Don't pay extra principal payments on your mortgage. In this episode, we are
going to address the question "What is the fastest way to pay off my mortgage?"
Get out of debt. It's not what you think or maybe what you've always thought or
been taught.
So, I'm Doug Andrew. I've been a financial strategist and a tax minimization
specialist for 45 years. I've written 11 books. Ny very first book
which became a best-seller and then Time Warner became my publisher. And
commissioned me to write several more. And we've been blessed to have a New
York Times, Wall Street Journal number-one bestseller. But my very first
book had 23 chapters. And the very first chapter was called the 25 -thousand-
dollar mistake being made by millions of Americans.
Well, that was clear back in the year 2000. And now, it would be the equivalent
of at least $100,000 mistake. What was it? People sending extra principal payments
against their mortgage trying to get their house paid off or get out of debt.
Folks, any way shape or form of sending extra principal payments against your
mortgage is not the fastest way to get out of debt. So, I always talk about this
particular story where one day I met with three finance professors at a major
university. And they were sort of bragging. "You know, Mr. Andrew, we teach
all of our finance students up here in the the 400 classes that when they buy
their first house, they should take out a 15-year mortgage instead of a 30-year
mortgage if they can afford the payments." And I said, "Gentlemen, why do you do that?"
And they looked at me. "Well, duh!" Maybe they meant Doug. I don't know. But they
said, "Well, if you just bite the bullet pay higher principle an interest payment
you'll pay off your house in 15 years. And you'll save a grundle of interest." I
mean grundle, that was the first time I heard the word grundle. It must mean a
lot. You'll pay off your house in 15 years
and then you can sock away what you used to be in house payments. And at the end
of 30 years, look how much money you'll have in a tax-deferred IRA? I said,
"Gentlemen, your finance professors. Haven't you ever taken the differential
between a 15-year amortized mortgage payment let's say of this and a
30-year amortized mortgage payment which is less. Take the difference. Plus
the tax savings." You will achieve during the first 12
15 years of the 30-year mortgage by not killing your partner Uncle Sam that
tax deduction. Don't spend it. Have a system where you sock that away over
a side fund. Over here let's say in this right hand pocket earning compound
interest tax-free. And they said, "What's tax-free?" I said, "Well, let me tell you
about max-funded tax advantaged insurance contracts where I earn nine
and ten percent have for over 25 years an average return of 9...
Let's just say 9%." I said, "Why would I pay off the mortgage when the
mortgage is let's say 4.5%? And in a 33-percent
tax bracket, on a million dollar mortgage let's say, that would be
45,000 of interest at 4.5%. But I don't have to pay all that.
I get to write off the 45,000 on my tax return." So, I'm saving
1/3 of that in taxes or 15 grand. So, that the net cost of a 4.5%
mortgage is only 3. It's only costing me 30,000, not
45,000. So, if I'm paying 30,000 and I'm earning 90,000
on the money that I would have given to the mortgage company, that's
300% more. And I said, "You've never done the math?" No, I did it on an HP
12c calculator. They were flabbergasted. There was enough money over here in this
pocket to totally pay off the 30-year mortgage in 12 ½ years
using the exact same amount of money they were telling their students to pay
off the mortgage in 15 years. In other words, I got the mortgage paid off
2½ years faster. I don't care if it took me the same amount of time. I
wanted the money over here where it's liquid and safe because I learned that
lesson the hard way. I wanted to be able to access the money. When you give it to
the mortgage company, there's only one way to get it back. And that's to prove
that you need it back and that you can qualify to borrow it. Or you'd have to
sell the property. Sometimes you can't do that
for the price that you want. Over here, it's my money. So, I want that liquidity. I
want the ability to access that. I want safety so that if the house goes down, I
don't lose whenever real estate or any of my homes have gone down in value
temporary, I haven't lost a dime. You know in 2007,
my house was worth 1.5 million and a year later was only worth
a million one. I lost 400,000 based upon the value of the house. But I didn't lose
a dime. Because my money wasn't in the house 100% of my equity was
over here earning a rate of return of 8 to 10 percent. So, I didn't lose a dime. It
took about 6 or 7 years before the house came back to the
million-and-a-half valuation. In the meantime, I had made a hundred, 2
hundred percent more than the cost of the mortgage. Most people were barely
getting back what their house was worth. This is critical to understand and
that's why I would not recommend if you want to get out of debt, you'll get out
of debt much faster by putting it into a side fund and have liquidity and safety.
But if you're earning a rate of return 1 hundred, 2 hundred, 3 hundred
percent greater than the cost of the mortgage, why wouldn't you do that
because you'll have so many more advantages and you'll actually have
enough money in this pocket in order to pay off the mortgage about 2 ½
years faster than giving it to the mortgage company. I can prove that all
day long. If this is intriguing you and you're
still not quite computing what I just said, let me repeat it this way. Because
sometimes people say, "Well, that's a 15-year versus of 30 years. So, I
guess you're you're recommending to 30-year." Well, yeah. But don't take 30
years necessarily. Because if you sock away the difference between the 15 and
the 30-year mortgage payment plus the tax savings you will achieve in a system
over here compounding tax-free, you'll have enough money in this pocket.
Okay? This pocket or my this is my assets. And where I put that money is in a laser
fund. And you can click on this next episode here and learn how to get a free
copy of this book the laser fund. But that's where I've earned 9-10
percent sometimes 25%. But I don't lose when the economy goes
down. It's actually protected in there. And so, I'm earning 9% the
mortgage is costing me 3% over here on the simple interest tax
deductible mortgage. That's like hiring an employee for 30,000 that
makes you an extra 90,000. Would you fire that employee?
"I got a hurry in and get rid of this employee." Why would you get rid of an
employee that's making you 3 times but they're costing you? I'll hire as many
employees as I can. If you could buy a widget machine for 30 thousand made you
an extra 90,000 how many widget machines would it behoove you to buy as
many as you can afford? So, why would you want to get rid of a mortgage where the
money that you would be paying off the mortgage is actually making you triple
what it's costing? This is how banks operate this is what makes the world go
round? This is how millionaires and multi multi millionaires and billionaires make
money. This is what they do. They don't go in and put huge down payments down on
skyscrapers. They say, "What's the least amount we can put in there and let's
keep our money liquid and safe earning a greater rate of return." And whatever the
real estate does goes up or down in value is going to do that regardless of how
much cash is in there. So, let's not tie up our cash unnecessarily in that
property. So, if this is making sense when people say, "Well, Doug, what about a
bi-weekly payment plan?" Well, bi-weekly this means, "Oh, because this is magic." See,
a lot of people get paid bi-weekly, that's 26 pay periods a year. And so, they
make half of the mortgage payment every 2 weeks and you magically make an
extra mortgage payment every year. And you'll pay off your house at 10 years
earlier. There's nothing magic about that. If you took the bi-weekly payment method
and you put it over in a side fund, you'll pay it off 2½ years
faster than giving it to the mortgage company. So, whatever method of paying
extra principal payments that you may come up with rather than giving it to
the mortgage company, you're actually not saving interest. It's costing you when
you could be making double or triple the interest tax-free than the mortgage is
costing you and you'll have enough money to pay off that mortgage when you want
with an electronic funds transfer or phone call, you'll get out of debt faster.
To me out of debt is when I have enough money in this pocket that anytime. With a
phone call, I can take the money out of here and pay off the mortgage over here.
I am out of debt on my balance sheet. And so, that's
why sometimes people quit. "Well, there's two kinds of people in the world. Those
who pay interest and those who earn interest." I don't know there's a third
kind of person. The mega-wealthy thrivers learn when it's wise to pay interest in
order to make more interest. And that's the magic of wealth accumulation. So, if
this is resonating with you, please click on this episode and you'll be able
to learn why home equity is really not a prudent investment and the 3 key
elements of a prudent investment. You'll have a chance to get a free copy of my
most recent best-selling book The Laser Fund. You just pay $5.95
shipping and handling and I'll fire went out to you and you can learn more and
get a whole bunch of aha's epiphany as you read.