Tuesday, January 15, 2008

How to Payoff Your Mortgage in 1/3rd the Time AND Save Thousands of Dollars in Interest


We were taught to pay our mortgage payment entirely the wrong way. Using mortgage acceleration strategies, you can save thousands of dollars in interest and payoff your mortgage in 1/3rd the time using the money you already make and not changing your lifestyle.


Difficulty: Easy

Things You'll Need

  • Positive Cash Flow
  • Desire to take charge of your mortgage



Step One

In our example, we have a $200,000 mortgage and we make $5,000 per month**

Find your positive cash flow. This is the most important step. Take all your monthly bills including your mortgage, credit cards, utilities, memberships, gas, shopping money, grocery money, etc. etc. and add them all together. Take your monthly paycheck and subtract the total monthly expenses from it. Whatever you have left over is your amount of Monthly Positive Cash Flow. The more positive cash flow you have, the more interest you will save, and the faster you will payoff your mortgage.

Step Two

Deposit your paycheck into your mortgage. Yes, you read it correctly. Lets say you get paid your paycheck of $5,000 on January 1. Take that entire $5,000 and deposit it into your mortgage. If you didn't already know, interest accrues daily on your mortgage in the United States. Deposit the entire $5,000 into your mortgage and your new balance (in our example) will be $195,000. For the entire month, interest will accrue based on a $195,000 balance instead of $200,000. You are already saving money! Wait, how do we pay our bills?

Step Three

Get a good credit card. Credit cards can be the death of you BUT, if used correctly, they can be a cornerstone of this whole system. The one thing credit cards do well is they will give you "free" money for up to 45 days. If you have a $100 balance and you pay it off every month, you wont accrue any interest. We are going to pay AS MANY OF OUR BILLS as possible on our credit card. Utilities, gas, shopping, tickets to the movies...everything. Let's say we have accrued $2,000 in "bills" on our credit card throughout the month of January. Now what?

Step Four

Get a Home Equity Line of Credit. The other cornerstone behind the system is the Home Equity Line of Credit, aka a HELOC. The HELOC is a useful type of mortgage that you can get that acts like a credit card using your home as collateral. Always always get a HELOC with a ZERO balance. You will use the HELOC to payoff the credit card balance of $2,000 in FULL every month and you will also use the HELOC to pay your mortgage payment (let's say your mortgage payment is $1,000).

Step Five

Recap time. You put your entire $5,000 paycheck into your mortgage of $200,000. Your new mortgage balance is now $195,000. You put all your $2,000 of monthly "spendings" on a credit card. You have a $1,000 mortgage payment for a total of $3,000/month in payments. You use your HELOC to pay the credit card bill and the mortgage payment. Your new TOTAL mortgage balances are: 1st Lien of $195,000 2nd Lien HELOC of $3,000 Total = $198,000

Step Six

Payoff the balance of the HELOC. In February, you get your paycheck again, but this time, put it entirely into your HELOC while keeping the balance of your 1st mortgage at $195,000 which is already saving you interest. With our balance of $3,000 and our positive cash flow of $2,000, the HELOC will be paid back to $0 in, technically, a month and half. Then you can continue the process of putting your paycheck into your mortgage.


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