Today I was interviewed on the local ABC channel in Phoenix. I was part of a segment on “Sonora Living” where I discussed my experience with the “Life Changer Loan” otherwise known as the “All in One” Loan or previously the “Home Ownership Accelerator”. I have had this loan since 2008, so when my friend Shane O’Grady asked me to talk about some of my experiences, I was happy to help him out.
Now this a very involved loan that is hard to explain in three minute segment. In fact I misspoke at the end of the segment. I said “my mortgage rate goes down every month” that is not true, I meant to say “My Mortgage payment goes down every month”. for a more involved explanation you can hear me and Shane discuss the loan on a Financial radio program.
How the Life Changer Loan works:
Basically this is a first position home equity line that is tied to a zero balance checking account. I have an online banking account that is similar to any online banking account. The difference is that each night the balance of the checking account sweeps into my home loan. So lets say I deposit $5,000 into my bank account and spend $500 dollars on various bills. That night, the balance of the checking account ($4500 in this example) then becomes a principal payment on my loan. Since the loan calculates interest every single day, every dollar that is in my account is reducing my monthly interest payment. This means as long as I save more then I spend each month, my interest payment goes down. Repeating this every month, the loan acts like a DEBT SNOWBALL ON STEROIDS, allowing you to save thousands in interest and paying off your home very quickly. In the example I shared on TV, I had a home with a 250k mortgage that I was able to pay off in just 2 and a half years. And since this loan gives you access to the cash, I was also able to use the account for a substantial addition which I have also since paid off. Finally after paying off that loan completely this past summer, I used the line again to buy my current house and do a major remodel. By mid summer I anticipate being able to pay off the loan again completely.
Why Have You Never Heard of This Loan?
For people with positive monthly cash flow this loan is an absolute no brainer. In places like Australia, anyone who can qualify for this loan does so. So why have you not heard of this?
- Banks hate this loan: With the Life Changer loan you are getting a guaranteed rate of return that is equal to the interest rate. Currently I am paying 4.75% so for every dollar in my account I am making/saving that amount, but unlike a money market or savings account – I am not paying any taxes on the interest I am saving. If you had a chance to start a savings account with a 4.75% return would you not do this? Given I have access to the account – up to 80% loan to value, why would I ever put money in a traditional money market or savings account? Banks know this and is why they have lobbied against this loan. They fear, correctly, that if more people used this loan they would lose a lot of their best depositors.
- Lenders Dont Like It: think about the traditional loan. All of the interest is front loaded so that in the first 10 years, you are paying mostly interest and very little is going towards principal. This is great for lenders but bad for you.
- Loan Officers Don’t Like it: When CAMG created this loan they tried to sell it through traditional loan officers. This did not work very well. Besides being completely different from what they were used to selling, the Life Changer Loan takes away one of their biggest revenue sources: Refinancing. With this loan, there is no refinancing. Once you have this loan and pay it off, you have effectively created your own bank and investment vehicle. Why would you ever get rid of it? In fact, a few years ago, I sold a home not thinking that I would lose this loan. After having the loan for 4 years, not having it was crushing and I m
- Investment Firms: My experience here is that many investment folks see this loans as a threat to traditional investing. This is silly. I invest in the stock market, take part in a 401k and save for college While this loan creates a huge incentive to pay down your house quickly, it does not preclude you from investing. In the long run, this is actually better, as it frees up so much more money for investment once your mortgage is paid off.
- Its NOT FOR EVERYONE: The main qualifier for this loan is that you have to save more than you spend! Obviously this puts this loan out of reach for a huge percentage of Americans. In fact if you don’t save more then you spend this is a TERRIBLE loan as you will spiral into deeper debt. But if you have great credit and can show positive cash flow, this is the best personal finance vehicle that has ever been developed. To see if you can benefit you can use their Simulator.
- Dave Ramsey: Dave Ramsey is a huge proponent for paying off your home. He often points out that 100% of foreclosures are tied to a mortgage. Since the Life Changer Loan supercharges the payoff process, you would think he would be a huge advocate. I doubt that he is. Now I have never heard him specifically mention the loan, but given his aversion to any kind of credit card I can safely say he would not recommend. You see this loan almost acts like a huge credit card. As you pay down the loan, available cash piles up which can be tempting to a profligate spender or gambling addict. Now I love Dave Ramsey. I listen to his show often and I look at him as a national hero, helping millions of Americans get out of Debt. His program, starting with his “baby steps” is part psychology, getting people to change their bad spending habits. One of the first steps is getting people to get rid of your credit cards and budget only cash that you have in the bank. This is wonderful advice for most people. Now with the Life Changer Loan, you are encouraged to use less cash and use your credit card more, as you want to keep as much cash in the loan as possible as that cash will keep your balance lower, resulting in a lower interest payment each month. Despite the obvious MATH of the Life Changer Loan, Dave Ramsey is not going to carve out an exception here for disciplined savers. For him, the psychology of changing the spending habits of the average American trumps math. A good example is his insistence on using the debt snowball to pay off the smallest debts first. Logically it would make more sense to pay off the higher interest rate debts first, but the psychology of paying off a debt has proven to help motivate people to stick with it. I can’t argue with that, but for the disciplined saver, paying off your house in less than 5-10 years trumps psychology.
I have had this loan on various homes since 2008. I have used it to pay off houses and buy new ones. I love this loan and love to talk about it with anyone who will listen. That said, Shane O’Grady is the absolute expert on it. He was a very successful loan officer who started a company that focuses solely on this loan. If you are interested I would call him at 480-504-0844 . This loan has truly been a life changing loan for me.