- For many people, paying
off their home mortgage is a lifelong goal. And rightfully so. A large portion of your mortgage payment is nothing but interest that
you are paying to the bank for the privilege of
taking out that money. On a $350,000 loan at 4%
interest over 30 years, you are gonna be paying that bank $250,000 just on interest on that loan. And that's assuming
that you never took out a home equity line of credit
or refinanced your loan. In which case, you may be paying the bank a whole heck of a lot more. So by paying off your mortgage
early, you may be eliminating tens of thousands of dollars,
if not hundreds of thousands of dollars that you would be
paying the bank in interest and you'll be eliminating another
one of your monthly bills. And for many people,
eliminating this monthly expense is the difference
between retiring and not. So today, I'm gonna
teach you 10 strategies to pay off your mortgage
in the next five years. So strategy number one
is bi-weekly payments. Now you've probably heard
of this strategy before but you may not fully
understand how it works or the impact that it can
have on your mortgage. So typically, you make a
mortgage payment once a month and that works out to 12
mortgage payments a year. Now, if your bank allows
you to make a half payment every other week instead, that
works out to 26 half payments or 13 whole payments a year. So in the end, you're making
one extra mortgage payment every year but because you're
paying it every other week, you're not really seeing a big difference in your monthly expenses. Now, you're probably
saying right about now, but how big of a difference
can one extra payment a year actually make? And the answer is a big difference. With a $350,000 loan at
4% interest or 30 years, you would pay off your
mortgage four years early and save over $35,000 in interest just by making a bi-weekly payment instead of a monthly payment. Now if you wanna see
how big of a difference bi-weekly payments make on your mortgage, follow the link down to the description to my favorite online
calculator to figure this out. It's over on daveramsey.com. Now I don't agree with
Dave Ramsey on everything that he teaches, but I do
really like his early mortgage payment calculator on his website. So my second strategy is pretty
similar to the first one, but it's just structured
a little bit differently and it's what I personally do. And that is to keep your monthly payments but make extra payments to
the principle every month. Now, if you wanted to
keep the same benefit as the previous example, what
you do is take one month's mortgage payment and
divide that amount by 12 and then add that amount to each of your 12
monthly mortgage payments. Personally, I found it
just a little bit easier to track this in my head rather than making the bi-weekly payments. So, in our $350,000 example, your monthly payments would
be about $1670 a month. If you divide that by 12 months, that works out to $140 a month. So by adding $140 a month
to every one of your monthly mortgage payments,
that'd be the equivalent of making one extra
mortgage payment a year. Now, you don't have to stop at making just one extra mortgage payment a year. Instead of adding an
additional $140 a month to every mortgage payment, if
you just bump that up to $200 a month, you would save
$52,000 in interest over the lifetime of the loan and pay off your mortgage
five years six months early. Now, if you really wanted to hustle, and could make the equivalent
of one extra mortgage payment every quarter instead of every year, you would save over $105,000 in interest over the lifetime of the loan
and pay off your mortgage 11 years five months early. And what I love about this strategy is that it's completely optional. You can turn these extra mortgage payments on and off whenever you choose. So as an example, when
I was in the military, I was paying extra towards my
principle every single month. When I got out of the
military and started my career as a real estate agent, actually
turned those extra mortgage payments off for about a year
until I kinda got established in this new career. Now if you contrast that to, let's say, getting a 15-year mortgage
instead of a 30-year mortgage, on a 15-year mortgage,
you are stuck paying those higher mortgage payments. You don't have the option to
turn that off and on at will. So personally, I love the
flexibility of going with a 30-year loan and making
extra payments to the principle every month, just because
I have the flexibility to turn that on or turn it off, or ramp it up or ramp
it down as I see fit. So my next strategy may
seem like common sense but it's the truth. And that is to simply not take
out a large mortgage payment to begin with. Just because the bank says you can qualify for a $500,000 loan does not mean that you should get a $500,000 loan. If your goal is to truly
pay off your mortgage and live debt free, you
have to ask yourself, is that a higher priority
than having a large home or having a large yard or
having a two-car garage. And for some people, it's not. Some people, having that larger home is a higher priority than being debt free. So let's say you're
approaching retirement, you need to ask yourself, is downsizing an option for you so that you can reduce your mortgage debt. Can you go from owning a detached home to living in a townhome
that may be $50,000 cheaper or maybe even living in a
condo that's $100,000 cheaper? Can you move to another
area that may give you a longer commute into work but
has more affordable housing? Can you move to another state
like Delaware that may have lower property taxes, lower
school taxes or lower sales tax? Because if so, you could
then take that savings and put it towards the
principle of your mortgage. If paying off your mortgage
and living debt free is really your top priority,
then you will seriously take a look a few of these options. My next strategy is to
make a one-time payment to your principle. So let's say you come into some money, maybe it's a tax refund or
inheritance or bonus at work. You can put that money
straight towards the principle of your mortgage. With that $350,000 loan
example, just a $20,000 payment towards the principle at
the beginning of that loan would save you over $42,000 in interest over the lifetime of the loan and pay off your loan three
years one months early. So now that we've shown
how much of an impact additional payments to
your principle can have, my next strategy is gonna
seem like common sense but it's simply increase your income. Now the longer you work
with any given company, you're most likely gonna
get raises along the way. So one common strategy is that
every time you get a raise, you actually keep your living
expenses exactly the same but put that additional
income towards your principle. Another strategy that I like is actually use your property itself
to earn you more income. With websites like AirBnB,
you can rent out a single room or even an entire floor of
your home for a few days or a few weeks at a time. I've even heard of people
building sheds on their properties and renting them out as storage space or charging people to leave
RVs or boats on your property. I also highly recommend getting
some sort of side hustle. Now honestly, I think
everybody needs to get some sort of side hustle
if they expect to get ahead in this world. Now luckily for you, it's never
been easier in human history to get a side hustle than it is right now. For example, making YouTube
videos like this one is a side hustle for me. I make a few thousand
dollars a year off videos just like this one. There's also websites
like Etsy.com, Fiverr.com and Upwork.com that allow
freelancers to get paid for a wide variety of
jobs that they can do right in their own home. These jobs can range
anywhere from graphic design to woodworking to administrative tasks to writing blog posts, just about any skill that you have, you can monetize on websites like these. There's also services like
Uber and Lyft that allow you to drive cars on your own schedule and you may be able to bring
in a few extra hundred dollars a month with these. Now before we get to the
final five strategies, I wanna kinda give you a bonus tip. And that tip is that paying
off your mortgage early should not be the top
priority for everybody. There are some situations
where there's some other things that should be a higher priority. So just an example, mortgages are usually pretty low interest rate. Right now they're between three and 4%. If you have other debt at
a higher interest rate, that should be your top priority. Let's say a credit card
at 15 or 20% interest, you should be paying off your
highest interest debt first, and then focus on your mortgage. Luckily for you, a lot of the strategies that I'm teaching you will also apply to credit card debt as well. Another situation would be
if your employer is offering to match your 401K contributions and you are not already
maxing out that opportunity. So if you put $500 in your 401K and your employer also
puts $500 in your 401K, that is an instant 100%
return on your investment. So I really recommend that you max out that opportunity first before you start focusing on paying down your mortgage. So the last exemption would
be if you don't already have some sort of emergency
fund of three to six months of living expenses. And I know this doesn't
sound very exciting, but here's the truth. Unexpected expenses are going to happen. Your home's air conditioning is going to break down at some point. Your roof is going to have
a leak in it at some point. Your car is gonna need some sort of major repair at some point. And when these expenses do occur, you do not want to have
to resort to a credit card with a 15 or 20% interest
rate in order to pay for them. That is a real reason why you
need to have an emergency fund to keep you from going
further in debt in the future. So we talked about increasing your income and now we're gonna talk
about my number six strategy which is reducing your expenses. Every dollar that you
save is another dollar that you can put towards your principle without really affecting your
quality of life all that much. So you need to ask yourself, do you have any monthly expenses
that you can live without? Could you live with a
slightly slower internet speed and save $20 a month? Could you live without
Netflix or Hulu or Disney+? Can you go a few years
without upgrading your phone rather than upgrading it every year and then paying it off monthly? Instead of eating out once a week, can you change that to
only eat out once a month? You need to take a long hard look at all of your monthly expenses
and once again ask yourself, is this expense a higher priority than paying off my mortgage early? So my number seven strategy is to maximize your credit card rewards. So generally speaking, I'm
against credit cards at all. But here's the truth. If you are not taking
advantage of credit card reward programs, you're essentially paying for those people who are
taking advantage of them. There are cards out there that
offer you up to 5% cash back on things like grocery stores,
gas stations, Amazon.com. And if you're already
spending this money monthly, you might as well put
it on your credit card and earn 5% back. The trick is that every
time you redeem your points for cash, you need to make an
equivalent one-time payment to your mortgage for
that exact same amount. And if you put all of your living expenses on a credit card like this,
this could easily add up to several thousand
dollars additional payments to your principle every single year, which could save you tens
of thousands of dollars on interest and pay off your
mortgage a few years early. Now this can be a dangerous game to play and you really need to make
sure that every single month, you are paying off your entire balance before they charge you
interest on your balance. What I personally do is I
have two reoccurring reminders on my calendar to go into my credit card and pay off my entire balance. So my next strategy ties in
to the last two strategies and that is to create a household budget. Now they say that 90% of all diets work because no matter what
diet you're following, it's just making you
more conscious and aware of how much food you're actually eating. And I think creating
and following a budget has the exact same effect on people. And after you track your
expenses for a month, you may be very surprised of where your money is actually going. No matter what you budget
for yourself for things like entertainment or eating out or clothes, just having that budget in place will really make you think twice about every single purchase that you make. And set a goal that if
you stick to your budget for the entire month, you'll
then make an extra payment towards your principle. So my ninth strategy
is to get to 20% equity in your property as soon as
possible to eliminate any PMI. So for many loans, if you
put less than 20% down on the property, your
lender is gonna charge you private mortgage insurance, which is an additional monthly payment and it covers the lender in
case you default on the loan. In our $350,000 loan example,
your PMI payment may be anywhere from $150 to $300 a month. And this is a big chunk of change but the good news is once
you get to 20% equity in your property, your lender will eliminate
your PMI payment. And if this is the case for you, you wanna get to that 20%
mark as soon as possible. So when your lender does eliminate
your monthly PMI payment, you wanna actually keep
your mortgage payment exactly the same, but put that funds towards paying down
your principle instead. So my tenth strategy is do
not refinance your property every time the bank offers it to you. So here's the truth. Offering you an opportunity
to refinance your property every few years is one of
the scams that the banks run to make more money off of you. So banks usually wait until
interest rates drop a bit or you build up equity in
your property to offer you the opportunity to refinance. And even if your monthly
payments become lower, in many situations,
it's still not worth it. So first off, your bank's
gonna charge you an upfront fee of several thousand dollars
to refinance your loan into another 30-year loan. But more significantly, if you remember when you purchased your property, your lender probably showed you a 30-year amortization
schedule of your loan. And what that schedule showed
you was at the beginning of your loan, the majority
of your monthly payment goes straight to interest to the bank and only a little bit of it
goes towards your principle. As you move along that 30-year
schedule, that ratio flips to where your last few years,
most of your mortgage payment goes towards your principle and only a little bit of it
goes towards your interest. It's actually in the bank's
best interest to keep you in those early years of your 30-year loan as often as they can and that is why they keep
offering you an opportunity to refinance your loan. So once again, let's look at
our example of $350,000 loan at 4% interest over 30 years. On your very first payment,
only $504 would go towards your principle while $1166 goes straight to the bank's pocket in interest. After 10 years, $751 of
your payment goes towards your principle and $919
goes towards your interest. After 20 years, $1120 would
go towards your principle, $550 would go towards the interest. And after 30 years, on your final payment, $1665 would go towards your principle and $5.55 would go towards interest. So as you can see, it's in
the bank's best interest to keep you in those earlier
years of a 30-year mortgage while it's in your best interest to get to those last few
years as soon as possible. So even if the bank offers
you a lower interest rate and a lower monthly payment, you need to look at where you're at in your amortization schedule and how much of your monthly payment is going towards the principle. And this is one of the biggest traps I keep seeing people fall into is that they keep resetting
their 30-year loan and they never make any real progress towards paying down their principle. Hey, if you wanna learn
about some more strategies to build financial independence
through real estate, check out this playlist right here of some of my other
videos I've put together. Thanks so much for watching til the end. Everyone subscribe for more
financial strategy videos just like this one and I'll see you guys
over in the next video.
