Mortgage = Segregation of Income.

Before we move forward, you need to first understand a basic banking principle called “segregation of income”. Banks want your money as segregated as possible. They want your money to be funneled down various rabbit holes like checking accounts, savings, GICs, and money market accounts. If your money is split up, you cannot utilize 100% of it toward a common goal.

Mortgage = Trapped Money.

​To ensure that your money is segregated, the banks advertise and offer traditional closed-end mortgages. Money can only go in and only comes out if you refinance or sell. Basically, your money is trapped! It would be financial suicide to put 100% of your income into a mortgage, because you would have nothing left available for living expenses. So, this forces you to put only a percentage of your wages towards your mortgage. It doesn’t matter if it’s a big percentage or a small percentage. At the end of the day, it’s still just a percentage. That means you stay in debt longer. The longer you stay in debt, the more interest you pay and the more profit the bank makes. This is common knowledge.

Mortgage = Transfer of Wealth.

​But what about the portion you left sitting in a bank account waiting to be spent? Well, that’s the other money maker. Banks leverage your depository accounts to manifest “electronic money” out of thin air. They are lending your money out the back door for higher-yielding investments and loans to consumers...including you! That’s right. You are probably borrowing your own money back from the bank at a much higher rate. So, mortgages are just one of the ways banks make money off of your transfer of wealth. They are very much after your checking accounts as well.

HELOC = The Perfect Tool.

Mortgage vs Home Equity line of credit. There is a big difference and you should know about each of them. In fact, all you do is change where their cash goes. Since a HELOC was open-ended, meaning money could go in and out freely, folks would put all their money into a HELOC, bypassing their bank accounts. When they needed to pay bills, they just used their HELOC to make a payment. As long as they made more money than they spent, the acceleration of this simple interest tool was astounding-almost too good to be true if you didn’t understand the simple math. ​This is another reason a HELOC is the perfect tool. It merges two financial products, a mortgage and a bank account, without losing liquidity.