Sending extra principal payments against
your mortgage is not the fastest way to pay off your mortgage. In this episode,
I'm going to address the question that I've answered numerous times in
different ways. How to pay off your mortgage faster. It's
not what you think. I'm Doug Andrew and I've been teaching
people about how to optimize their assets and minimize taxes and get their
house or their real estate paid off the quickest smartest way now for more
than 46 years. I've written several books about it.
But it's not what you probably think. I'm here in my radio studio
and I've had a weekly radio show now that's broadcast nationally for 12
years. Prior to that for 35 years, I help my own
clients get out of debt the quickest smartest fastest way.
And it was not any way shape or form sending extra principal payments to the
mortgage company as I'm going to share with you. But as I began to teach this
from 2001 to 2007, I had 4 best-selling books. One became a New
York times wall street journal number one bestseller, my books are over here,
some of them. But I'm going to allow you the opportunity
in this episode to click at the link down below
and get a copy of my most recent best-selling book that retails for 20
bucks. You contribute $5.95 towards the shipping
and handling and i will pay for the book and send one
out to you free. It's 300 pages of information.
But there is a chapter in there that addresses exactly what i'm talking about
right now. But if you want to know and understand,
here we go. You know, a lot of times
there are all kinds of ways and ideas that
people tout how to get out of debt or pay off your mortgage
magically 10 years earlier or 15 years or in 12 years.
And every one of them seems to talk about sending
extra principal payments to the mortgage company. So, let's talk about various ways
that people sort of get duped into doing that. So, let
me share with you a story. I met uh one day with three finance
professors years ago at a major university. And they
said, "Mr. Andrew, we teach all of our advanced
finance students here at the university why when they go out and they purchase
their first home, why they should take out a 15-year
amortized mortgage if they can afford the
payment rather than a 30-year amortized mortgage."
I said, "Really? Why do you do that?" And they looked at me like,
"Well, duh?" Maybe they meant Doug, I don't know." They said, if you just
bite the bullet and pay a higher mortgage payment, you will save yourself
a grundle of interest. You'll have your house paid off in 15 years instead of 30
years. And then you can begin to sock away the
same amount of money into an investment like a tax deferred ira or
401K." I said, "Gentlemen..." There were 3 men. I
said, "Gentlemen, your finance professors.
Haven't you ever taken the differential between a 15-year amortized mortgage
payment which is higher and a 30-year mortgage payment which is
lower. Taking that differential plus the tax
savings?" You will achieve on a 30-year mortgage
especially the first 15 years of a 30-year mortgage versus the 15-year
mortgage. And with a system socked away that
differential over into an account compounding
tax-free. Well, right off the bat, they go, "What's
tax-free?" So, I had to educate him on my favorite
vehicle where I've accumulated accessed and transferred my money tax-free
for 46 years. I call it The Laser Fund. It is a max funded tax advantaged
insurance contract where i have earned rates of return
averaging between 6 to 10 percent. Many years, I've earned as high as 16 and
even 25 percent and more. But I've averaged the last 25 years
10.07%. But even if i only earn 6 percent tax
free, it is twice as much as I'm paying net on
my mortgage. They said, "Never heard of that." I
wasn't surprised. But they said, "No, we've never done that
math." I go, "I thought so." So, I took out my HP 11c calculator and right in front of them I did the calculation
and I said, "Look." They were flabbergasted. By taking
the money, they were telling their students to pay in a higher mortgage
payment, a 15-year mortgage. Now, it could be a 15-year mortgage or
you just send extra principal payments to the mortgage company. I don't care
what method you're using. Instead of doing that,
you take that money and put it over here in this pocket.
And you're earning compound interest tax free.
This pocket is the simple interest declining balance tax deductible on the
mortgage. Don't kill your tax deduction. Every time
you send extra principal payments to the mortgage company, it's like saying,
"Hey, here Mr. Mortgage Banker. It's an extra 100 bucks this month.
Now, don't pay me any interest on that. If I want that back i'll borrow it back on
your terms and prove there's a need why I should have it."
Now, when I word it that way, it sounds pretty stupid, doesn't it?
Well, see that's what's happening. You're not accomplishing
anything because the amount of money you put into the house,
equity earns a zero percent rate of return. It doesn't matter if your house
is mortgaged to the hilt or free and clear. It's going to go up or
down in value based upon the real estate market. Has
nothing to do with how much equity is in there. When I separate my
equity or keep it separated, I give it the ability to earn a rate of
return. And I can earn predictably 6, 7, 8, 10 percent compound interest over here in the my my
right hand pocket. This is in the laser fund that i'm talking about. And the
mortgage which is maybe 6 percent tax deductible is only really 4%
in my 33% tax bracket because I can tax deduct
the interest. If I borrow at 4.5%
in a 33% bracket, it's only costing me 3. If I
borrow it 3% which I've done on many real estate properties,
it's tax deductible. It only cost me a net of 2%.
So, let me just cut to the chase. Every million dollars of real estate equity
that is not tied up in the property, I have it over here in what I call my
laser fund that you can learn about. I am compounding and earning
a 9 or 10. Let's say to say 9. So, I'm earning 9% compound
interest tax free. Over here, I am paying 4.5 and a
net of 3. Or I'm paying 3 a net of 2 because
I'm tax deducting the interest. How much more is 9 than 3? How
much more is 9 or 10 than 2? It's 300%. It's 500%. It's 5 times more money.
Again, would you hire an employee for 20,000 or 30,000
if that employee made you an extra 90 or 100 thousand? If you do
the math, the money you would be tempted to pay to
the mortgage company to pay off your house, if you put it over
here in this side fund, it will actually compound and grow to
enough that these finance professors they were flabbergasted.
There was enough money in 12 ½ years
to pay off the 30-year mortgage. 2 ½
faster than the 15-year mortgage. And we actually redirected
in the illustration $50,000 of otherwise payable tax that
causes they support. In other words, I was able to use a lot of Uncle Sam's
money to get out of debt 2 ½ years faster.
But if I get sick, if I get laid off, if I get disabled
and I have my money over here in this liquid side fund,
I can access it with a phone call. If it's trapped in the property, if I pay
off the property, there's only one way to get my money out
of there. That's solid. And if the real estate
market is really bad, I'm going to lose. And if I pay it in
extra principal payments, I have to borrow it back. And when you
need the money the worst, it's the hardest to get because you can't qualify
for the mortgage if you're hurting. And so, I keep my real
estate equity separated for liquidity safety and i actually get out of debt
faster than giving it to the mortgage company. But
you know what? When I have enough money in my right hand pocket
that I can pay it off 2½, 3 years faster,
I physically don't do it. Why would I kill an employee...
Why would I fire an employee that's making me 100 to 500 percent more than they're costing me?
When I do that, I can prove to you in this book mathematically
that you'll end up with 1.8 million more money. At the end of 30-35 years, you'll
have maybe 3.2 million more dollars in your side fund by not physically
paying off the mortgage. Because anytime you want,
you make a phone call you can take the money out of here and pay off the
mortgage. So, my mortgage is paid off in 10 years,
in 12 years. Actually faster than giving it to the
mortgage company anytime I want to. But when i don't physically do that, it
continues to compound at 100, 200, 300 percent more
than the cost of the funds. It's up to you. If your goal is to get
out of debt, I can get you out of debt much faster
than giving it to the mortgage company. But if you want to continue to make more
than the cost of the funds, this is how banks make money. They pay us
low interest and they loan it back out and earn higher interest. This
is what makes the world go around. This is the parable of the talents in
the bible Matthew 25. When you understand this, you'll begin to
understand how wealth is created. And this is
what makes the world go round. And you'll be able to end up with millions of extra
dollars rather than just paying off the house. In other words, I
sleep way better at night with my house
mortgaged and the equity that I could pay off the house
separated over here compounding tax-free because anytime I
want. I can take the money out of here and pay
off the house. On my balance sheet, it is paid off.
This asset will wash out this liability that fast anytime I want.
But this is continuing to grow way faster than if i take this asset
and pour it over here and it earns zero. Because equity in real estate earns a
zero rate of return in the property. It's going to go up or down in value
regardless of whether I pay it off or whether it's mortgage to the hilt.
Does that make sense? If this is a rousing curiosity, I want
you to learn more. Dive into this book.
Watch some of my other YouTube channel videos on this topic. How to become your
own banker. But again, claim your free copy of this
300-page book. It retails for 20 bucks. But if you simply go to laserfund.com
and contribute $5.95 towards the shipping and handling because it costs a little
bit more than that usually. I'll pay for the book and fire it out to you. And
there's options in there if you like to listen and learn or watch and learn.
But as you begin to understand this concept and somebody asked you,
"Hey, how are you paying off your house the fastest way?"
You'll blow them away when you educate them on how money
really works.
