Sukesh Shekar, a chemist-turned-McKinsey consultant, built AltGage to fix the U.S. mortgage system's hidden costs. He shows how standard amortization can double what you pay over the loan's life, and offers three strategies: custom loan terms like 23 years 7 months, smart refinancing to free cash for extra payments, and low-down-payment purchases with rate buy-downs to skip PMI.
Chapters
Looks like still working hard. This last time we talked, it was the same background. So like, it's one of those weird things in startup land where the day changes, but it doesn't change.
Right, right. Exactly, exactly. No, I do, I do get out a little bit now. I go to an innovation space and work out of there a day or two a week, and I'll work downstairs in my comfy chair for a while, but This is what's got the best video and audio setup.
Yep, I'm with you. Yeah, I do the old, like, when I need to go into flow state, I'll get on the couch and prop the computer up on the legs and just zoom in and zoom out sort of thing. So exactly. Oh yeah, I feel ya. Well, how's it been going since we chatted last? Looks like you got a launch. Or beta or what phase?
Yeah, we launched the product. I still say we're in like maybe more public beta now where, you know, anybody can sign up. Nobody does because, you know, I have not distributed it widely. So I think out of my 100 customers, there have been like 3 people who have signed up who I've not personally known. But that's okay, you know, because we, you know, in the beginning, it's ironing out the kinks and figuring out what's working, what's not. Even the fact that we have 100 customers, you know, less than a month in is quite phenomenal already. And we've been getting a lot of positive reception from folks who really understand the value of what we're bringing. So that's been encouraging. And yeah, it's also been figuring out next steps, which is distribution and next feature sets and, you know, where do we crispen up the marketing and the value props to help people onboard. So yeah, it's really, really good.
Well, you're in the mortgage space, so helping homeowners, I mean, that's pretty much every consumer. Well, not every consumer, but every human needs a place to live. So obviously your market size is big. But yeah, interesting. I mean, what's— I forget, what's your background? Are you software engineering or more product side?
I'm actually a chemist by formal training. So my formal skills are in optimization and systems thinking. You know, I always think about systems, you know, holistically, not just a single problem. And I think that thinking is super valuable in the mortgage space because it's not actually one problem, right? It's a constellation of issues, which is You know, how do I get the best rate? How much do I put in my down payment? Do I buy discount points or not? How do I make sure my credit score is in the right place? You know, do I get a fixed rate or an adjustable rate? So it's a— that's sort of just on the origination side, right? You have to make a complicated set of problems, a complicated set of choices. And if you don't make them well, what ends up happening is you end up paying more, but you do it in a way that you don't notice because it's like, ah, it's a 1/3 of my paycheck, you know, I'm just going to pay it and it's done. So I never have to think about this thing, right? But then you'll sit there and optimize. Am I paying $15 more for a subscription? Am I spending too much on Chick-fil-A? I was like, that shit really doesn't matter. What matters is, are you paying $1,000 or $1,500 or $2,000 on your mortgage? If you optimize that, eat all the freaking fast food and binge on all the Netflix you want, and it will not affect your wealth.
Isn't it so funny? I mean, I want to talk to you about like how you went from chemistry to mortgages because that's an interesting leap.
Yeah.
But yeah, what you said is, is, is so true. It's like I can buy a half a million dollar house and $10,000 is a rounding error.
Yeah.
And then I can beat up Netflix on their $2 a month price increase. And that's really what like pisses me off, right? So it's like this old reference pricing thing. Yeah, it's like such a huge thing that people just lose all aspect of like total dollar value, which is like a weird human behavior.
Correct.
That we have in our brains.
I think there's a little bit of price anchoring also going on, but there's also, I think, I forget the term for it, where it's sort of like numbness to things that have happened for a long time, right? Just like you've had back pain for a long time, you become numb to it and just absorb it even though it's quite painful. In financial pain, it's more just like a slow drip, right? One is like, I think I learned about that price anchoring thing in like from a Mercedes car salesperson, right? It's like, you know what, I'm gonna buy this car that's $45,000. Let me just add on these $600 weather mats. And you're like, yeah, that seems totally reasonable. It's like, yeah, you know, 1% of the purchase price. Yeah, I'll add these weather mats. But would you ever go to a store and spend $600 on weather mats? Absolutely not.
So you're never searching that on Amazon. Like, here, you know what I'm gonna do today? I'm gonna spend $600 on mats for my car. That's ridiculous.
Even though nominally, nominally, it's an obscene cost because it's been made relative to the cost of the car itself, So I think there's a little bit of that for sure, which is sort of that anchoring to what you're being upsold relative to what you're buying. But I think the second piece is like, you don't really think about the maintenance, right? Or the gas price, which is sort of a constant big drip. You know, you're sort of just anchored on like, yeah, you know, I got the car. And I think that's sort of like the total cost of ownership. That's the word I was looking for.
Yeah.
Like with electric cars, you know, my insurance cost on my Tesla is $55. $55.
Wait, that's your car insurance per month?
Yeah, it's insanely cheap because Tesla is self-insured. You know, they give you a little driver score and then they drive your— you know, they're giving you an economic incentive to drive better, right? Because you're like, oh, my score is 95, I got it up to 98. All the while they're able to drop the price, making you a better driver, and their margins are actually growing bigger as they're dropping price.
Right. It's nuts.
So that total cost of ownership, I'd say, is sort of the other frame in terms of like, you know, you really need to think about the total loss of wealth that happens with a mortgage if you don't do it well.
Yeah, it's so true. I mean, it's like everything too. It's like, it's like life nickel and dimes you. Yeah. I used to live in New York City, Like downtown. Well, like in the city, there's no such thing as like downtown in New York City. Everything's pretty much downtown. But I used to joke that every time I walked out of my apartment, I just had to hand somebody a $100 bill. Like, because it's just so expensive to live there. And I'm sure like the Bay Area too as well. It's like so nasty. But yeah, any like major metropolitan center, it's just It's insane. And then like inflation, groceries go up, you don't notice it. Gasoline goes up, you don't notice it. The price of milk. I was talking to this dude the other day. I mean, this is a whole different tangent, like things you deal with just from like a home. Here, I'll tell you. So all of a sudden my AC stops working last week and it's like almost 100 degrees here. So in, I don't know, 4 hours, it went from like 70 degrees Fahrenheit to 85 degrees. And I've got 2 dogs. And it was really bad. So I'm like, what's going on? So I had to call the repairman. Luckily, they came out pretty quickly, take a look at the HVAC. So they're doing their thing, right? They look at the machinery outside, they come inside, they look at the electrical box, then they go up into the attic. And I'm on a conference call at the time. So I can't check it out. So I end early, I go downstairs, and I talked to the 2 guys. And they're like, They pull open their phone and then they're like, here, you need to see this. And they like show me a picture on the phone up in the attic in the ductwork. That's like, there's the stuff with like the— I don't know what you call it. It's almost like reflective gray material insulation around tin ducts that produce the airflow. Somebody at some point in the last 2 years since I've had this house Cut a 1-foot by 1-foot hole in it, left the top off and to the side. So all summer I've been cooling our attic, and to the point where it just like blew up the machinery because it was overloaded. So luckily they were nice enough, they fixed it up for me. They like replaced this piece of machinery I have. Not ideal, didn't want to spend the money, but I'm just like, are you kidding me? Like, my electric bill was up. I would have had no idea unless something would have happened and gone up there. And it's just like, what is happening in the world? Like, can we trust anybody to just not, not mess up your stuff, you know?
Yeah, yeah, yeah. It's the, the mortgage, you know, funny enough, is exactly like that. There's a big gaping hole through which you're losing money, you know, monthly, and like, you know, It's just you don't notice it, right? So it just happens. You don't notice this big thing that's happening. Yeah, totally. Um, makes sense. That's, that's crazy. That's crazy. Yeah.
How did you get from chemistry to where you are now? Like, what's that? It was a couple steps, I'm sure. You didn't just wake up one day in the lab and you're like, you know what, H2O? I don't think so. Mortgage-backed securities, here we come.
You know, funnily enough, I worked a lot on H2O in my chemistry PhD, not specifically water, but oxygen, you know. So we breathe oxygen, and it's the body's terminal electron receptor. So basically, your body is not running a battery, it's running more of a fuel cell. And the difference between the two is, you know, when a battery runs out of juice, you have to recharge it. It's a closed system.
Yeah.
where you basically recharge it. In a fuel cell, which is also an electrical system, you don't recharge, you refuel. So it's sort of like a— it's an open system. If a battery were an open system, it would be called a fuel cell, which basically you put in fuel, it runs an electrochemical circuit, which is you still make the electrons and you run it through a circuit, right? It's not combustion. So for a fuel cell, you also need an oxidant. So fuel cell and batteries both need oxidants. And what the oxidant does is When the electron, you take the fuel, you make an electron run across the circuit, you get electricity. At the other end of that circuit, the electron has to go somewhere. So it goes to an oxidant. That oxidant in most batteries is like calcium oxide, magnesium oxide, basically some version of oxygen. So the same reason why we need oxygen, batteries and fuel cells also need an oxidant. Oxygen is an oxidant. but there are other oxidants. So what I was building was, can I, instead of using an oxidant like calcium oxide and magnesium oxide in a battery or a fuel cell, can I just straight up use oxygen, oxygen, like how we use?
Yeah.
And the reason to do that is because batteries are like one half fuel, other half oxidant, and then there's your electrolyte, right? But a bunch of it is just like, it's not wasted, but it's not fuel.
Yeah, you're wasting space.
You're wasting space, exactly. So if you replace the oxidant in a battery with literal oxygen, in the same amount of space you can have twice as much fuel. The result is you— the same battery can go twice as long, or you need half as much battery to go the same distance. In fact, it's a little bit less than half because the problem with the battery is to go further you need to add more battery, which is also more weight. So Adding more battery has declining utility over— the more you add, it's not like a linear function. It sort of declines off because you're adding weight as well.
It's like rocket fuel. The more you fill up the rocket ship with fuel, the heavier it gets, the more fuel you need, and then to infinity.
Yeah, exactly. It's just that it's like, is the juice worth the squeeze, right? So in this case, it's like I'm trying to take out weight. So then it can just, you know, go further. So that's what I worked on my PhD is, can I use oxygen instead of, you know, metal oxides in batteries and fuel cells to actually run the circuit?
So wait, like, I'm— so let's go back to the human body because this is fascinating for me. I didn't— I like took a couple classes in chemistry. Yeah, some of the equation stuff because I was a math background, like worked for me, but I just didn't go deep into the chemistry area. So you said the human body, right? Like water, and you compared it not a battery, more like a fuel cell. But you said like the battery, the energy level depletes and then needs to be, quote, plugged back in, add more energy into the system.
Correct.
Isn't that what we're doing with oxygen and water anyways, is we have to continue, continue, keep adding more of that fuel into the system? So, what's the difference? Help me understand the difference there.
Yeah, yeah. So, the difference is in our body's an open system. So, it'd be more comparable to a fuel cell, not a battery. So, battery and fuel cell. So, let's just— the difference between battery and fuel cell is the similarities, they're both electrochemical systems, which means you're not burning anything. You're running a chemical reaction and creating electricity out of that, right? The difference between battery and fuel cell is a fuel cell is open where when you run out of juice, You open it up, you put in ethanol or whatever, and then you sort of refuel and go, but it's still running an electrical motor. It's not combustion. So that's the difference between battery and fuel cell. Battery is you recharge, fuel cell is you refuel, which is totally different than combustion engine, which is you refuel, but then you combust, which is you literally, you're creating controlled explosions. There's no chemical, there's no electrochemical— Process running, it's just like you're literally setting shit on fire. Batteries and fuel cells don't set, you know, set shit on fire.
Yeah, so it's the reaction state. So I think I was getting caught up in the analogy where you just, you have to add more stuff to an existing system to keep the system running.
Exactly. That's a fuel cell.
Yeah, the difference is the reaction state that powers. One is electricity, the other one— I mean, that's the whole thing. Like, I did this visit a number of years ago to SpaceX.
Yeah.
And the thing that really got me when I walked through there, and this goes to the combustion engine thing, is I'm like, basically the only difference between this and a car is it's just size. Like you just have a much larger explosion, but literally all we're doing is lighting something on fire, blowing it up, and then directing it in one direction so the thing moves in the other direction.
No. Both of them are combustion. You're right, a rocket is combustion and your car is combustion. So there the similarity is how the power is generated, but the difference is one is thrust, which is basically literally the exhaust leaving that's creating it.
Yeah.
The other one is you're converting the explosion, you know, with a crankshaft from like linear to circular, and the mechanism of conversion of that energy is— so they're sort of like, oh, if you draw a Venn diagram, like Electric car and, you know, gasoline car work in the same way in terms of like you're, you're moving, you know, something in case a motor or crankshaft to move the motion.
Yeah.
But the source of energy can either be combustion or it can be electricity. So there's some, some overlap. But yeah, my favorite sort of like acronym for combustion is like suck, squeeze, bang, blow, right? You think it's a porno, but it's like, you, you know, you suck in the oxygen, you know, or suck in the air. You know, then you put in, in that case, there's a spray of fuel, then you squeeze it, which is the compression, you know, stroke. Then you combust it, which in case of an engine, you know, with a petrol engine, you'll have a spark plug, or diesel, it's just the pure compression itself that creates the self-ignition.
Right.
And then blow is the exhaust phase. But yeah, both sort of, you know, rockets or, you know, like turbo, you know, like a jet engine is the same suck, squeeze, bang, blow. Which is also the same in a, in a car, but, you know, it's, you know, its expression is different with the, you know, but the stages are the same.
Yeah, you just push it onto machinery and then convert it into a controlled process to wheels because you don't want to scrape your car along the bottom of a freeway. It's harder to control.
Exactly. But yeah, it's crazy. Controlled explosion.
I mean, the thing that got me is it was like, man, we're still back in Neanderthal years. Like, where's the quantum leap? And I get that I'm not a rocket science or some genius or something, but like, you know, I do this like weird weekend research on like gravity drives and things like that, right? It's like a leap. It's like we need some sort of quantum leap because we can't just keep making rocket fuel and pointing like big explosions. Like, that's just not gonna scale well.
Yeah.
You know, I mean, it's like, what is the better approach? And then you go out in space and there's no friction. So let's just put a laser beam or, you know, photons and just keep hitting a wall over and over again a bajillion times, and it'll just increase our speed faster and faster. And it's like, I, I just feel like we're missing something as a species, you know?
Yeah.
And, uh, I don't know, this took a weird turn.
No, no, no, no worries. You know, I— so anyway, so you said how did I get from like, you know, from chemistry to mortgages? So yeah, my discovery in chemistry is like— so I'm a systems thinker. I think about like, hey, you know, what molecules would you have to make that take oxygen and convert into water? The problem with oxygen and water is it happens, like oxygen always converts to water, but it has a very high kinetic barrier, which means if oxygen is here, And water's here, thermodynamically, the reaction will happen. It's just that it has a high kinetic barrier, so you have to go over a big hump to get there. And what a catalyst does is it reduces that barrier, so you go from oxygen to water very quickly. And that's what you need to do—
Right.
For oxygen to replace all that space in a battery. But the reason that that is tough is the reason why humans exist. Because if oxygen had no kinetic barrier, instead of— we would just burn up, right? The fact that oxygen has a kinetic barrier, because you think about if you go into a room filled with oxygen, you light a match on fire, everything just goes up in flames.
Yeah.
But the reason we don't go up in flames is one, the concentration is low, but also because oxygen has a very high barrier. You literally have to climb up a very big hill to go down a mountain. And what I was working on is reducing that size of the mountain in a controlled way to get to it. But a long way to say, the thing that I really learned out of my PhD is it's very difficult to come up with an answer just by thinking about it and trying shit. The way it works in lab nowadays is you'll just come up with an idea, you'll make it and test it, right? Incredibly inefficient way of finding the answer.
Yeah.
Even if you have good hypotheses. So my big learning in my PhD was I can use computers to do a shit ton of work, right? I can model these systems, what I call, you know, in silico. And then you say, hey, which system is performing well, right? Which system seems to be lowering that barrier? And then once I find, like, instead of making 10 things in lab, I would make 10 things in the— instead of making 10 things in the lab over 1 year, I would make 10 things in the computer in 1 month and then go make 4 things in the lab over the next 3 months. And my hit rate was like 2 or 3 times X, right? Just because—
Yeah.
I would filter out using computational work instead of my physical work. Yeah, that makes sense.
Use a computer to run a bunch of hypothesis tests and simulations and then just use the ones that seem promising.
Exactly.
Go work on those with the human brain.
Exactly. So then, you know, I fell in this love with ideas like, can you combine computational work with empirical work? You know, chemists are like a divided faction. They're either computational chemists or they're synthetic chemists, like they're like, I'm this type of chemist. I'm like, you're an effing chemist, like what, who cares? You're trying to solve a problem, solve the problem. Who cares what type of chemist you are, right? So they usually like won't collaborate. And luckily my buddy was just sitting, you know, the next door over. He was a computational chemist. And I'd be like, hey man, what are you doing? Like show me, you know, like what are these, you know, Gaussian distributions that you're running and how do you model this? And he would show me and I was like, this is effing awesome. Like I will do this. Yeah. And he's like, why would you do this? I'm like, well, Well, 'cause it helps me make better things in lab.
Yeah.
But anyway, so the big takeaway there was, can you combine— how can you combine physical work with computational work to come up with a better answer, right? I sort of fell in love with that idea. And I also realized that this shit moves too slow. I applied to Tesla, like, you know, didn't get, you know, didn't even get like a job interview or anything. You know, it was a much smaller company back then. Um, so then I left You know, academia is too slow. I want to go learn business. I did not have money to, you know, go learn business, you know, so I would just go audit classes in the business school. And yeah, I learned about like McKinsey, you know, people would say, oh, this is great management consulting firm. You can like, you know, they do XYZ. They're, you know, they're the bee's knees and they talk to like presidents. I was like, ah, this sounds interesting, you know, like I'll do it. Um, so I figured out my way how to get, you know, a job interview at McKinsey. And funnily enough, they were the only company that interviewed me that also sponsored visas. You know, I'm an immigrant. I had like a student visa at the time and I was like, shit, man, I gotta get this job. Otherwise, you know, I gotta leave, you know? So I ended up getting the job, you know, and ended up working there for like 7 years. And I sort of continued on this thread of like, how do you combine chemistry with computers to make better decisions?
Yeah.
But the decisions I helped make there was for clients in mining, refining, chemical processes. And the idea is the same, like, you know, I have a bunch of knobs to tune in a plant, right? There are like 10 knobs and people can only think about 3 knobs. And I was like, can you combine machine data with chemical knowledge to say, should the pressure be 71 PSI or 72? Should the temperature be like 88 or 88.4? and just come up with more precise recommendations in a plant setting to make more of whatever you're making or to do it at a cheaper cost or with less material.
Hmm.
That's what I did for a number of years is just helping people make better decisions in these like gigantic plants that were making like, you know, $2 million of copper every day or like, you know, a few million dollars of gold every day. And they're, you know, like 0.1%, right? Of like, You know, 2 million bucks is $20,000.
Like IoT optimization, what year, like about what year was this?
So this was— I started McKinsey in 2015, and I would say I did some work in IoT as well. But so I actually didn't— people think of like a job as like one thing. I did like 5 different things, and one of the years I did IoT. Yeah, next year And then I did like data science, data engineering. The year after that, I combined them, right? Because IoT gives you the data, but then you have to apply some data engineering to structure the data and data science to come up with a better decisioning system. So it was like, you know, 2015 was like, I just learned about how McKinsey works, right? 2016 was like, I like went working at— worked at a mine for the first time. I was like, hey, what the heck is this? 2017 was like, You know, learning about IoT and data insights. But 2018 is when I really helped build out the system at, you know, one of the biggest copper and gold producers in the country.
That's incredible. That's so cool. Yeah, it's such like interesting knowledge, but also the fact that, I mean, McKinsey's like Major League Baseball. Like you went from like college to like Major League Baseball, you know, playing in the rooms and businesses of You know, at the top of the charts, like they're, they are like the number one strategy consulting firm and like the BCB, BCG friends and the Bain friends are gonna like send me hate mail. But yeah, that was good for you, man. And cool that they sponsored the visa too. That's surprising.
So like you didn't— It's not surprising, right? It's actually an incredibly good HR strategy, right? Because if you think about, you know, how much McKinsey consultants get paid, and, you know, at last check, like starting salary was like still like right out of, you know, MBAs, like $160,000 plus, right? If you're paying that much, the cost of sponsoring H-1B is like maybe $10,000, even if you have like really fancy lawyers, right? Maybe $15,000, right? So relative to what you're paying them, it's like less than 10%. Relative to what you're billing them out for, it's probably closer to $1 million a year. It's like, you know, 1%, right? Not even.
Yeah. Well, that's why, that's why I was saying, not that it was surprising McKinsey did, surprising that others did not.
Oh, right, right. Yeah, that's sort of a very, you know, if you have a very like nationalist or populist agenda and you're like, ah, you know, this is more trouble than it's worth, you just, it tells you like where your values are with respect to HR, right? Like Wayfair, right? They're just like, it's like they treat their employees like their furniture, right? It's sort of like use and throw, like, you know, so you really wanna treat your people well always. 'Cause, you know, ultimately, you know, companies just like, Agreed. People trying to do the same thing, right? So if you don't treat your people well, you know.
Yeah, companies don't exist without talent, like, period. It's nothing. It's just an empty shell. Like, that's the thing that got me. Like, I started my career for, uh, working with big HR capital consulting firms. Like, it's now called Willis Towers Watson.
Okay.
And so, like, PwC. I was, I was an actuary back in the day. And did incentive design for the big companies. So yeah, it was like, I mean, a couple hundred year old HR consulting firm. So like, it just, man, when I like started going deeper into the rest of the world of business and startups, I'm just like looking around like it was so weird. It was jarring. It was like people don't care about people. Like, and then now I just see so many companies that are doing this yo-yo hiring. Like, Let's hire 1,000 people and then lay them off tomorrow. And I'm like, you guys are destroying your brand, man. If I was in that boardroom, I'd be like, oh, this is not a good way to run a business. This isn't good. This is gonna come back and bite you. So yeah, I'm with you.
Yeah, I, you know, like ultimately it's like, you know, there's like a set of people and there's like a mission and then you sort of how do you you know, how do you keep people happy and working towards that mission, right?
Yeah.
So McKinsey is really good from that way in terms of taking care of their people. Like when I left, they gave me like 4 or 5 months of like paid time. I had like an army of consultants that got assigned to me to help me find a job. And I was like, but they weren't like picking up that I didn't want to do a job. I was starting a company, you know. I would have rather loved was like, you know, $100,000 in seed fund and like a whole bunch of like, you know, entrepreneurial consultants.
That's interesting.
The typical exit path out of McKinsey is, you know, you take like a high-powered job in corporate America and then hire back the firm, you know, as a client. So they're all about that. Um, but, you know, the, you know, I was even like, can I even incorporate while I'm still on this like paid time off? And there wasn't a clear, clear answer. So I just waited till I fully left.
Interesting.
Incorporated. Yeah.
I think you just identified the new growth strategy for the consulting firms. Because that is, that's their innovation practice now is like ex-consultants start companies, grow them, build out technology, hire them back later, partnerships with big corporates. Like, there you go. There you go. There it is. All right. So anyways, okay. So you did chemistry PhD, nothing to shake a stick at. Then you went McKinsey, definitely nothing to shake a stick at. Then you like built out mining software, pretty rad. Then you decided to start your company. Was that this company?
Yeah, this company, you know, it started with when I bought this house. We bought the house in 2020, right at like the pandemic had just settled in. There was a momentary freeze in the market, you know, where everyone's like, nobody's ever gonna buy homes again.
Yeah.
And I was like, you know, I was like, you know, we're probably gonna be stuck in a house for a while. My son was 1 and starting to run around our 2-bedroom apartment. I was like, I'd just gotten like a recent promotion. I'd made junior partner in McKinsey. I was like, let's just do it. So I went out, looked at a house, showed my wife. It was very quick. We put the offer and got accepted. And then I got into this like scheme, this like scheme of a mortgage. And I just like, it was so insane to me that me with like a PhD, like McKinsey consultant, and I was like, I know my math and It was like utterly confusing. I was like, yeah, you know, what the heck is this? I'm signing up for a very large amount of debt. You know, I don't quite understand all these terms. You know, like, what is the difference between, you know, a promissory note versus a, you know, a deed of trust? I was like, a deed of trust is not something you're— you should trust. It's— you're telling somebody that, you know, you're going to give over, you know, in a non-judiciary state such as Texas without any courtroom proceeding. You're giving consent for them to just take your house and sell it if you miss a mortgage payment or 2. You should not trust a deed of trust.
Yeah.
You know, but I was just like furiously Googling what are all these like terms and disclosures and what these numbers meant. And it all really started with a very simple question. And the question was, how long should my mortgage be? And the mortgage broker was like, it's 15 or 20, right? I'm like, no, you know, but like 15, I get it. I can't afford it. But 30 is insanely long. Like, I'm like 32 years old. Like, you know, basically if somebody had gotten a mortgage when I was born, they would've just paid it off. This is ridiculous, right? 30 is like insanely long.
And all the interest that you pay. Yeah.
The interest you pay, it's like people think like, oh, it's, you know, like it's just 5%. But if you take a home that costs 5% in interest, You will pay almost the same amount in interest as the size of your loan. So on a $500,000 loan, you'll pay $465,000 in interest, or like almost $1 million in total by the time you're done.
Yeah, you, you paid for 2 homes by the time you paid for your one, which is nuts.
And it's—
you're right, it's— I mean, it's insane. I mean, the only reason that— I mean, it's just insane, the sheer amount of money Yeah. And the fact that so many people in the world like are in this system is like mind-boggling to me. The fact that it even exists where you can just like roll up to like some bank you've never talked to or met or some person you've never met and they're like, yeah, here's like hundreds of thousands of dollars. And then yeah, all this fine print. And then I remember just the mortgage paperwork because it was my first home too and it was like the United States government and like 9/11 stuff and I'm just like Dear God, this is scary. Like, what is this? And everyone's like, you know, all the brokers and the real estate agents are like, hurry, hurry, hurry, we got like 10 days to close. And they're just like pushing you. And then they just keep throwing stuff at you a day before you close. And you're like, what is this racket? Like, the whole thing is just not good. The fact that it exists and is still standing on these toothpick stilts is insane.
Right.
Like, how is this system even operating today?
Yeah, yeah, there's a, there's a, there's a lot to unpack there, but I'll give you like 2 nuggets. The, the first nugget is, you know, after the 1930s, like some of the modern amortizing mortgage came around in the 1930s after the Great Depression, where essentially, you know, there was a— before that, mortgages used to be like bullet or balloon mortgages, which you would take it for 5 years and then the entire loan would be due at the end of the 5th year. At the Great Depression, these loans came due, nobody could afford to pay them off. So it wasn't like a— people weren't insolvent, like they had money, but it was like a liquidity issue. They didn't have the money to pay the full amount, right? Because all of it came due at the same, same amount. So what FDR did is, you know, with the Federal Housing Administration, is made loans fully amortizing. And the word amort means to kill. Finally, the word mortgage. Mort means death and gauge means like pledge or agreement. So it is a literal agreement until death, which is sort of like, you know, funny and more than I— Yay!
Let's take something like our home and just—
Well, technically speaking, by law, mortgage is— it's an agreement until the death of the loan. So basically you're agreeing to pay the loan back until it dies. Not until you die, but that's, that's the sort of terminology. But amortization is another big, like, fleecing of, of the American public, right? And what amortization does is it says, I'm gonna pay all the interest that I owe on this home this month, right? So interest on a mortgage is actually simple interest. Most people think it's compound interest. It's actually purely simple interest. So on a $500,000 loan, Right, if your interest rate was, let's say, 6%, right? 6% divided by 12 is half a percent. Half a percent of $500,000 is $2,500. So you'll pay $2,500 this month, plus a small portion of principal such that your loan balance goes to zero over the duration of the loan. So it's simple interest paid in full every month, plus a small balance that depends on n, n being how long the loan is.
Yeah.
That concept in itself is okay, because what you're saying is your loan will never be due in full, you'll pay it off slowly over time. But in reality, the way it works out is you end up paying your loan back asymmetrically. And what I mean by that is halfway through the loan, you might think 15 years in, I've paid off 15% of— 50% of my loan amount. What you've actually paid off is like 32%.
Yeah.
So they screw you by, you know, introducing this asymmetry where instead of following this linear glide path to paying it off, you follow this like sublinear glide path. And in itself, that's not bad, right? Because what FDR wanted to do is he wanted to give people a portion of the American dream. They buy houses, you have the financing boom, right? Because whenever you're in a recession, what do you do? You print money. And mortgages are a way of printing money because they indebt people. And, you know, Woodrow Wilson was the first person who came up with the idea of like the American dream because he wanted to move Americans away from this idea of like communist thinking and say, you got to own a piece of America, and then you'll be less communist in your thinking. So it's like a little bit of like, you know, government, you know, planning on how mortgages came to be and the financing boom came to be. But anyways, the amortizing loan came around in the '30s, and from then what happened, as we've gotten to, you know, 100 years later, nobody stays for 30 years. You move every 10.
Yeah.
What happens is in 10 years, instead of having, you know, a third, you actually have like less than 20%. And then you move, and then you do 10 years again, and then you do 10 years again. So in 30 years, you— this story plays out. Instead of owning 100%, you end up owning only like 50 to 60%, and your mortgage ends up lasting 50 years, right? And like 10 million retirees still have a mortgage because they're stuck in this, like, what I think of as a debt trap, right? Sort of this promise—
It's true.
Turned into a trap.
Yeah, it's so true. It's like, yeah, I mean, that is— it's super scary. And especially for our generation too, where it's like we are totally on our own. I just don't feel like Social Security is going to be there. We're going to be on our own with healthcare. The population isn't going to be as big. We're going to have to be more productive. Pensions have gone away. 401 match, great, but the stock market is insane. And like, why?
Yeah.
So it's like literally every man, woman, and child for themselves.
Correct.
And, and yeah, so it's like you've got to be— you almost have to operate your life as like a high-performing athlete. And like, who has, who has time, knowledge, energy? Like, most people have a couple kids, they got a job, they got like groceries, like exhausted at the end of the day. Like, help, help me, you know?
Exactly. And that's sort of, you know, one of the thesis of why I felt the company. I was like, look, I'm a, you know, good smart person and it's insane to like figure out how to deal with a mortgage, you know. And my answer was like, you know, my mortgage should be 23 years and 7 months. And they're like, what the fuck are you talking about? I'm like, no, look, I did the sensitivity analysis. As the mortgage gets shorter, I end up saving hundreds of thousands of dollars, but my payment only goes up very little, right? Because the longer the loan you go, your, your Payment doesn't go down that much, right? So you basically what you want to do is keep shortening the loan as long as you can afford it, and you get a really great ROI. So I figured this out, and I told this guy like, "Look, I want a mortgage that's 23 years and seven months." They just laughed at me.
You gave him the exact mathematical answer.
I gave him the exact, and there is an exact mathematical answer for everyone because you know at 23 years and seven months, like literally my payment was 10% more. But right even back of the envelope, I was saving like. $90,000. You know, I have a sizable mortgage, but relatively speaking, we're still like a 23-year mortgage, right? So I'm paying 10% more and my mortgage is getting done like at least 20% earlier. So even from that perspective, right, 10% more for 20% earlier, I will take that 2-for-1 deal any day.
Yeah, yeah. I mean, it makes a lot of sense, and it's, it's enough time period for you to catch up in earnings or whatever it takes You don't need to do it, and then you save— I mean, 7 years in the grand scheme of a life isn't that much, but the amount of money that you save, you know, as that compounds over time could be a lot. I mean, that's a— that's a college— that could be tuition, like college tuition for one of your kids.
It's not college. You don't even need compounding. So there's compounding. The reason you pay it off quicker is because of compounding. So let's say you put $300 in, right? You put $300 in your first Let's just do $100 because it's an easy number. When you put $100 into your mortgage, even at 5%, guess how much that's worth in 30 years?
Yeah.
It's $447 at 5% because it's 5% that's compounding for 30 years, right? So if you think $5 times 30 is $150, so naively you might say, oh, $250, right? But with compounding, you're like, maybe $300, right? Maybe it's more than that, but it's 5% compounding And, you know, we don't think in J-curves. And the second thing is it's risk-free and tax-free because your notes dictate if you put $100 more, your interest will be $5 less. There's no debate about it, you know, by, you know, just it's pure math.
Yeah.
And the second thing is it's risk-free, which means, uh, oh, it's tax-free, which is if you were to, you know, get like a bond that yielded 5% each year and they gave you a $5, you know, payment, you would owe taxes on that $5.
Yeah.
But because you're saving that money relative to what you would've spent, it's basically tax-free. So it's really like you really made $7, not $5, when you put money into your own mortgage. So it's an insane deal for most people. And the benefit is, yeah, you compound away your mortgage, but you know, those remaining 7 years, if your mortgage payment was, let's say, $2,000 or $3,000, you opened up $3,000 of cash flows when your kids are right about to go to college, right? $3,000 you know, cash flow is $36,000 or $100,000 of cash flow that you opened up in the last 7 years, and all it took you to get there was probably like $20,000 to, you know, $25,000 of extra payments over 20 years. So, you know, the contribution is minimal, the benefits are huge.
Yeah, I mean, here's the thing. I mean, we talked about it, about this last time, because what's the average, the The average household income in the United States is somewhere between, I mean, I've looked at GDP figures recently at the end of last year, but then also some of the reporting, it's somewhere between like $55,000 and $75,000 a year.
Sure.
So the problem, I feel like the biggest problem is living paycheck to paycheck. Like we just don't have the extra disposable income. It was already a stretch to get into this house so we could, you know, have like a family, have a place to call our own. We're not in an apartment. So it's like, to me, that is like the biggest headwind of you getting this thing out in the market because I completely agree with you. And, you know, I even have a little bit of disposable income and I'm not paying extra on it because, you know, I'm a different breed. It's like, okay, I'm going to put stuff over here and I think I can get a better return.
Right.
So I'm playing like the return game. So it's a little bit different. I have more time. I don't have kids. So I'm a little bit different of a user. But Like, how do you, like, what, and I feel like this is the big unlock for you and your business. If you can figure out a way, not just to sort of like get that message across where, you know, it makes a lot of sense. I think it's generally knowledge is like, if I pay off sooner, obviously I save a bunch of money. I don't know exactly, but then the question is, how do I do that?
Yeah. So I have 2 answers for that. So, you know, Got to. Another problem with mortgages, like, people just take a single problem view, right? And I always think about like, it's a multi-level problem. So another problem is refinancing, right? Everybody thinks refi is great because I lower the rate, lower the cost of capital, my monthly payment goes down. But what people don't think about is when you refi, you also start back in year 1. So if you're 3 years in, you know, yeah, you refi down by, you know, half a percent, but then your mortgage became 10% longer. Right? So you could actually end up paying more interest. It's just that, you know, it's like they're nickeling and diming and, you know, it's like death by a thousand cuts, right?
Right.
What you want to do, there are 2 things you do there is when you lower the rate, maintain your same schedule, which is if you're in year 3, stay in year 3 because I'll come back to, you know, the bozo told me I couldn't do 23 and 7. I'm absolutely on a 23 and 7. I'm actually on like an 18-year schedule right now. But You can absolutely stay where you are. You stay put, and what that does is your monthly payment went down, right? Because previously, let's say you're paying $2,500, the rate went down half a percent, now your payment is like $2,350. So you opened up $150 of cash flow. Use that to pay your mortgage faster, right? Because you're— it's not hurting your pocket. You have refinanced, opened up cash flows, and in fact, you could even distribute that. Say, you know, you keep $100 extra because for yourself because you're living, you know, very tight, very tightly, and use the extra money that I'm helping you open up to pay off your mortgage faster. So it's a win-win.
So what about now though, when interest rates are rising again after falling for so long? Because what if you refinanced? Wouldn't you be refinancing at a higher amount? And so it's like a double whammy.
Correct. No, no, you wouldn't. You would never refi into a higher rate like that. That doesn't make sense. The You know, you could do a cash-out refi if you have a ton of equity and trying to pull it out, but when you're trying to cash out in a higher interest rate environment, you definitely don't want to use a cash-out refi because that refinances the entire mortgage balance, right? Because if you have $300,000 of mortgage balance, $100,000 of equity, you're at 3%, you go to 5%, you just insanely shot yourself in the foot.
Yeah.
So what you would do there is you would take a home equity line of credit. It would be at 5%, but it would be at 5% just for the $100 grand.
Got it.
And that's still insanely cheap relatively to, you know, any other cost of financing. But that doesn't work yet. So my strategy of helping people pay off their mortgage faster doesn't work in a rising rate environment for people who have low rates. But there's also now 15% of the population that has rates above 5%. So for those folks, it'd be really helpful.
Got it.
Yeah, that answer doesn't help everybody, but it would help those 15%. Now there's a second answer. So yes, it sounds like I'm helping people, you know, asking people to put more money relative to where they are. But what I also can help do is help people get into a home with a lot less money. And what I mean by that is most people think about, hey, I'm gonna put 20% down, you know, to avoid PMI and to get the best rate. I help a lot of, you know, my folks get in with 10.1% down.
Mm-hmm.
So I just opened up hypothetically 10%, right? If your home was $300,000, you know, 10% of that is $30,000. You were planning on putting $60,000 down. I'm saying, you know what, let's just put $30,000 down, right? And check this out, I will get you a better rate than what you were going to get. I potentially could eliminate PMI and your monthly payment could be lower in spite of having a higher mortgage balance.
Yeah. Isn't PMI 20%?
To get rid of PMI, yeah, you need, you need 20%. But let me explain how you would, get rid of all those things. So, but is that clear that you can get into a home a lot earlier with a lower down payment?
Yeah.
And lower your rate. And the way you lower your rate is you would use 1 to 2%. So let's say 10% down, right? Then let's use 2% more to buy down your rates. If your rate was at 5.5%, you could buy down your rate all the way to 4.5%. So now, in spite of you having a loan that is 10% bigger, because of the rate arbitrage, you could end up in a situation where you're, where you're you're cash flow positive both on a monthly basis and from a down payment. So the way I think about it is like you get in at 10% and then use that money which you would've otherwise just parked in a, you know, asset that's not producing and sort of pay, pay, you know, a little drip from that, the $100, $200. You have $30,000, I know it's a hypothetical $30,000 'cause most people probably don't have it, but if you compare it relative to that scenario, you're always cash positive.
Yeah, yeah, I think, I think situation 2 is a really smart one. I mean, that's what, that's what we did is just pay, uh, we just did a really low down payment, uh, and then, I mean, we took a different approach. We took some of that extra cash and then had to do renovations.
Yeah.
The house was so old. So then you get that in, and then with the rising, uh, price points, like the return on that was much better. And then it's like way better than the stock market for sure.
Exactly right, because the problem with the stock market is you're not getting a leveraged return, right? With, with home equity, right, if you go in with 10%, the home prices rises 10% in 2 years, that's 100% return on equity, right? You put 10% down and the home price went up 10%.
And stocks can go to zero. Typically your home doesn't go to zero because it provides tangible, it has more intrinsic value than just a security.
Correct. And the other thing to think about it, you have to think about it from a portfolio perspective, right? Like people always think, oh, you know, like why would I put money in my mortgage? Do I not just put it in stocks? And you know, the first thing is like, look, you, from a portfolio perspective, it's all about risk-adjusted return of your overall portfolio. And the thesis here is you're just underallocating your mortgage, which really hurts you for 30 years. You know, if you're putting away $2,000, you know, it's all about like, can you put away $200 in your mortgage? That'll really help you out in hundreds of thousands. It's not like if that's all you have, by all means, you know, put in your 401, pay off high-interest debt, put in the stock market. But $100, $200 really makes a huge difference, just like a small down payment and getting into a home makes a huge difference both from quality of life and return on equity. Similarly, like contributing a marginal amount has huge economic value.
I completely agree with the whole risk-adjusted return thing and just the whole premise at large. I think it's, um, I think it's super smart. I mean, if you have a dollar of disposable income, like actually disposable after you've paid for all the other living expenses, entertainment, whatever the case may be, then the question is what is the best place I can put that extra dollar? And people will look at stocks, their 401, and that's primarily where it stopped, you know. Now younger generation is going straight crypto, but We, you know, that's super volatile and that can definitely go to zero. And, you know, you can put it, you can keep it in cash, which has a lot of benefit, but, you know, you're losing money every day to inflation. And so it really comes down to like, where's the safest place that I can put it where I also have upside? It's like, for me, the place I've gotten to is like, Because, you know, Warren Buffett, what's the number one rule of investing? You ask the best investors in the world, number one rule of investing, don't lose money.
Yeah.
Number 2 rule of investing, see rule number one. Number 3 rule, see rule number one. I mean, it's that important. So it's like, where do I put it where I don't lose money? Where you don't lose money and you get continued value is like water, food, like shelter, your home. And then home, I think, you know, to your point, like a dollar you put in there, you look at it as an investment decision for your future self. Yeah, you're paying your future self instead of like— you're basically removing debt and stress from your future self and your future family is the way that I see it, which I think is really interesting.
And most people actually do think that way, right? Because nobody wants to have a mortgage forever.
Yeah.
I think most people don't realize how little effort it takes in terms of like economic sacrifice to put that $100, $200 in to really get the value out. So I think people sort of, because most people don't want a mortgage, right? I think what people don't understand is amortization and how a mortgage screws you, how moving screws you, how refinancing screws you, you know. So really what you want to, you know, what I'm trying to do is take a customer-centric view of how loans should be managed. And also take a multi-decade view, right? Because it's not like, you know, you don't get the instant gratification, you know, when you, when you do this thing. And there are also other things. So I think 2 issues that when you do put money in your mortgage, one problem is you don't have it, it's not liquid, so you can't take it back out. So I'm trying to solve that by attaching like a HELOC card and say, you know what, you put the money, yeah, once you get to a certain amount, you should be able to take it out because it also solves your cash problem, right? If you have $10,000 parked in an emergency account and you're one of these Dave Ramsey followers, Um, that $10,000 is losing 8% inflation, right?
Which is serious now. It's like a deal. It's a big deal now.
Exactly. But it would be much better off if you had $10,000 in your mortgage, which is working at 5%. So in real terms, yeah, you're still losing 3%, but it's— you're not losing 8%, right? But the key to play the strategy is you have to be able to access that money. That is another problem with mortgages, that once you put money in, you can't take it out.
Liquidity. Yeah.
But what I think about is like, how do you get people into a home faster so they can start earning home price appreciation? How do you pay off the loan faster? How do you refinance to always continuously maintain the lowest cost of capital? And then once you have equity, how do you make it liquid? And if you do all of those things in concert, that is a new paradigm of wealth, you know, which is just underlying the American dream. It's sort of, you know, it's sort of, it sold you this dream, but then riddled it with your debt. And I'm just thinking, how do you, Solve that debt issue and sort of, you know, let the dream be real.
I'm so with you. I think I thought this for a long time. I think debt is one of those things where we live in the country that's supposed to have freedom as its primary principle and financial burdens and debt is like that plus doing a job you hate to buy things you don't want to impress people you don't need is like the last 2 pieces of things that attack our freedom. It's like financial freedom is such a huge deal and then that like life freedom where you actually feel like you're living the life you want to live. So liquidity is super interesting. We might have to do a part 2 because we've only got like 5 minutes left and I got another one after this. But like where, how, I mean, obviously this isn't like— This is my podcast, it's not supposed to be super promotional, but I really, I think you're a really solid dude and we vibed pretty quickly. And I think the thing you're doing here really is, I mean, my mission is build things that help people and you're doing exactly that and you have like a good solid high value view on this and you're building a product like for yourself. I mean, you did it for yourself first and now you're just platformatizing it. So where do people go to like Chat with you, sign up. Where's the product, the website? They can get more info, do a little more research, whatever.
Yeah, you just go to altgage.com, altgage.com, and it gives you a little overview of what we do. And then if you just hit sign up, you know, you answer a few questions, we'll pull your mortgage information, and then yeah, we use like Plaid and bank-level encryption to allow you to start making these payments. But yeah, the word altgage. You know, mortgage, I said, is an agreement until death. So AltKit just means it's a different agreement.
Yeah, that's good. It's an alternative agreement. Yeah. I mean, the last thing, the one thing when I was signing up, yeah, one of the big friction points I got, and you can probably address this right now, was, oh, is some stranger going to get all of my details about my finances that I've never met before? And so, yeah, you answer that.
You know, I think there's some level of trust that, you know, I have to build over time with my brand, but I use like Amazon, right? People think, why do I do things in-house or, you know, do I outsource? And, you know, I help like one of the biggest oil and gas companies outsource their stuff to like Google and Amazon because that's their job is to protect data, right? So, we encrypt everything, hash everything, store everything. But the second thing I did is—
Wait, you don't— so, you don't see it? Like you don't see my finances?
No, we can see some portions, like, you know, like we can see the numbers, like the, you know, who owns your mortgage, what the number is. What we don't see is like your bank information, right? Because that gets really, you know, tricky. So for that, we use Plaid, and Plaid is like a universal banking API. So instead of providing your routing number and checking number, you use your username and password. Plaid connects to your checking account and they say, yep, Altkids, you know, Sean has authorized you to move money from bank account to the mortgage account. So we just connect 2 pipes from the bank to your mortgage and we can let the money move. So we don't actually mess with your bank information, which is sort of, you know, that's your money. Yeah.
So yeah, it's just like, here's the total dollar value on the note. And then Plaid is, yeah, for everybody listening in at home here that doesn't know, Plaid is used by every investment app on the planet to do secure transactions and access the bank accounts. So that's like, yeah, you don't have to worry about that one. Or if you do, then, you know, everyone's in trouble. It's like a Chase Bank kind of thing. They almost got bought. Who almost bought them? And then it was like $5 billion.
I think it was like Visa or somebody else, like one of the payment networks trying to buy them. And antitrust blocked it.
Yeah, antitrust blocked it because it was like, no, that's too much power in one One company's hands.
Visa already has all your data, right? Because every time you swipe the card, they have your data and then Plaid has a lot of your data. So I think combining the two is, you know, can be dangerous. Yeah.
Yeah, I read this, I get the newsletter. I don't know if you read this, but CFO Daily and they, it's like maybe 3 weeks, a month ago, they interviewed the head of Mastercard and head of Visa to see if all of this like mumbo jumbo in the market about like everything's crashing and being destroyed is true. And they were like, yeah, we looked at all the data at every income level. And yeah, pretty much everyone's spending the same amount that they have. And they're like, okay, cool. Back, back to work. And so it's just like this media noise that everyone's just like, it's like fear spreads so rapidly. It's like, come on, guys. It's like everyone just calm down. Just calm down. Go for a walk. Like get some ice cream and just relax.
You know, it's a lot of the Fed's doing, right? Like, they give it, they take it, right? They keep the rates low, they pump money, everybody feels richer. They take the rate back up, and then all of a sudden all this value in the stock market gets eviscerated, right? So I think, yeah, the Fed, you know, I'm looking forward to the separation of state and money. You know, church and state was a big separation.
Yeah.
State and money, you know, for the crypto folks, I know they're big into it, but I think there's some value in having like a non-sovereign form of money, you know, just so that it's not like so controlled, right? You can plan out your future without somebody arbitrarily like creating a whole bunch of money and devaluing your money.
Agreed, agreed. It's because like the swings are so high. Like if it was algorithmic, the swings would just be like this. It wouldn't be as big a deal. I mean, it'd be like, whatever.
I think the other thing is it also really distorts what is valuable and what is not, you know, because when there's so much easy money floating around, every company was getting funded, right? And the value is insane because there's no objective view of reality. If you actually had to save hard-earned dollars and invest your hard-earned dollars into a company, you would think a lot harder, right? And companies that didn't have merit would not, you know, get easy access to capital. I'm totally, you know, I totally believe in everybody should have access to credit and capital, but if you make it so easy that value is sort of like obscured by, you know, easy access to money, there's a lot of waste that happens, you know. So I don't know.
Yeah, the best guy I've read on this took me, I don't know, 40 years to find him, but the blog Back on Blogger, if you can believe this. It's called Calafia Beach Pundit, and the URL is scottgrannis.blogspot.com. I'll put it in the show notes. I'll put it here in the chat too. But he, he's like, uh, an economist from the old school, like been around, retired now but still writes. And like his take on M2 money supply and everything is like— he's like the only one I'll listen to anymore about the economy, like not even New Times, not NPR, not CNN, like just this one. Not even The Economist, like just Scott. That's it. So anyways, cool, man. Like, this was super fun. Uh, I gotta get back in there and do some twiddling around with my account in there. But yeah, I think what you're doing is freaking phenomenal. And, um, yeah, let's keep chatting, man. Like, let me know how things are going and, uh, if I can help in any way.
Absolutely.
And then in terms of this, like, I don't know if there's anything that you don't feel comfortable sharing. Like, I'll just do slight edit and then I'll send you a link later tonight and then probably publish tomorrow morning.
Okay, great.
You can take a look at it later this evening if you want and just let me know if there's anything that you're not comfortable with.
Super, I'll do that.
Okay.
Awesome.
Cool, dude. All right, man. Well, it's been a pleasure. Thanks for coming on. And, uh, yeah, let's have you back again. Let's talk about liquidity. Let's get some check-ins over time and just see what's happening in the mortgage space.
Sounds good, Sean. Cool.
All right, brother. Talk to you later.
