How to pay off a 30 year home mortgage in 5-7 years

hi my name is Laura piccata thank you so much for tuning in to my channel today I want to talk about how to pay off a home mortgage that is a 30-year home mortgage in just five to seven years I'm going to be going over the strategy and a lot of people ask me can I apply this towards a car loan or student loans and yes you can but I'm going to insert a disclaimer that before you jump in and start to start using the strategy I want to make sure that you understand it understand it fully first or consult with a financial advisor before you implement anything so now without further ado let's jump over to the whiteboard and get started all right I drew a little stick figure on the board and this stick figure is going to represent an employee and the average person in the United States makes fifty six thousand dollars per year for easier math I'm going to run that up to sixty thousand dollars per year which will come out to five thousand dollars per month in that household income so this employee all that they know of how to do is go to their employer and trade their time for money now I want you to take a minute and think about the process of what is the first thing that most people do as soon as they get paid [Music] alright so the first thing that most people do is as soon as they get paid they go to the bank and it deposit their money into either a checking or a savings account the savings account simply represents an emergency fund in case of unforeseen events happening and you need to spend some extra money on something now we're going to take a look at some average monthly expenses and since I am covering how to pay off a home mortgage the first expense that we're going to take a look at is a home loan [Music] the average price of a home in the United States is $200,000 so that's the example that I'm going to use now we're gonna have a 30-year fixed mortgage with payments that gonna come out to a thousand and two hundred dollars at a 6% interest the next most common expense is minimum payments on credit cards so I'm gonna take a look at a line of credit [Music] and the limit on this line of credit which we can say is just a Visa credit card will be $15,000 hmm kind of everything looks very squished so I'm going to move it over 15,000 the present balance already is gonna be $12,000 and the minimum payments if the balance is 12,000 is gonna come out to somewhere around $600 per month add a 21 percent APR okay so looks good so right off right from the start we already have our two monthly expenses this is per month I just want to include that in here so that it's clear all right so I'm gonna take that out of the checking's because that would be the process so our first two expenses home mortgage hm next is $600 for credit card see see next most common expense are car payments because most people have a car and I'm just going to say it's somewhere around $600 for car and everybody's got living expenses so living expenses for a family can add up to somewhere a thousand and two hundred dollars and that includes everything from groceries to utility bills to paying for the phone for the internet services and then whatever is left over will go into a savings account which in our case is going to be eight thousand four hundred dollars and this will include both long-term and short-term savings okay so at the beginning of the month we had five thousand dollars coming in so that was our input and by the end of the month we if we add up all the expenses and what went into the savings we have minus five thousand dollars so that is our output so at the end of the month if we subtract our output from our input we have a zero cash flow and this is the model that 95% of the population live by it doesn't matter how much input how much someone is making per month because somebody might be making a hundred thousand dollars per month but if their output and their monthly expenses add up to a hundred thousand dollars by the end of the month they are still broke because their cash flow is zero so now how do you start to operate like the other 5% of the population do with their finances so the first thing is understanding the difference between a loan and a line of credit and we're going to take a look at specifically the interest rates because if I was the bank and you had to borrow money for me would you rather pay me a 6% interest or 21% interest of course most people would say 6% because it's it's first of all it's the smaller number than 21 which actually in everyone's mind automatically me means that you're going to be paying back less money in interest so but to understand the difference between these two I'm going to use a little different example if I was to ask you what temperature would have to be in order for rain to freeze you'd say either 32 degrees Fahrenheit or zero degrees Celsius but then what if all of the sudden in 1 up to 1 degree Celsius now which one is hotter of course you would say that one percent I mean the one degree Celsius is hotter but isn't 32 a bigger number than one of course it is but we're looking at a different unit of measure so in our case even though 32 is bigger and it looks like it is bigger one is hotter because of it being a different unit of measure it is the same exact idea when it comes to first understanding the difference between alone in the line of credit even though this is a bigger number and it seems like you're going to be paying back more in an interest first we have to understand what effects the interest rates so that we see how both of these work so now on a line of credit the interest first of all is simple what that means is that the bank doesn't know how long it will take for a person to pay back this balance and therefore the interest is calculated daily and charged monthly it is also revolving what that means is that is to two dimensional so I'll just draw it over here two dimensional it means that as soon as that $600 minimum payment is paid you can use your line and credit you can use your Visa credit card to go to the movies to buy some groceries to do any shopping that you need to do or to spend that money again that means as soon as you pay you can go back and use it again and it's revolving however on a home loan or just on a loan in general as soon as you pay your monthly payment of a thousand and two hundred dollars it is 1-dimensional so it means that when you pay that monthly payment it just goes straight to the bank and you cannot use that money again to do any shopping to go to the movies that's it another main differentiator is that it is amortized what that means is that the bank knows that you have 30 years to pay back the the loan and therefore they calculate the interest for the whole 30 years and they they bill it so when you're making your monthly payments a portion of the main portion actually the biggest part of your payment is going towards paying down interest and just a very small part of it is paying down the principal to better see how the banks calculate this and what that looks like I'm going to draw an amortization schedule all right so I got the amortization schedule right on the board and as you see we have the monthly payments on this side and we have the time the timeline down here which is basically how long you have 30 years to pay off the loan so since our monthly payments are a thousand and two hundred dollars nine hundred and fifty of that thousand and two hundred is going towards paying down the interest two hundred and fifty is going towards paying down the principal which is two hundred thousand dollars so this is what the chart looks like as you're making your monthly payments every single month interest goes down and gradually you're paying more and more to pay off the principal right where they intersect is actually 17 years into the loan that represents a point by when the interest begins to decrease enough where your monthly payments are paying off the principal more and more so you see it's only starting to take your payments are really just starting to take effect 17 years into the loan or it's actually starting to add up to pay off this principal sooner but nowadays a lot of people throughout their whole entire life aren't able to pay off their mortgage for their home and the reason the main reason for that is what happens at the four-year mark let's take a look four years equals 48 months since our payments are a thousand and two hundred dollars every single month I'm gonna multiply that by 48 and that gives us a total of fifty seven thousand six hundred dollars and that is going to represent total pay down now 950 was going towards interest that equals 46 thousand five hundred dollars I believe let me check that really fast forty five thousand six hundred went towards interest so interest pay down total pay down on loan don't want to get that confusing two hundred and fifty dollars equals twelve thousand and that is principal pay down alright so I really want you to take a look at this and see that in four years of making consistent payments of a thousand two hundred dollars on your home loan for that for four years which equals forty eight months you've paid a total of fifty seven thousand six hundred dollars okay in our example nine hundred and fifty of this would go towards the interest so right off the bat out of the fifty seven thousand dollars six hundred forty five thousand six hundred dollars went to the interest and only twelve thousand of your of these payments not yours I don't know what your numbers are but of that of those payments went towards paying down the principal of the home loan so that only knocked off twelve thousand dollars so now what is the main reason that most people never end up paying off their home mortgage is that at the four years mark the bank will call up a homeowner and say are you interested in a great and lower rate and all you have to do is just refinance your home mortgage and most people will say okay it sounds great let's do it without maybe even realizing what that what that really does because what that does is that you've resets the clock and it actually puts a person back at the beginning of this whole schedule so you see as time progresses you gradually begin to pay less and interest but now even though you have better baby interest it doesn't really matter because as you're paying those payments now you're still back at the beginning where most of it is going towards paying down the interest and people get stuck in this cycle and if they keep refinancing every four years that is the reason why they're not not paying off their home there's a great rule app it's called calls mortgage calculator I will leave a link for it in the description of the video and if you're interested in checking it out it's free as of right now but what it does and why I like it and why I'm suggesting it is if you actually want to plug in your own numbers for your home loan and you can see basically what I explained over here just with charts and a graph but it basically will show you the numbers for your home mortgage so you can actually see how the payments and the interest are tipping at the 17 year mark and how everything adds up that I'm explaining right now all right so I just wanted to show you the app Carl's mortgage calculator this is what it looks like and if you download it you can input all the values say what is your property value what is the principle that you have on your mortgage what is the interest for how many years and then it's going to calculate the payment then you will have all the buttons right at the top here and then if you just click on summary right over here it's gonna give you all the values so I just took the numbers from our example and as you see at the very bottom the total interest paid is two hundred thirty one thousand and six hundred seventy six dollars and 38 cents so as you see the six percent is not really six percent because if you calculate everything you technically bought your yourself a house and then you bought a house for the bank also if you click in this app on table you can see how all the payments are adding up until you pay off your home loan in 30 years so I think it's a really cool app to check out for your home now I just want to say that does this look like 6% and people don't realize this a lot of the time because everybody when they're taking out a home mortgage is just focused on their monthly payment but as soon as you begin to see what is the total payments versus interest paid and you start to calculate that over time it doesn't look like 6% and the bank doesn't doesn't lie about it it is all told and listed in the Truth in Lending statement in the paperwork when you're signing for your home loan so now that we have this mortgage what do you do to pay it off faster and save a lot of money on this interest all right so this is where I get into the strategy this is where I start to explain how to use what I'm gonna what I'm gonna show you to save a lot of money on interest and to pay off that home mortgage faster I just made some room on the board but basically what this strat gee that I'm going over requires is that you bypass the system of depositing your money into a checking and savings completely and take everything that is earned for the entire month your entire income and apply it towards your line of credit so we're gonna move our monthly income towards our line of credit now might sound crazy but I'm gonna explain to you what it does and how to you continue to pay the bills using this method now before I go on I just want to say why are why are people saving because a lot of people from a young age are told that it's important to save and it is but wealthy people know that you never want to let your money just sit what the people usually invest their money and let just letting it sit in an inactive account it actually does more benefit to the bank rather than the person saving their money by letting it sit in the savings the reason for that is that when you go to the bank and you deposit money into savings account the bank will offer you 1% but when you're just letting it sit there and an emergency comes around and let's see you have to get a brand-new car you go to the bank and you ask for a loan to be able to get a new car and the bank says great so we're just gonna give you a car loan but all you have to do is just pay us a five point five percent interest on it so essentially what the bank does is they lend out your money that you're just letting it sit in the bank back to you and making money off that money that's just essentially how the bank's make profit that's how it works now that we're bypassing the system and no longer letting the bank control our money but rather we are in control of it and putting it towards the line of credit which is actually an active account this is what it's gonna do okay so I just drew another graph on the board and since we are taking our whole monthly paycheck and putting it towards the line of credit right off the bat we had $15,000 limits so that's illustrated over here with a balance of $12,000 currently on the card and down here we have the time line because we're making payments every single month so we have monthly increments now if what if you do what the strategy says you would take your entire monthly paycheck which in our example is $5,000 so we take it from our checking that's depositor checking's but we're taking all of it and applying it towards our line of credit so that will knock our balance down by 5,000 but we still have our living expenses so by using the strategy let's see what what happens to not just our living expenses but all of our expenses so since we're we moved our money over here we no longer have to worry about our minimum credit card payment since it automatically gets taken care off because we're paying we're putting money in that card towards that card so that automatically creates a $600 cash flow again since we're no longer saving our money into a savings account that creates $1400 cash flow so that equals a $2,000 cash flow so now if we add up the expenses it equals $3,000 because we still have to pay our home loan mortgage payment we still have our car payment of $600 and we still have our living expenses of $1,200 so to pay those we're gonna use our card and that same month that's gonna bump us up by $3,000 so this is our first month okay next month we are doing the same exact strategy and that bumps us down by five thousand dollars but we're gonna use our card so it bumps us up again by three thousand dollars second month third month January same exact strategy again we're paying for everything using art card K one two three [Music] okay so what Iowa straighted is you keep applying the same exact technique month-in month-out and actually if you begin to add up the numbers for this example you'll be able to pick your balance off completely within six months okay so next month after six months since you are at zero or in our example we are at zero you can't take that money again and apply it towards a car that has a zero balance so what do you do well this is where we have to create more debt and you see not all that is bad if you know what you're doing there's actually good debt so what you would do is you go to the bank and you tell them that you want to apply $12,000 from your line of credit towards paying down the principal of your home mortgage your home loan it's very important that the person at the bank that you're talking to understands you're applying the money towards principle pay down and not a regular payment because if they process this as a regular payment it's just gonna take a bulk of it and apply it towards interest and that's not gonna work so it's important that they understand that $12,000 is principal pay down as soon as you do that your line of credit balance bumps up to $12,000 and you keep applying the same strategy to pay it down where it is important to see how this is working is that you're able to pay down $12,000 in six months whereas the regular way it had taken you four years from our previous example so this is kind of the so this is the strategy so every six months you keep going back to the bank and applying $12,000 because you're paying it down six months and you keep going through this process again and again until you pay down this balance and that's how you pay it off within five to seven years now what about emergencies well we have all this cushion over here for emergencies emergency money okay since we're no longer putting anything into savings again since we're using an active account and not an inactive account to put our money towards what is the bank gonna do well the bank is gonna notice so they're gonna actually increase your limit because we're making monthly payments and we're paying off balances rather quickly another thing that's gonna happen is your credit score is going to go up okay so credit score is gonna go up and it's important for me to mention is that you never want to max out your credit card to the very limit because that I will actually have a negative impact on your credit score so you always want to stay below the limit so this is essentially the strategy and now I want to just say how would you rather pay 21% or 6% thank you so much for watching this video if you did find it helpful please be sure to leave it a thumbs up as I would really appreciate it and if you know of somebody that might find this helpful then please share it with them also if you enjoy information about business and real estate investing I will be putting out content around those topics every single week so please subscribe to my channel to stay up to date with my videos and if you still have any questions regarding this strategy please leave them in the comments right below and I will see you in the next video thank you

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Views: 5,489,921

Rating: 4.7321305 out of 5

Keywords: mortgage calculator, mortgage payoff, how to payoff your mortgage faster, how to payoff your mortgage in 5 years, how to payoff your mortgage in 7 years, how to payoff your mortgage early, how to payoff your 30 year mortgage, how to payoff your mortgage, how to payoff your mortgage quickly, mortgage coach, save money tips, save money hacks, home mortgage tips, home mortgage calculator, home mortgage explained, home mortgage loans, home mortgage interest deduction

Id: 4GonTct2WMk

Length: 29min 13sec (1753 seconds)

Published: Tue Nov 14 2017