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How to Pay Off Your Mortgage Early

How do you pay off your mortgage early? Well, you can choose one from the two different approaches: either do it with the bank or without the bank.

iconLet’s talk about WITH THE BANK:

If you get a typical mortgage, let’s call it a 30-year mortgage, then you understand the way amortization works. Banks are going to charge you interest like crazy on the first half of paying down the house. And on average, over 30 years, by the time you’ve paid off your house, do you know how many times you’ve paid for it? Close to THREE TIMES!

That means that 95% of the money that you’re paying on your very first payment is all going towards INTEREST. What that bank’s basically doing is they’re saying “Alright, let’s say that you’re going to live in that house for 7 or 30 years, we’re going to make sure that for the first 7 years, we get to capitalize on charging you as much interest as possible.” … which means that you aren’t really paying down that house.

If you want to play that stinky game, you should be prepared (mentally too!) to pay the house off almost three different times. Even if you say You know what Kris, I’ll get on a 15-year mortgage and pay a few hundred extra dollars a month.”, it means for the first seven years, you’re STILL giving the bank a pile of interest!

How to pay off your mortgage then?

icon2WITHOUT THE BANK:

I love to pay off my houses in a 5 or 10-year period of time as opposed to 15 or 30. And to do that, we do that as real estate investors.

So Step 1 is to buy the house loaded with that equity. What do I mean? Don’t just buy a home. Buy a house! Buy a house that if it’s worth $200,000, buy a $460,000!

Why? Well, think about it. You just got it 40,000 below the market! That’s equivalent to paying on that house for already the first 7 years! We’re beating the bank at their game!

Next step? If you live in that house for 7 years, then in time, if you bought it with equity, you can do a home equity line of credit, you can borrow the equity out of that house OR use some other reserves – foreign case, IRS, whatever. And go buy another house!

What do you do when you buy that next house? Well, I’m buying house with another 40,000! Then I get to cash flow that house, I get to make money on it. And then what do I do? I take money out of those 2 houses and then I put it into a third house!

By now you must think you’re going deeper into debt to pay off your house, right?

Well, yes! Because in five years, you’re going to sell off the five houses. You’re going to create $200,000! By then, you can pay off your house and have $50,000 in the bank as opposed to youro 15-year or 30-year strategy.

To understand what I’m saying, you need to understand the difference between good debt and bad debt. Right now, your house – it is NOT an investment. If it’s a home that you live in, let’s say, it’s a consumer product. You’re CONSUMING it.

In fact, to get your house paid off, you’re going to have to pay for it three times over. That’s a little bit crazy. And I would call that a bad debt. Why is it a bad debt?

Because it costs you EVERY MONTH. Let me ask you, does your house produce a cash flow for you? Is it an asset making you money this month? If it’s like most people’s homes, then it is NOT; which means it is BAD DEBT.

If I buy the house and I have equity in it, and I pull the equity out and I put it into another house that produces a cash flow, it is also a debt, but a GOOD DEBT. Same word, but two total opposite meanings. One’s good and one’s bad.

This bad debt – why is it “bad’? It’s bad because it costs me money. Who wants to pick up liabilities that cost money? Now I’m buying asset and this “good debt” is producing a positive cash flow. Tax benefits, I’m stepping into equity, I’m controlling that real estate for short period of time. And how am I gonna pay it off?

Not with a mortgage of 30 or 15 years! I’m gonna “own” it for a period of time, I’m going to sell it and I’m going to cash in on the money. I’m going to take that money and I’m going to ELIMINATE MY DEBTS.

4Now I want to share a little BONUS for you.

For those of you saying your house is already paid off 20-70% and asking how you can do it faster:

Let’s make an assumption. Let’s say for a moment that you’ve been living in your house and got five years left on it. You’ve been paying it for maybe 10 or 25 years on a 30-year mortgage and you’ve got five years left. I will ask you now: Would you like to pay it off in half the time?

How would you do that? Take a step backwards to go into good debt to move several steps forward faster. For example, take equity out of that home to buy 2 other homes. If I produce 40,000 equity on this house and 40,000 of equity here, plus I put 20% down and 20%… I now have two half-paid off houses!

3I can control them, cash flow them, and in 2 years, I sell them off! And I get ALL of my money back that
I can reapply to my mortgage, but I got 50 grand left over here, 50 grand left over here – that’s $100,000!

Now instead of you waiting a few more years to have it paid off, all of a sudden what you have is a pile of
money you can play with. You see, it all comes down to why you want it paid off. Are you in it for the security? Or you’re in it for the financial freedom?
And good or bad debt always comes down to that differentiation. Let me ask you: If you do get yourself out of debt, can you eat ‘no debt’? No! You paid off all your debts, but does that produce food for you? Does that allow you to travel or visit the grandkids? No, it doesn’t. It doesn’t allow you to do ANY of that.

So, having no debt is a level of financial security. I’m sharing with you that good debt produces the next level which is “I have no debt AND I have a residual income. I have a pile of houses that keep on making money for me.”. 

5Now instead of you waiting a few more years to have it paid off, all of a sudden what you have is a pile of money you can play with. You see, it all comes down to why you want it paid off. Are you in it for the security? Or you’re in it for the financial freedom?

And good or bad debt always comes down to that differentiation. Let me ask you: If you do get yourself out of debt, can you eat ‘no debt’? No! You paid off all your debts, but does that produce food for you? Does that allow you to travel or visit the grandkids? No, it doesn’t. It doesn’t allow you to do ANY of that.

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