instead of the 30, or whether it’s me just making extra principal payments to pay this thing off faster. That’s essentially me saying, “Nate, I don’t think I can earn two percent anywhere else.” That’s a lie. Guaranteed in the policies, even more that, or practically anywhere else, any other type of assets. So what we find is that your home is just not a very good asset, Holly. Maybe it’s not even an asset at all.
Holly: And I think that’s a myth, Nate. Is that we’ve been taught to believe our home is an asset. And in all reality, it’s more of a liability than it is an asset, for how most of us are using our homes.
Nate: Yeah, exactly right. I like Robert Kiyosaki, the Rich Dad, Poor Dad. I like his definition of an asset. For him, to be called an asset, it’s something that has to put money in your pocket. And liabilities are things that take money out of your pocket. And for most of us, that’s all a home is. We pay mortgage payments, property taxes, and insurance, and it’s just money walking out the door. It never puts money in our pocket. So it’s really more like a liability than it is an asset. And my hope is that I can turn my home into an asset by pulling the equity out of the home and moving it to a place that actually is going to produce me more profit than what it takes to actually borrow the money. And what I’m saying is, at these low interest rates, it’s easy to find places that can do that for you. It’s not difficult.
Now, if the rates were seven or eight percent for a mortgage, we may change this discussion. But for right now, when you can get a mortgage pretty easily for like three percent or sometimes even less. For 30 years, I would say, get as much money as you can out of that, roll it into your infinite banking policies and then use those to buy even more assets. And you’ll build so much more wealth using the bank’s money and taking advantage of low interest rates. You’ll do it so much faster than if you could just pay off that house early and stuff as much money as you can into the principle of the mortgage.
Holly: Yeah. And I think we don’t think that way, because we haven’t been taught to think that way. We’ve really, really been taught to get the mortgage, you make all your payments, or you make even extra payments. You have your insurance and you pay your property taxes and you do nothing more with the house other than live in it and so it really isn’t that asset. We have to start thinking, what is an asset and what is the liability? And what Nate said is a great definition by Robert Kiyosaki. If it is not putting money in your pocket, it’s not an asset. There’s no way that’s an asset.
Nate: Yeah. So if you’re sitting here and you’ve been making extra principal payments toward your mortgage to try to pay it off quicker, my suggestion to you would be to stop doing that. And I would take those extra principal payments that you’re sending to the mortgage and use it to produce something of value to you, by buying an asset that’s worth more than these extra principal payments. Because they’re not doing anything, they’re just sticking money into the equity of the home. They don’t put food on the table, they don’t help you retire. For me, what I would do, is I would take those extra principal payments that I’m making on a mortgage and I would throw that money into a policy, first. And then a period of time, if I want to use my policy cash value to pay off the mortgage, I can do it, but I don’t have to. It gives me this option. I call this Holly, separate the equity from the home. That’s what I call it.
Holly: Oh, that’s awesome. I love it.
Nate: So instead of building equity up in a home, I’m going to take the money I was going to put into the equity of the home, and I’m going to put it somewhere else. So I’m going to build equity in this policy and I can then choose, if I want to, to take money out of the policy and put it in the home by paying off the mortgage. Or I can choose to take the money out of the policy and put it to work elsewhere, which is honestly the route I would typically go in these types of low interest rate environments that we’re in. And so it gives us this choice. So that’s one thing I would encourage you, if you’re making extra principal payments to a home, don’t keep doing it. There’s so many things you could do of better value to you on your wealth building journey than just trying to pay off a home quicker.
I’d also say the same thing really quick, Holly. For the 15 year verse 30 year mortgage people. If you’re sitting here with a 15 year mortgage, because you were told that’s the best, and that’s what mom and dad told you to do, and I want to pay less interest. Your heart was in the right place but I think the numbers, if you run them, will kind of show you a different reality. That if you were to go to the bank today and refinance that 15 year mortgage to a 30 year mortgage, which would lower your monthly payment, allow you to free up some cash flow, that you could use and then build other assets like a policy, or build up equity elsewhere. That’s going to put you in a safer position because you’re going to have liquid money to use for any sort of unexpected expense that comes your way or any opportunity that comes your way.
So all in all, I would just say, “Hey, let’s not see the mortgage as this evil thing that we’ve got to get rid of as fast as possible.” Because the downside of doing that, is just having a whole bunch of money stuck in a house and less money able to work for you and put food on the table, which is really what we want money to do.
Holly: The desire of paying off your mortgage is one of those things that some people have. I just got to get this debt off of my shoulders per se. Yet, if you switch and change your mindset, it doesn’t become so much debt because really what you’re doing is using the money you would have used to pay that off and doing more than one thing with it. And it really actually helps you and your lifestyle and your family. Like Nate has said over and over again, the difference of this is doing something with your money that does put food on the table, that does provide for your family. That does actually benefit you. And especially, if you put it into a policy, you got your money working for you and growing for you. And I think the reality is, we would love to be able to show you how it actually works for you in a real scenario, based on what you’re going through with your life.
Nate: I love what you’re talking about, with money doing more than one job, because you’re exactly right. Whenever we stuff money into the principle of the home, it really just does one job. It saves us like mortgage interest, I guess. That’s the only job it can do. But if, we were to then take money out of the equity of the home, we can have it do a lot of different things. Maybe if you’re sitting here listening to this podcast and you do have a home that has a lot of equity built up in it, and you look at this big amount of equity and you realize, “Well, it’s not putting food on the table. It’s not producing income for me. It’s just kind of sitting here.” I would strongly suggest to you to reach out to Holly or me and discuss, what can I do with this equity? Should I refinance the mortgage and pull some money out? Or should I open up a home equity line of credit? What should I do to get my hands back on this money? That I’ve sent to the bank. It’s my money. It’s my home. And I’ve got all this money sitting here in my home that’s not doing anything for me. How can I start moving that out to work on my behalf?
And we can show you exactly what we think would make sense with real numbers. And you’ll just see, holy cow, you’re saying I can do this with this equity and make this amount of money with it? Because for some people it’s hundreds of thousands of dollars over a lifetime. If they would just get their hands on this equity, as opposed to leaving it sitting in the house or sending extra money to the bank. But if you actually get to work on it, it opens up a world of opportunities. Take advantage of the equity that you have. Don’t just let it sit there.
And one more thing, I had a thought while you were talking Holly. As I told you guys, I have enough money in policies to where I don’t need a mortgage. So I’ve got more cash value available to me inside my policies than what my mortgage balance is. The way I see it, is that I don’t actually have a mortgage because any day I could just go write them a check and I suddenly don’t have a mortgage, but what I do have now is options. So since I have this mortgage, I can choose, do I want to keep this money in cash value? Or do I want to pay off a mortgage? That’s really going to be my goal for forever is to continue pulling money out of the home at anytime there’s a decent amount of equity that gets built up over time. I’m not going to do it like every year, refinance. But every four or five years as I’ve paid down some of the balance in my 30 year mortgage, my home is hopefully appreciated, but who knows? I don’t count on it. I don’t really care, but once there’s some equity up, I’m going to pull it out and put it in my policies because that’s just where I would rather have my equity.
And if I want to pour all that money back into the house, I’ll just pull it right back out of my policies and send it back to the bank and get them out of the picture, if I ever get tired of dealing with them, they’re gone. I don’t need the mortgage, but I’m going to use the bank’s money. I’m going to use the mortgage for my own benefit.
Holly: And Nate, when you have the ability to do that, it does give you options. And for me, I looked at, do I want to tie up all this money in a mortgage by paying myself through my policy? Or if I can use the bank’s money and pay them back and I still have the freedom to use this other money I’ve built up. Then it benefits me in many ways by giving me those options. So I think the reality is, I pull money out when I need to, not even need to, when the interest rates are really low, I’ve got enough cash value in my policies. I’m like, “Hey, might as well use the bank’s money.” Because my house, as old as it … We’ve been here, nine years, it has equity in it. And that equity doesn’t do me any good, if I’m not using it.
Nate: If you leave it there, yeah it’s just idle money.
Holly: Yeah. It’s idle money doing nothing for me. And the only way it does something is, if I choose to use that equity and put it to work.
Nate: There’s some people, the reason that they leave the equity there is because they just don’t know what they could do with it. If you’re guaranteed to grow money and you’re actually guaranteed to make more money inside the policy than what it costs you to borrow money out from the mortgage people, then it can make sense with no risk really. So in other words, we’re not just pulling money out, just to pull money out. We’re pulling money out because we’re very confident. In the world of policy, but even in some other areas that we are going to receive more in interest than the two, two and a half percent real cost of this mortgage.
Holly: And that’s the reality, Nate. Is that when you look at it that way, sometimes it’s that fear, like you said. I wouldn’t just go put it in the stock market or hope you invested it wisely and you don’t lose the money, but when you’re actually putting it in something that has a guaranteed rate of growth for you, and it’s better and higher than what the interest rate is on that loan, then it makes sense to do it over and over again, as long as you can.
Nate: Absolutely. So we’re really big on putting as much money to work as possible you can, being efficient with money. That’s really at its core, what infinite banking is all about, is keeping money working for you at all times. And the one of the biggest places we find that people just have idle money, is sitting in the equity in their homes and learning how to keep that money in motion and utilize it to produce value. I think we could keep going with this Holly, and there’s actually quite a bit that we didn’t even really have time to get into that as it’s zooming through my mind. So maybe we’ll have to do a follow-up part two, to this at some point, but all that to say, there’s many myths out there about the mortgage. It’s a big topic for most people because it’s one of the biggest things you’ll ever purchase in your life and a huge decision financially.
So knowing the right way to treat it is key. So we would say, go ahead and get the money for as long of a timeframe as the bank will allow you to do it and commit to taking as much cashflow as you can and putting it towards assets that you control. Putting it in place where you can build equity, where you control, as opposed to the house, where really the only way to get the equity out of it is to go trust the banks and try to get approved under their rules. So you’re really not in any control of the equity. So we would prefer to be in control of as much money as possible and have it be working for us as hard as possible, which would mean let’s stop sending so much extra to the bank. That’s what they want you to do. They want the money back as fast as possible, so that they can reuse it. No, you keep it, you reuse it, you utilize it and get the bank out of your life as much as possible.
Holly: I think you wrapped it up really good, but I think we could go on.
Nate: We better stop for your sake, as you guys are wanting to get on with your life. This episode, we could keep going for hours, but let’s go ahead and close it down. This has been Dollars and Nonsense. If you follow the herd, you will be slaughtered.
Holly: For a free transcript and resources, please visit livingwealth.com/e114.
Announcer: Listeners, a friendly reminder. Nate made something special just for you. He’s prepared a virtual workshop to walk you through how to make your mortgage really work for you. Go to livingwealth.com/mortgage to watch the free on-demand presentation. You’ll see the easy to understand numbers and full scope of what he and Holly shared with you in this episode. Go to livingwealth.com/mortgage to watch the free on demand presentation. Again, that’s livingwealth.com/mortgage.
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