how to pay off your mortgage early without cutting back on your expenses
or making more money
hey what's going on everyone this is sam quack here one of the kwak brothers and
i'm a certified credit counselor and in this video i want to show you how to
pay off your mortgage fast and early typically within five to seven years on
average and this is a strategy that my clients have been using for the past
two to three years and they've been seeing tremendous
amount of results so let's go and dive right in but before we do be sure to
subscribe to our channel if you want to learn more about
paying off your mortgage faster learning how to invest in real estate as well as
getting the latest updates on financial news
and also be sure to stick around to the very end because i am going to give away
a free calculator where you can go and punch in your own numbers to see how
much time and money they could potentially save by
using this very strategy so let's go and start with what's wrong with your
current mortgage why not just refinance or why not just go and pay off
an existing loan the way it is and you might also be thinking sam why don't we
just throw extra money into the mortgage and pay that sucker off early well with
this strategy you can actually potentially save even more money and
time than just paying extra into the mortgage so
let's go and first talk about what's wrong with your mortgage and i want to
start that by withdrawing what's called the
amortization chart what you guys are looking at here is the
amortization chart and from left to right this represents the amount of time
that you spend paying off your mortgage so if you have a 30-year mortgage right
now this is where you started your mortgage
and this is the payoff period so when you reach 30 years you're done
right the up and down the vertical line represents your monthly payment
that you make every month so hypothetically speaking just for
illustration purposes let's say your monthly payment is one
thousand dollars a month okay now what i'm going to draw
are two lines the red line here represents
the amount of interest you pay over time in proportion to your monthly
payment and the blue line represents the principal
that you pay in relationship to how much you pay out of the thousand dollars so
what happens is beginning part of your mortgage vast
majority the thousand dollars vast majority of the thousand dollars
goes towards directly to interest so this portion right here all
this goes directly towards the interest now as you
get to the second half of your mortgage on a 30-year amortization
vast majority goes to paying the principal so let me go and label this
correctly so that you guys understand what's going on so the blue represents
principal and the red stands for
interest so with the fact that you're paying most of the interest towards the
beginning of the interest this is known as the front
loaded interest zone okay all the interest is loaded on the front half of
the interest this is why we call the front loaded interest
and one of the reasons why i suggest individuals not to refinances anytime
you refinance you reset this amortization schedule
where we go back to the front loaded interest zone so here are two likely
scenarios that make the 30-year mortgage a terrible
terrible plan and why you should use this particular strategy that i'm about
to show you guys through the rest of the video now what
happens is when you get to about seven to ten year mark okay typically
two things happen the first scenario is that most of us
today typically move because of job relocation or we downsize
or we find another home it's more frequent now these days that
we will likely move than ever before so when you go and sell your house and you
buy a new house and you get a new mortgage
what happens is you don't necessarily get to continue the progress that you
have made with this amortization schedule so what
happens is if you get a new mortgage start all the way from the beginning and
back to the front loaded interest zone if you're on a 30-year amortization now
the other scenario is that you refinance maybe you get persuaded by a
banker or a mortgage broker that tells you hey
mr mrs borrower you've been doing a phenomenal job paying for the last seven
or ten years let's go and get you come back in and
save you some little money quote unquote and refinanced into a lower interest
rate so by refinancing you may think that you're saving money because your
monthly payment goes down maybe perhaps down to 900
a month and you're thinking hey that's 100 bucks that we saved every month
therefore we can use that hundred dollars for something else actually
that's the same tactic that car salesmen use to try to think that you're getting
a deal when you're really not when you look at the the full
amortizations as to what you're paying so you think you're saving money because
the monthly payment went down by 900 but think again
when you refinance you go back all the way to the beginning to the front loaded
entry zone so if you made it to the seven or ten year mark
you might as well just continue down the road of getting picking up more
principal as you go versus going back to the front loaded
interest zone where vast majority of your payment will go
directly towards interest this is the main cause as to why most americans
today aren't unable to pay off their mortgage because
of the likely scenarios that come about either they sell their house or they
refund it so here's the other plan and the other strategy that i want to
suggest and this is something that a lot of my clients are using right now
to paying off their mortgage even quickly so
i want to introduce you to a new product of banking called a home equity line of
credit and home equity line of credit is often
abbreviated into a heloc so you may have heard this
term before he love a home equity line of credit this is not the same thing as
a he loan a home equity loan which is a home equity loan is simply a second
mortgage it's amortized it works the same way
just like in any other mortgage does but with the home equity line of credit
think of this like a credit card so let's go and draw the
difference between a home equity line of credit
versus a traditional mortgage a heloc versus a mortgage there we go
oh and a little fun interesting fact you notice the word mortgage the prefix of
this word is mort which is a french word for death
and the gage is also the word related to pledge or
promise so this is really called death pledge so you can already see
here the mortgage is not the best way to go it's basically a pledge that you'll
pay off the loan until you die so that's a little fun fact that he
you may have not not noticed with the english were there but uh that's a
little fun fact so let's go and split the difference between a mortgage versus
a heloc with a mortgage this is closed ended
meaning once you make your payment to the mortgage it's gone it's proof you
can't get that back unless you refinance and we're gonna talked about why
refinancing is a bad bad thing with the heloc it's open-ended so think
of think of it like a credit card where you make a payment to your credit card
but it allows you to draw the money back out when you actually need it
so close ended versus open-ended whereas a close-ended you make a payment it's
gone you can't access it with the open-ended line of credit you
can always pay back and reuse now when it comes to the
interest rate both mortgage and heloc's can be fixed rates so that's a little
myth that a lot of people don't know a lot of people think that the heloc is
always variable which is not always true so
it comes fixed and variable same thing with the mortgage right you
can get a fixed rate 30-year mortgage and
also you can get an arm an adjustable rate mortgage all right
and also the interest rate now people think that with the heloc the interest
rates is often higher that is true but you can also get what's
called the first lincoln heloc which i've seen as low as 2.75 percent
to 4.5 with the mortgage you can typically get a 1.99
depending on the rate as well as what the index is being used
uh all the way to 5 anywhere between that
so you can see here guys is that the interest rates are pretty comparable
both are fixed and variable but the only difference that i'm seeing here is that
mortgage is close-ended and the heloc is open-ended so just remember the fact
that it's open-ended this is very important if you forget anything else
make sure you remember that the heloc is open-ended so here's how the strategy
actually works now there are seven different versions of the strategy but
i'm going to give you guys a quick summary of the one particular version
that i personally love when it comes to this very strategy so
we start off with the mortgage okay and let's say we have a mortgage
balance of 250 000 okay now the one particular version
of the strategy is to completely replace this mortgage
with a home equity line of credit so think of it kind of like a refinance but
you're not refinancing to another 30-year mortgage but you're simply
refinancing into a home equity line of credit now the way that this works is
that heloc would be a first lean heloc to where now replaces the
existing mortgage the existing mortgage was on the first lane position
but now that you got a heat lock to completely replace your mortgage to pay
it off your heloc is now carrying all the
existing balance that was once part of the
mortgage thus because thus the heloc becomes a first lien
now there is an alternative version where you make what's called a chunking
payment where you have a second lean heloc
he lock on top of your existing mortgage so you don't replace your mortgage you
just get another helong you're making chunk payments but i want to first show
you how this works with the first lien heloc
okay so from there once you replace your mortgage you're gonna go and dump all of
your income and yes all of your income and
savings into the home equity line of credit now
you might be saying sam why in the world are we doing that that sounds silly what
are we doing here now what we want to do is we want to drive down what's called
the average daily balance of the home equity line of credit
let's say our income for this example is 10 000
so what we've done is we took ten thousand dollars of income put it on our
first lien heloc of 250 000 balance now it's going to be
240 instead of a 250 balance from our mortgage
now what happens is that you owe interest based on the 240 000
calculation instead of a 250 000 balance calculation
now you're saying sam we still have to pay our expenses
we put all of our income to the heloc that's great we've done a significant
principal chunk out of the mortgage but we still have to
pay for our expenses now one thing that a lot of people do
with the strategy is that they use a credit card
to do all their expenses like groceries gas diapers if you got kids
right entertainment also they leave some room for a chance to smash the like
button on this video right go and click the like
button on this video to help us out with our youtube algorithm so they use a
credit card to do all their expenses now what's unique about a credit card is
that any time you buy something with a credit card you typically get anywhere
between 21 to 30 days of a grace period where you
don't owe any interest so the interest doesn't accrue
on any of these purchases until the next billing cycle
so here's what we're doing and this is a hypothetical situation this is more
of an illustration but what the individuals using this strategy will do
is they'll try to get the ten thousand dollar income
into the first lien heloc on the first day of the month so let me use a
different color so first a day and what they'll do is they'll leave the
money and the income on the first lien heloc
park the money into the first thing heloc while they do all their expenses
on the credit card and they pay off the credit card
on the last day of the month so let's say 30th day of the month they pay off
their credit card using the funds out of the home equity
line of credit and what that looks like is they'll draw the money out
into checking account and then from the checking account they'll pay the credit
card that's typically how the mechanism works
now what we've done there as far as what we've accomplished with the interest
side is that we left this home equity line of credit balance sitting low
by ten thousand dollars for 30 days now if you know anything about the average
daily interest calculation with the home equity line of credit what the banks do
is that they'll take a look at your balance each and every day
and calculate the interest based on the balance of that specific day
so if today was 240 000 they'll calculate the interest for that specific
day on that 240 000 next day if it's still
sitting at 240 000 they'll calculate the average yearly
interest based on that specific amount so if we're keeping the balance
at 240 000 for a whole entire month for from the
first to 30th day of the month guess what happens to the interest
amount that we've accrued on the home equity line of credit
it's significantly lower how do we just draw the money out for expenses directly
from the home equine credit this is why we're using a credit card
to sort of park our expenses until we're ready to completely pay it off at the
end of the month bottom line the trick is that we're
trying to keep the heloc and the credit card from accruing any interest on our
expenses on a given monthly basis another thing
that a lot of the users of the strategy do is they also throw their savings in
there into the home equity line of credit
balance as well now the argument is if you leave your money in your savings
account i mean what is it paying you like one percent
two percent maybe at most so one or two percent annual percentage
yield right from your savings account but with
the heloc the home equity line of credit you can get anywhere between two seven
five to let's say five percent of interest rate by throwing that same
balance same amount that you had in your savings account
into the home equity line of credit now you're seeing a reduction of the the
principal balance thus now you're saving anywhere between
2.75 to 5 percent depending on what the
interest rate on the whole equilateral credit is
so instead of thinking about earning interest now we're
cutting the principal balance back down to where we're
saving interest by whatever the interest rate on the heloc
is so that's the first lean heloc if we're using a second lean heloc
it's very similar but we're just doing a smaller chunk
at a time there we go maybe we do 20 we throw 25 000
into the mortgage principal balance and then we're pretty much doing the same
thing the income comes into the second lien using a credit card you
guys get it so that's the gist of the strategy there are seven different ways
to doing this and of course i don't have all the time in the world to cover it
and depending on your situation this strategy can definitely be modified and
changed uh depending on your personal finance
and your your situation so like i promised i want to give you guys
the calculator where you can go and punch in your own numbers to see how
much time and money you can potentially save go
and download that and i'll go and throw the link up here on our whiteboard
chop my mortgage
dot com if you go to chop my mortgage.com it would actually redirect
you to acceleratedbanking.com we just thought
chop mymortgage.com seems more memorable so acceleratedbanking.com in fact that's
what the strategy is called accelerated banking sometimes people call it
velocity banking sometimes people call it
the pill method or mortgage acceleration we like to call it accelerated banking
because we're accelerating uh your mortgage payoff
as fast as possible so go to childmobile.com download your free copy
of the calculator and punch in your numbers and what i
want you to do after you download the calculator
i'm gonna go and actually invite you to a free class where i spend about 40
minutes diving in uh talking about what happens if there's
a recession why is this better than doing extra payments into the mortgage
uh what happens if you live paycheck to paycheck or maybe you have inconsistent
income so i go deeper into answering some of the
questions that you may have and you can get those answers in the web
class after you go and download the calculator and also leave the calculator
link down below in the video description so that you can
just click on it and it'll take you right there so
if you guys enjoyed this video be sure to subscribe to our channel as well as
smash the like button if you guys enjoyed it
and i'll see you guys in another video