Velocity Banking With First Savings Bank
This is a YouTube video titled "Velocity Banking With First Savings Bank" created in November 2022. It features Denzel Rodriguez and another speaker discussing the features and benefits of a first lien HELOC product offered by First Savings Bank. The video explains how velocity banking strategies can be applied to reduce borrowing costs, includes a detailed case study with real client numbers, and highlights automation features and state availability. Denzel Rodriguez acts as a co-presenter throughout the detailed financial explanation and product overview.
Foreign.
Hello and welcome everyone. Today we're going to be looking at arguably one of the best first Lien HELOC products in the marketplace. Today we're going to be looking at First Savings Bank. They have a specially designed first Lien HELOC that we velocity Banking users and practitioners and coaches can use to accelerate our debt or use to create more cash flow via investing, real estate, building your business, et cetera, et cetera. I'm going to really kind of lay out some of the primary details about this particular first lien HELOC with First Savings bank and then we're going to look at an example, a real case study, real numbers that currently working with client right now and they are in the process of evaluating this product to see whether or not they want to move forward with it.
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So without any further ado, let's look right at the board on my left. Here is some key info, key details about the first lien he lock with First Savings Bank. First off is they do offer it 90% LTV on the property only primary residence. Can you get this from? First lean heloc, not on an investment property. And they will go up to a max credit line of $1.5 million. And it does require a full appraisal. Minimum credit score needed is at least a 660. But I would recommend and prefer all of my clients, viewers, people watching to have a 700 or more credit score. This way you get the, the best terms, right? So it's preferred for the best terms they will go a max of 45% DTI. So we need to pay attention to your current DTI status. Where is it at? If it's above 45% then we may need to do some debt snowball, debt avalanche or velocity banking with another debt tool like a, like a P lock, right? Personal line of credit or credit card or second lien Heloc until we can graduate to the first lien heloc. Right. So I've done many videos where I've shown us transitioning from say, you know, you first start off with debt snowball, debt snowball a couple months, then you get approved for say a unsecured revolving personal line of credit. Then I've had clients graduate to the second lien and then ending off with a first lien heloc. So that is typically the, the graduation process when you're doing velocity banking and in some cases you may skip all of that because you have a property, you have a good amount of equity in there, good income, good numbers, cash flow Everything's lined up. And so it makes sense to go right after a first Lien HELOC. So they do a 10 year draw. And as you approach the end of those 10 years, you can also renew. The nice thing about this bank is they do not charge an origination fee. Again, when you reapply for an addition extension of 10 years on another first lien HELOC, the rate is based off the treasury bill. And then they add a 4.5% margin. So you'll have the option of a variable rate option, which would be somewhere around 7%, I believe, or six and a half to 7%, maybe a little bit higher in 2022. And that's just due to, like we've seen, you know, interest rates rising and what government's doing lately. Now, they just recently rolled out a fixed rate option. So for three years you can get a fixed rate of 5.9%, or for five years a fixed rate of 6.25%.
Okay.
If you're wondering in your head, especially if you're new, wo Denzel. 7%, 6.25, 5.9, that's, that's pretty high. My mortgage is only at 4 or 5 or 4 and a half or 3 and a half. So what we need to do when evaluating our debt tool, whenever our debt tool is at a higher rate than the debt that we're trying to pay off, such as an amortized school loan, more mortgage loan, personal loan, car loan, the rate is what the bank says will pay.
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When dealing with your line of credit, whether it's a first lien, second lien, p lock, credit card, whatever it is, that's the rate that they're giving you. But then there's the actual effective rate, what we actually pay once we incorporate and apply velocity banking into our strategy. So I could have, say a 6.25% rate on my debt tool, but not actually pay 6.25%. How do we do that? That's where velocity banking comes in. Dumping all our income in, taking expenses out, leveraging credit cards, cash back rewards, offsetting borrowing costs, et cetera, et cetera, et cetera. Got a ton of videos on this where I break down how we offset borrowing costs down to the table, looking line by line, number by number. But essentially what is occurring is when you're actually doing velocity banking, you're manipulating that, say, 6.25% below whatever the rate is that we're trying to, or whatever the debt that we're trying to pay off. So let's say you have a 4.5% mortgage and you're deciding, okay, maybe I'll do the 5.9 for three years fixed. So I'm going for 4% amortized to 5.9% fixed. Does that make sense? At surface level, no. 4 is less than 5.9, 5.9 is higher than 4. But once we're implementing velocity banking, I can bring 5.9 down to two and a half, down to 2, down to 1. In some cases, when we're doing velocity banking, all the way down to zero, literally no cost of borrowing. When you look at a 6 month, 12 month period of doing velocity banking, the actual net borrowing cost becomes nothing in some cases, right? Or it is, it is interest you were going to pay anyways on the debt that you were hitting with your extra payments and free cash flow. So it's the same amount of interest that you were going to pay anyways. But now because, because we're making these larger lump sum payments or say relocating the entire debt, for example, let's say a first lien heloc. Let's say I had a first lien amortized mortgage. We'll get into the example here and you move that amortized to a fully simple interest line of credit. The rate, although it may be higher here on paper, what we actually pay in the statements is a totally different story.
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So bringing it back to the board, those are the three different options in terms of their rates. There's no annual fees, which is pretty cool, total upfront cost and not necessarily out of pocket, but will be somewhere around $3,500. They have like a fifth, just under fifteen hundred dollar origination fee and then every other fee is third party in terms of title appraisal, different fees, fees that you can discuss with the bank. But the last time I did a collaboration with one of the people who work at the bank, somewhere around $3,500 and this cost is factored into the loan, the first lien HELOC itself. So in most cases, no money out of pocket. Right, which is nice. So now looking at an example here is a client getting a $500,000 first lien HELOC credit limit. So 500,000 is a credit limit. And they moved their $460,000 first lien mortgage into the first lien home equity line of credit. So 460 owed 40,000 of available credit.
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So that is a, that is the first move. What just happened is we replaced the mortgage, right, with a first lien HELOC. Now I believe the rate is at 4.99, I believe was the interest rate on the amortized mortgage itself originally. And in this example I'm using the higher rate, 6.25, just to show the, you know, the huge advantage and power behind the tool itself. Now in reality, when the client actually goes and applies, I'm going to inform them, I would recommend that they go with the three year instead. Due to their numbers, their income, their cash flow, they can wipe out well over 60, 70 plus percent of the debt within just three years. So I would tell them stick to the 5.9, it's, you know, a little bit less and it does make a difference. But in this case we're using conservative numbers in terms of their income and cash flow. We're using a conservative rate because I know we would go with the lower rate, the 5.9, but I'm using the higher rate on purpose just to illustrate how powerful this is.
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In terms of what we actually pay in interest.
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So 460,000 owed at 6.25%. Do the math, times it, you're gonna get $28,750 is what they would pay in a year.
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In interest only payments.
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So this is an interest only first lien heloc. So it's the only thing that's required to pay each and every month is, is interest only. But that's not what we're doing. We're paying principal first and then month by month, whatever that net interest is comes out of the line of credit automatically. So you divide it by 12, you can get 23, 95, 83. That's how much 6.25 is on 460 on a month to month basis. So that's what the bank says we'll pay. But what we actually pay is going to be a totally different story. Here are their numbers, conservatively making 12,000amonth. They can make more. And I illustrated expenses a little overestimated at 76, 30, 49.
Okay.
Cash flow is a little over four grand and some change. And they have cash on hand, right. In a multitude of different savings accounts of 33,000. Now they actually do have double that number.
Right.
So they have more in cash liquid. I'm taking about half of it and saying, hey, if all you did was was move the money that we call sinking fund money or emergency fund money, right, or savings money, all of those dollars we can position and park it into the first lien HELOC to manipulate that rate tremendously. This cannot be done with a traditional first lien mortgage right. If I was to dump 33 grand into my first lien mortgage, I'll never see that 33 grand again unless I borrow it like I would here. A home equity line of credit. So the intent isn't necessarily to use their sinking fund money and their savings money and their emergency money to pay off debt. Rather, we're simply positioning the money that wasn't earning anything in the first place, and we're just positioning it in the HELOC to manipulate that cost of borrowing, which technically does pay down the debt. But I remain liquid. I have access to that money when needed.
Right.
So just want to be very, very clear on that. Illustrate that. I think that's very important. So that's what's going on. 460 is what's initially owed. Let's say I have the product today. Great. It's August of 2022 as I record this video. So first move that would occur, 33 grand, boom goes in. Then income for that month that I'm in, 12,000. And then over 30 days, expenses would be coming out. In addition to these expenses here, they have bills that can be paid with a credit card. And we mapped it out. It's $3,330.49, which we can get on average, roughly 2%, probably more in cashback rewards. So that'll result in $66 60. 60 cents.
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Per month, every single month, as long as they keep running the bills through the credit card, which the credit card is what they pull out of their wallet to pay most of their expenses.
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Which means $3,330.49 of expenses actually stays in the first lien HELOC, again, manipulating that rate down. Okay. It stays in the first lien HELOC for as long as humanly possible. And by simply setting up autopay from the credit card to the first lien heloc, your first lien HELOC can automatically pay the statement balance on the credit card each and every month. So there's an automation there. The second automation is the income. With this particular product, we can, we can set up direct deposit where it can automatically. Our income goes right into the heloc. The very second I get paid from my job, salary, business, whatever it is, money can get deposited right into the first lien heloc. That's another automation. And then the third automation is the simple fact that any other bill that cannot be paid with a credit card.
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Can automatically come out of the first link heloc. So we got three automations there. Huge Huge a advantage in terms of velocity banking. A lot of less manual work involved when dealing with a first lien heloc, which makes this even more attractive. Which increases or I should say decreases your interest cost of borrowing.
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Dramatically lowering that 2395 number. Okay, so here's what it would look like. 460,000 minus 33 minus 12 plus 763049 going out. Ending balance would be $422,630.49. You go from 460 all the way down to 422.
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That is a huge impact in terms of what we actually pay in net interest. That is a game changer. Okay, here's what it would look like if you took the balance of the 422 and the. Let me see. And then the number that if you took 460 minus 33,000, minus 12,000, whatever that number is, you times it by 6.25% and divided by 365 days you can get, I think that number 7,106. And then you take the ending balance 442263049 times 6.25% divided by 365. That is what you should get. $72.36. This is the math behind evaluating what is our daily cost of borrowing. And notice how I only did two numbers where typically in a lot of my videos you'll see me show the starting balance of the 460. But in this particular case, not even one day will go by, not even 24 hours will go by where I owe 460. So I'm never going to owe 460. It immediately drops right upon me getting a approved fully funded for the first lien heloc. So you then take the average cost of borrowing over a 30 day period and now you're at somewhere around. And this is totally overestimating.
Right?
This is assuming that for 15 days I owe the smallest balance and then for 15 days I owe for 22630 49. That's not the case.
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What's happening is little by little money is coming out of the HELOC. Okay, so it's an overestimation. Did that on purpose. 2151:30 is the net cost. So we went from 23.95 down to 2151:30 just in the first month of velocity banking. And then you minus the cashback rewards and now you're down to $2,084.70. Powerful stuff. This is overestimating what will actually happen.
Right.
Because I underestimated on income, underestimated on cash flow. What will actually happen in this case, they'll probably pay about somewhere around $1,800 or less in interest in the first month on 400 plus thousand dollars. So that's no longer 6.25%, that's more like under four and a half percent.
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If you did the math, maybe somewhere around four or five. So I drop it by a whole point and a half point two five percent. And that's just the first month. Every month thereafter the interest costs will decrease.
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And I have it mapped out that somewhere around as little as 11 to somewhere like 30 plus dollars per month, the cost of borrowing drops.
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And this is again conservative. That number is probably going to be higher, more like probably 40.
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Or more of interest costs of borrowing decreasing each and every month when we're actually doing this powerful, powerful stuff here. And so this just illustrates money going into the first lien HELOC. So 33 grand went in, 12,000 went in. Expenses came out 7634, nine expenses came out. That's the ending balance of one month. And then you add interest costs. I added the 2084 number, not the lower number just to, you know, illustrate overestimated numbers here. When the client actually goes and implements this, they're going to beat my numbers and it's going to get them even more excited. And I just love doing that. I love when my clients beat my own numbers. So if you think this is great, think about what actually ends up happening. They do much better. So the, somewhere around 422 and 424 would be the balance after one month.
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And then you can see month to month how the balance so 1, 2, 3, 4, 5 after just six months of velocity banking.
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Think about what the net cost would look like in month six and then think about what it would look like in month 12. So we can go from initially the bank said we were going to pay this because that's our rate fixed 6.25. But what happened over just a six month period is we were able to bring the, the actual net costs probably below 3%. So we literally cut that rate in half when you look at the actual number.
Right.
So what I will do for my clients that actually have these products in place and, or, or are in the process of getting this product. What I want to do with you guys is I want to document the bank statements in terms of the interest that we pay. I really Want to map that out because I want to show what the bank said we're going to pay according to the rate they gave us, that fixed rate of 6.25. And then I want to compare it to the bank statements, 12 bank statements. And I want to add up the interest rates. I have all the interest expense that we paid and I want to compare it to the original number in this case would be 28,750. I want to compare it to what would we actually pay over a 12 month period if the first month is as low as 1800 or less.
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And I overestimated at 2,084 70.
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We can just play with the numbers here a little bit. Open my phone. So let's see, 2084, 70 times 12 is 25,000. So that's a 3700 plus dollar decrease. What about 1800 times 12? And understand that every single month thereafter, the first month it's going to be a lesser cost. Again, this is overestimating. So 1800 times 12 is 21,000 7000 plus decrease in interest.
Right.
So I would argue that if I can cut 6.25 in half, at the very least bring it, bring it down to 3%. Well then just take 28,750 divided by 2. Somewhere around 15,000 in interest costs in the first year is probably what I'm looking at for this particular case according to these conservative numbers. And again, the numbers could be better. They could say, you know what, we're gonna move all of our liquid cash from all of our accounts into the first lien just to park it there whenever an emergency happens, the sinking funds, the vacations, emergency expense, health expense, birthdays, holidays, I mean, you name whatever liquid cash I have, they decide to position it, park it into the heloc. It's going to dramatically reduce that cost of borrowing tremendously.
Right.
So as we wrap up this video, just again looking at these key details. 90% LTV 1.5 million credit limit. Need a full appraisal, preferably 700 or more credit score. Need to have under 45% DTI currently 10 year draw. Okay, you got the three different options, variable or two fixed rate options. In this current high interest rate environment that we're in, in most cases I'm probably going to feel most comfortable with these fixed rates, especially for my clients that are doing velocity banking just to create some initial cash flow. But they don't have the intent of paying off all their debt.
Right.
In this case right here, it would be really wise for them to pay attention to, to their interest statements each and every month to the point where let's say it gets under $500, $700. They may want to think to themselves, wait a minute, it's only costing me less than 3% to service this debt. Less than 2%, less than 1% to service this debt. And let's say in a 12 year period, they create over 150, 200, they go from 460 down to say 250.
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So they have 250,000 of available equity in that first lien HELOC. And an investment opportunity reveals itself or business opportunity reveals itself that they can inject capital into to create more cash flow, increase their income by 50%, by 75%. So in my mind, in their mind they're like, oh yeah, more than happy to pay 2, 3% over here to earn 50 plus percent over here, 75%, 100% over here. And then again you funnel that cash flow back into the heloc. Oh my goodness. So you can, you can see how effective this can be long term. Also in the short term, very effective in the short term just because we're saving a ton of money on interest.
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So I'm going to feel very comfortable really working and guiding my clients to probably go with these fixed rate options. Probably three years. I probably would not do the five year one. I probably just stick to the three year one.
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And in that 10 year draw, then the rate goes to the variable option which can go up and down. But again, at that point it don't even matter because three years from now the balance is going to be significantly less than 460. So whatever they bring it back up to, they fully know how to do the concept really effectively.
Right.
And, and one last key detail is unfortunately as it relates to first Savings bank with the first lien HELOC that they have, it is a no go in Texas, Alaska, Maryland and Hawaii. Those are only four states in the US that you cannot obtain this product. So I know I have clients in all of these states.
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So to that I would say you look in your state for banks that offer first lien, second lien HELOCs.
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And typically most of the first lien HELOCs that I come across with other banks are typically lower than the rate with this particular bank, usually 5, 4, 3 and a half or like an introductory rate of 2, 2 and a half percent. The, the primary differences between this first lien HELOC and most of the first lien HELOCs from other banks is how the money goes in and out of this particular heloc, which allows for that higher rate to not be such a problem. Not an issue. Number one, the automation that I was mentioning earlier, sometimes you will not get that with other first lien HELOCs is that automation. So there's more manual work, which means potential for delays, higher interest costs, even though you have a lower rate.
Right.
So there's a little. Just something to be aware of and you decide. The second thing is this first lien HELOC comes with an integrated checking account, which comes with a sweep feature, sweep function where you can allow the checking account to overdraft intentionally. No fees. No overdraft fees whatsoever.
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And what happens is the first lien HELOC will automatically move funds into the checking to bring the checking back to zero by, say, midnight.
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So here's how it would look like. Say, for example, today is Friday and I have $2,000 worth of bills going out. So the integrated checking account with First Lien HELOC, the checking account pays those bills. There's $0 in it because all the money is in the what, the first lien heloc. All my income's in the first lien heloc, reducing that borrowing cost. So instead of me manually moving money out on the day or the day before the bill is due, like I usually say in a lot of my videos, you got to pull money out the day before, two days, three days, up to five days in advance to ensure that you don't overdraft on the checking account. You've heard me say this tons of times. Well, with this particular product, it eliminates all that. You don't have to do it. So literally, your account, your checking account, the integrated checking account, goes negative 2000 for Friday, the whole day, and then by Midnight, automatically, the first Lien HELOC sends $2,000 on the dot to the checking account, bringing it back to zero, which means that instead of paying interest on a higher balance owed of, say, 2,000, you don't, for that one particular day, you pay a little bit less, a little bit less, a little bit less. And that adds up throughout the whole entire year. So that's what really separates this product from many of the first lien helocs. But again, if you're in a state that they simply don't offer this to your state that you're in, then it's no issue. We still go with, with the other debt tools that we have in place. Credit cards, p locks, HELOCs first lien, second lien, all in one loan maybe is another option. That's another competitor. All in one loan kind of operates just like this. A lot of automation involved. And then you've got cash value life insurance policies.
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Which applies anywhere in the U.S. gotcha. So hope this video was very helpful to you. I'm going to turn it back to the board just so you can take additional notes. You can see everything. If you have any additional questions, be sure to reach out to me via email. I'll have a link right to First Savings Bank, First Lien, heloc. You will immediately be in contact with either Anthony, maybe Michael, maybe Crystal. They have an entire team that the thing that I also like a lot about this bank is they're actually in favor of velocity banking. They know the strategy of mortgage acceleration. They debt acceleration, cash flow strategy. So you've got customer service from the bank supporting you. You've got me supporting you. You can tap into these resources to help you. And I've partnered with the bank. So I'm going to be doing some workshops and some webinars, some classes with their clients, my clients, my community kind of coming all together, helping you guys really maximize the tool itself. My name is Denzel Rodriguez, your personal finance geek of the 21st century. Have a wonderful day, God bless and we'll be talking soon.
