How to Pay off Your Mortgage in 5 Years

How to pay off your mortgage in– Five years Five years

Five! That's today's show Let's dive in Hey, everybody welcome into the Investing in Real Estate show I'm Clayton Morris I'm Natali Morris

And this is the show where we focus on buy and hold real estate for the purposes of creating passive income and legacy wealth for you and your family The vehicle that we use is real estate investing And we want to hold it for the rest of our lives So we have a very special announcement on today's show It's Something that Natali and I've been working on for the past number of months

And we have a new book So we wanted to share that and deep dive that today on the show Right So Clayton came up with this idea recently– which most ideas in our house are actually his He's the idea guy

I'm the execution person No, you said recently I think we kind of talked about this strategy for many, many years Well, we've talked about it on the podcast, and on different writings that I've done, and things that you've done But we always have a lot of questions about it

And so we decided to just really lay it out in a sort of "for dummies" format so that anyone who has a question, we can just point them towards the book Because this is a strategy that we have employed with great effect, which is just something, again, that we talk about all the time here is choosing the best financial product for your money So we found a way to take the biggest elephant in the room, I guess we could call it, which is the mortgage, and replace that with more favorable financial products so that we chip away at that mortgage and eventually you live mortgage free Right, so that's the idea So we decided that once we– we've done this now a couple of times where we've put this strategy into place

I– jointly, because I did it a number of years ago when I lived in Philadelphia on a condominium that I owned, which I was able to pay off huge chunks of it by using this strategy at the time And back then, banks were a lot more forgiving in the way that you could structure things I had Bank of America at the time I was able to use them I got a $10,000 HELOC– H-E-L-O-C, home equity line of credit– and I was able to pay down my condominium very quickly

I didn't pay it off because I ended up having to move, but I paid a huge chunk of interest off And then Natali and I– Principal Principal Principal And then Natali and I jointly have now done this a couple of times on a couple of different properties

In fact, I think it's why this is special right now, because we are in the mountains We're actually on a little family vacation But this is our home away from home up in the mountains And we're at a lake It was the first home we purchased as a couple

And we bought it right after we got married And so we always thought that we were going to stay in Manhattan and then have this house as our home home away from Manhattan We'd just always have a small apartment and then we would have this as our house So we had committed to this mortgage very early on in our marriage But then our son started to crawl

We were living in a small New York City apartment, and we said, oh gosh, we need to get out of here And we realized we could buy a home in the suburbs for the same we were paying in rent in Manhattan, which is really pathetic, but those are the going rates It was like $3,800 a month– $3,800 a month was– –was our rent in Manhattan For a one-bedroom apartment And that didn't even include our parking space

Remember, in the parking garage? It was an additional $500 Right We didn't even have a car It was $500 a month for the parking space So we decided, OK, we need a car in order to get to this house in the mountains

So we had to buy a house And then we had to buy rent for the car So not only then did we have the car payment, but we also had the rent for the car The car payment was– sorry The car payment was $280 a month

Right The parking for the car was much cheaper $500 a month Was much more expensive More expensive

Right So we had this mortgage We were comfortable with it But then we bought a house in the suburbs of New Jersey so that we could be close to our jobs So then we had two mortgages and two houses

We never intended for that to be the way that we were living And so then we said, OK, how can we really chip it down Wouldn't it be great to only have one mortgage And so we used this strategy to get rid of the mortgage here in the mountains And then we had one mortgage, and then we said, well, wouldn't be great to have zero mortgages

So now that's our goal, is going towards having no mortgages Now, we're not talking about mortgages on our investment properties We've talked about mortgages on portfolio loans and mortgages on other investments That's separate And we actually do work to pay down principal on those loans

But we're talking about– And the strategy would work on– Definitely –investment Because I actually– since we've launched the book and preordered, a lot of people have asked me, would this work on investment properties? Absolutely In fact, it would work on paying off a boat It would work on paying off your credit cards

So yes, but we're focused in this book primarily on paying off your primary mortgage Right And we talk in the book about, yeah, credit card debt, auto debt, student debt, right? Because what we're trying to get you to do is use the equity that you have in your home right now, evaluate how much you can get out of it, and then use that as cash to then pay down the debt service that you've got right now Because we want to teach you what your mortgage is made of We go through the anatomy of a mortgage, like what is it in there that all your dollars are going toward– taxes, insurance, fees, principal, interest– all that stuff

So that once you understand that, you can start, then, diving in to figure out how to work it to your advantage Because otherwise, most of the time when you sign for a mortgage, you're signing such a deep stack of papers that you probably miss the one page that should blow your mind, that you really should see is, OK, you're borrowing $300,000 for the house And because you're paying an amortized loan of 4% over 30 years, you will actually out of pocket by the time this loan is paid off, pay $650,000 or something It's more than double what you think you're paying for your house It is a ridiculous number

And I think what's scary, most people don't think about, but they end up having the– they get that big stack I don't know if they still do it, but it's in your mortgage It's like a big stapled stack of your amortization schedule And you can see how much– you just page through this thing And it's up to the mortgage lender when they're sitting there at the closing table, they have to show it to you

They make you page through it so that you know what you're getting into So you page through this thing, and you're like, holy smokes Over 30 years, I'm paying almost double or triple what I'm buying the house for And so many of us just choose the mortgage that we think we can afford every month out of our budget And that's just– it's an expensive mistake to not be looking at the fact that you can swing it

You can pay this every month, but you're paying the bank more than you're actually paying to own that asset Right And so if you're watching the video version of this, I want to apologize because we're in the mountains I've got sort of mountain facial hair at the moment Right

I have lake hair I've been swatting away mosquitoes Now, I lit a fire to keep the mosquitoes off my wife because she gets bit like crazy and I don't But he gets poison ivy and I don't So I get poison ivy like crazy, which happens if the wind blows in my direction

So I lit a fire behind us down in the bonfire pit It's like a little gnat that wants to bite you in your neck right now And so yeah, we're swatting away mosquitoes right now So no, we're super excited about it So the book is called How to Pay Off Your Mortgage in 5 Years

It's on Amazon right now It's a quick read I mean, it's like 40 pages It's a short book It's cheap

But we don't waste any time We didn't waste 100 pages on filler anecdotes from people We wanted to get right to the heart of the matter and cut right to the chase So unlike these other books that sort of promise the world– we even say this in the introduction– and don't deliver, we're in this book give you an absolute blueprint to walk you through step by step how to do this, so you know exactly how this looks We've got three kids and we're able to do this

So insert your own scenario here, this is what we do So you want to– let's go through the book in broad strokes Obviously we want you to read the book because it's going to detail– we've got spreadsheets in there It's going to deep dive all of these strategies But just sort of at a high level what this goes through

There are plenty of people that are going to come to us and say, well, this doesn't work because I have this situation or this situation And I understand that Finance is not one size fits all But if someone reads this book, I think it will change their way of thinking about their financial products, and try to figure out ways around it So even if it's not just I use this home equity line of credit to pay down this mortgage, you can maybe find a personal line of credit to pay down some other type of debt

The whole point, the big enchilada is be better at evaluating your financial products so that your money, you can keep Right And also, too, you might not even have a mortgage yet But woe to you– Then why are you reading this book? No No, but good on you for understanding what goes into something like this before you get into it

Before you jump into the deep end of the pool, now you know So yes, you may take on that mortgage, but you're taking on that mortgage with the knowledge that you're going to be able to pay it off in five years So you can be smiling across the closing desk to the person that thinks you're going to be paying this off in 30 years You can just sort of be snickering to yourself, thinking, I know something you don't, because this thing is going to be paid off in five years When they hand you that like, actually you're going to pay $600,000 something, you can be, like, no, I'm not

And you'll see So let's dive into some of the mechanics of a mortgage It's important that we start off the book talking about what goes into a mortgage And the main thing we want you to take away from this is that principal, principal, principal balance of what you're paying on your mortgage If you're buying a $400,000 home, that's the principal balance of your home, is $400,000

The interest is on top of that over the years You may end up paying $800,000 for that same home over 30 years Depending on the type of mortgage, right? Right So we want you to understand what is the principal, what are some fees that might also go inside of your mortgage that you may see why you're paying so much per month, and then what is the interest payment per month And then there's some other bits and bobs that may go into a mortgage, but once you understand that, then you can watch your statement every month and see how much is my principal going down

A lot of people find that rather depressing, because every month you put a big chunk of your paycheck into your mortgage but you get so little out of it in terms of equity Right So equity, of course, is what we all want in our properties eventually If you've followed this podcast for any length of time, you know that there are three stages of real estate investing– buy, own, and cash flow– when you buy properties You don't necessarily have a ton of equity in those properties

At a certain point you own them, which gives you full equity in those properties, and then you get to experience the full cash flow of those properties So the same principle really applies for your own primary residence, as well If you buy a $400,000 home and you got a 100% financing– You don't own any of it, actually Yeah, you don't have anything in that house Maybe with 20% down, you own some equity in that home

Now, that's the key What equity do you have to work with in order to go back to your local bank and ask for a HELOC Now, there are two types of home equity loans There's a home equity loan, as we've talked about here on the podcast recently I did a whole episode on the difference between a home equity loan and a home equity line of credit

The home equity loan is the loan that they write you a check Let's say you have $40,000 in equity in your home They write you a check for $40,000 You don't want that That's nice– Because then you have a full $40,000 new lien on your house

It actually is recorded with the county Because if you were to move to Mozambique tomorrow and say, I'm not going to pay all my bills, they'd have to sell it at an auction And then the city would get paid first because the government always takes its cut first in back taxes Then the bank would get paid back And then now this home equity loan would get paid back, whatever is left over

Right So the home equity loan, it's nice, but you don't want it for this because now you have a $40,000 debt and you can only– you can't rinse and repeat The beauty of a HELOC is it's a line of credit, like a credit card You get a $40,000 line of credit You start with a zero balance

And then we're going to work with that HELOC in order to pay down our primary mortgage And we go over all the mechanics– and we're not going to do it here on the podcast– in the book Because there's a lot of little nuances about how to set it up with your bank And also the sun's going down But generally we want to say, go for the HELOC, not the home equity loan

Two different animals The HELOC is way better Now what you're doing is you're trading interest for time Do you want to explain this piece of it and why a HELOC is different than your amortized mortgage that you have on your home? Right OK, so some people will say to me, well, why don't I just make one extra payment per year or make one big principal payment per year, which is great

It's a great strategy and in the end it may shake out to being very similar But the reason we go with this strategy is because it forces you to put big chunks of money into your mortgage Now, your mortgage is made up of, again, principal and interest That interest, it's amortized, meaning that it will take more money from you based on the amount of interest and the amount of time you have left on that loan So when you make a big principal payment, say $5,000, you'll see that the amount of interest that you're going to pay over the life of the loan gets slashed considerably, but also the number of payments you have now get slashed considerably

Because that's what amortization is Now, amortization is a complicated calculation But what you just have to know is that your main enemies in your mortgage are interest and time So if you can take big whacks at your mortgage, you're going to save so much in interest and time, more than you would if you just, say, kind of give another little bowl full of money Right

And so when we've done this, what we love to do is Natali has set up– in fact, in the book we give away the amortization calculator spreadsheet So download the book because we have a link right there You can download the free calculator And it shows you how this works And that's why it's so beautiful to watch, because when you make one of these payments towards the principal balance from your HELOC, it's amazing to watch the months change

So maybe you owe– what is it– maybe 220 months I don't know, how many months are in– Oh, let's see How many months are in 30 years? I don't know 12 times 30 Yeah

So OK You're the math genius It's like 300 and some odd payment– Nevertheless, it's beautiful to watch in this calculator, to watch suddenly we've chopped seven or eight months of payments right up And this is actually something we do all the time And I'll say, OK, we've saved this $5,000, $10,000

Clayton, come to my office, because I keep the spreadsheet there And I don't want to just put in that thing and see– put in the deposit and see the interest shrink on my own because it's not my accomplishment by myself, and I'm going to do a little dance in my chair, and no one's there to watch So he comes and watches it And he's like, yeah, and we're high fiving Because that feels amazing, because it usually means that the amount of interest that we're scheduled to pay over our lifetime, that will have come out of our pockets, has shrunk so much with just– I mean, you'll see it with just a $5,000 principal payment, with just even a $1,000 principal payment

And it becomes so addicting that you're just going to want to take a machete, right? A machete, yeah Just start whacking away at it like you're in the jungle It's very satisfying So yeah, in the book we show you an example of this amortization calendar, and it's amazing to see how much over the course of a loan you're going to pay in interest, and how much you'd save So it's usually 15 pages long when you get that amortization schedule from your bank when you're at the closing table

So to slash that is going to be fantastic But then you have to take the responsibility to keep your own amortization schedule because you can't just take what the bank gives you, and then write in, oh, this month on payment number 13, I put more That's not going to change the numbers on the paper You've got to keep that live so you're keeping track of what you have paid for and what you've paid down, because it's too complicated I didn't really know this before we started doing this

And I thought, well, maybe online I can go to Bankrate And you can sort of say, I have this loan, it started on this date, and it's for these many months, and it's for this interest rate And I put this much more towards principal But then you can't account for that maybe six months later, you put this much more towards principal, and then six months later you did the same thing So you have to track this yourself

And the best way I've found to do that is an Excel spreadsheet because Excel can do amortization really well in a way that an online software as a service cannot Right So bottom line is we care much less about the monthly payment and how much that payment is than we care about the principal pay down of that So it also changes how your taxes and insurance will change your monthly payment Do you want to talk about this? Because we wrote this out in the book, as well, how taxes and insurance change your monthly payments

Right Again, this goes into the anatomy of your mortgage So you may have had to bundle a tax and insurance payment into your mortgage Sometimes the bank requires that If they don't require it, you really shouldn't do it, because they pad that account, and then you're just letting more money come out of your paycheck every month in order for the bank to keep a certain amount of money in escrow

Whereas you could be keeping that in some kind of interest-bearing account, do more with that money and then make those payments on your own, and then maybe you'll have something left over to put to principal Meanwhile, that money is at work for the bank, not you So yes, we have a section about that, as well So another thing we want to say, obviously we're talking about playing interest like a master, and that's really what this whole strategy does, is playing the interest card That's where the HELOC comes in

So if you have that $40,000 HELOC, you want to put that on your $150,000 that you still owe the bank All of that goes towards principal So that $40,000 HELOC, funnel that right to your principal balance You owe $150,000 Guess what? Now you owe $110,000

And then because you're making these small payments per month back to your HELOC– which we go over in the book on how to do that– then it never really accrues the interest that you think it will, by having those multiple small payments per month coming out of your paycheck, which we again talking about in the book And you're trading that system– those two types of interest, those two types of bank products that Natali talks about all the time– one for the other And in this scenario, one is better than the other for paying all of this back Now, sometimes we have people say, well, what about just you have the introductory HELOC rate, which is awesome, but when it adjusts to a market rate, then what? Well, then you've got more equity in your home and you go shopping for a new one Sometimes your bank will let you re-up it

Sometimes they'll say, no, we're not going to do that You're going to– these are the rates we offer That's fine If you have good credit, and you've been making those payments, and now you're an awesome real estate investor, too, and you have more equity in that home, and hopefully market conditions are fairly stable, then you can take that equity that belongs to you and shop it to another bank Because another bank, believe me, wants to lend you on that money

Right And that's what we recently had to do Our HELOC went from an introductory rate of 19% with a local bank that we used, and it jumped up to– 425%

Yeah And I said, homey don't play that So we went shopping And you know what? We're going to get another one that's going to give us another either greater rate or something But we're going to find

And that's why we talk about in the book how to shop local A lot of– I spoke to an investor today that said she had done this exact same strategy She got a HELOC She's paying off the principal balance I love that

She's also buying rental properties with her HELOC And I said, did you buy a local HELOC? Did you use a local bank? She said actually we worked with a large national bank with a local branch, but they were great I said, oh, good for you Typically, a local– A lot of times it just comes down to personal contact Although, if you've never done this before and you have good credit, you can search around on Bankrate

com and see what comes up It doesn't hurt to do that, for sure So the bottom line on how this all comes together– and again we go over the mechanics in the book– but how to pay off your HELOC And that's the question I'm sure many of you are asking, how do we pay off the HELOC? And I've already mentioned a little bit, which is that you're setting up your HELOC like it is– it is a bank account They give you a debit card, typically

They'll give you checks, typically, or you have to request those And you want to, then, if you get a direct deposit from your employer every week– you probably get a direct deposit from your boss Or maybe from your rental investments Yeah Yeah, exactly

Or you get rental income from your rental investments Structure it so that those deposits go into the HELOC account Now you're saying, how is that possible? Well, you have a routing number You have an account number And typically, a lot of times the banks might not even know that you can do this

Ours didn't Ours didn't So what happened was I structured my direct deposit with my employer so that the direct deposit was going into the HELOC account Well guess what? It worked And the bank actually called me and said, we just got a deposit into your home equity line of credit

Did you want that there? And I said, yes, I did And they said, OK, great So every time I get paid, it goes into the HELOC Why is that important? Because you want to treat the HELOC like a checking account But one thing we had to learn the hard way is that we started that before we had actually taken any money out of the HELOC

So the HELOC was worth– At zero It was at $0 Right But it was worth– I want to say that one was– $70,000 Something, $80,000? I thought that was more Yeah, OK, $80,000

And then we tried to put money in it, and they were like, you don't owe us anything You can't increase the value of it So then all of a sudden, it's like– We couldn't go to $82,000 $82,000 or whatever They said, you have to spend this money in order to pay it back

So then I had to quickly make a payment on the house in order to have some debt to put that paycheck in So you can't let it hit zero and then keep trying to get your money there that your company will just get your paycheck bounced back and that's bad news So why this works is let's say you make $2,000 every two weeks, biweekly So every two weeks, you make $2,000 from your job We're just hypothetically here

The reason that this works is because instead of– at the end of your paycheck– at the end of your two weeks, typically you're probably going to have a few hundred bucks still left in your account Maybe not Hopefully Hopefully Maybe not

Maybe you're at zero You've paid all your bills and you're at $0 And you're like, oh, thank god I'm getting paid again Typically, most people have $30, $50, $100, $200 lingering in their account, I would think, for most people Now, instead of that just sitting in a random checking account, that extra $100, $200 that's sitting in that account is now sitting in your HELOC account

And what is special about that is that you're not using it So what is it doing? It's paying back your HELOC, which you just used to pay your primary mortgage It's like filling that cup right back up Right So by making these small micro payments from your employer, or any deposit strategy that you have every month or every few weeks, the interest never really gets a chance to accrue because it's like a credit card

And when you make small payments towards a credit card multiple times a month, that interest resets itself It's totally different than your amortization schedule of your primary mortgage And that's the beauty of this strategy So that is it in a nutshell I mean, it doesn't get any crazier than that

But we go over again some of these mechanics and how to take in some of these variables in the book, and explain how to put it all together as one And we also have some great spreadsheets that Natali's built so you can track all of this, and some tools and tips, and they're all free in the book So check it out Yeah So is this for any weekend warrior who just secures a mortgage? Yes

No Well, no, clearly not This is for people who are– Well, what do you mean by weekend warrior? If they're committed to paying off their mortgage– if they're– Right, these are people who are going to be organized, be disciplined I mean, if you have read through this book, you are those things But you're just being like– if you're thinking, I don't have the organizational skills, is that what you're saying? If someone– because it's a little complicated to grasp

And if you don't have the discipline, then, to, say, budget so that you have a little bit extra in your monthly paycheck in order to pay back your home equity line of credit It takes discipline So are you saying that weekend warriors aren't disciplined? I guess I used the phrase wrong It's not just for– how would you put it? It's not just for anyone who– I would say it's not for the disorganized person It's not for the person– It's not for the disorganized or the undisciplined

It's for the organized and the disciplined Let's be honest We have people in our lives who are like, Natali, I'm not doing that Come on Natali, I'm not doing that

Or Clayton, come on, you guys are crazy You guys are– fine Fine Our house will be paid off while you're calling us crazy Right

OK I'm not competing with strangers But I guess what I'm trying to say is– I'm saying these people are in our lives We know these people I'm not going to name names

All right Right? What I'm trying to say is this is a strategy that takes some organization, some planning, some execution, and some discipline And I mean, I believe that if you're the kind of person to download this podcast, you've already self-selected into that category But again, I wouldn't just tell anyone, everyone can do this But one of the things that, when I heard someone once describing the strategy, they used this quote from Einstein– it's Einstein, right– is that interest, those who understand it make it, and those who don't pay it

That's an eloquent way of summarizing I'm paraphrasing from Einstein Einstein was a weekend warrior I don't think so So, so disorganized, that guy

Yeah Can you say that again? Just hit that point home, because I feel like I stumbled all over it No Exactly I mean, interest– those who understand interest– Make it

–make it Those who don't end up paying it And they pay it their whole lives And that's why the rich get richer, because they're the ones who are loaning money out Lenders are always the one who are the master

And those who are paying interest, those who are paying mortgages, those who are borrowing money are always going to be the slave That's just the way it is in the financial world and the financial matrix Right So this is for you to– yes, the bank took a risk They lent you some money that they may not give back– or that they may not get back– so that you get to live in this mountain house

We appreciate that, but we don't need to pay it forever We can get the money back to the bank so that we can stop paying them for that money That's it We agreed to borrow from you $200,000 so we can live in this house And the quicker we pay you back that $200,000, the less time we have to pay you for that loan

That's just all there is to it So please go check out the book We hope you will leave us a kind review We worked hard on it It's a short read

It's a fast read We hopefully didn't put any fluff in there We wanted to get right to the heart of the matter So just go to Amazon and look for it We've got a paperback version also, in case you don't have a Kindle or an iPad to read it on

So the paperback version is also now available, as well But the– We only accept five-star reviews Yeah, please Just like on iTunes Yeah, please

Just a five-star review Anything less than that and we will slap you silly No, we've got a lot of very kind reviews on there so far So please, if you'd be so kind as to leave us a kind review, we would really appreciate it I have a mosquito in my eye

So there's mosquitoes landing on my wife The fire must be out And that's going to be a wrap for today's show So thanks so much for checking us out If you want to visit our website site also, head on over to morrisinvest

com and check out all of the great resources we have over there, as well Links to the book and everything will be there, as well So check it out The book is called How to Pay Off Your Mortgage in 5 Years using the secret weapon that banks don't want you to know about to slash your mortgage So check it out, everyone

We'll see you next time on The Investing in Real Estate show Now go out there, take action, become a real estate investor, and pay off your mortgage fast Much love to you all Bye bye

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