How to Pay Off Your Mortgage In 5-7 Years


hello my name is Sam Kwak on one of the
Kwak brothers real estate investor entrepreneur and the author of the book
fire your boss and in this video I’m gonna show you guys how to pay off your
30 year mortgage in less than five to seven years without making more money
or cutting back on your expenses now you may want to stick around to the end of
this video because I’m gonna offer a free gift only for those who make it all
the way to the end you guys will get that free gift at the end of the video
this video I’m gonna explain to you a couple things the first thing I’ll
explain to you is why your mortgage your 30 year mortgage absolutely sucks
why the other strategies you know paying extra into the mortgage isn’t
necessarily the best strategy to go about it I’m gonna introduce you to a
strategy called the debt acceleration strategy so the goal of the strategy I’m
gonna write down right here on the board debt-free acceleration strategy this
strategy has many names it’s got names of mortgage acceleration, velocity
banking, debt acceleration, pill method there’s so many different names a lot of
people use velocity banking I like to use a debt free acceleration because we
want to accelerate you towards becoming debt free so the goal of this is to save
you up to 67 percent of interest that you owe to the bank and saving you up to
67 percent of the time that you may spend on paying off your 30-year
mortgage which by the way this actually works on your student loans your car
loan credit cards or any other debt that’s amortized not just mortgage it
works on pretty much any other debt so that’s the goal that we’re gonna mean
accomplish for this video we’re gonna take your mortgage through your mortgage
and pay it off in third the time and 30 interest and that is the goal now one of
the things that we have to talk about is why do we need to use the strategy what
like what makes mortgage terrible right like what’s what’s wrong with your
current mortgage that we want to switch to a whole different strategy or get
introduced to a different strategy so first thing is that with your mortgage I
know your mortgage rate interest rate may sound innocent at a 3% 4% 5% but
let’s say you have a mortgage of balance of $250,000 that’s our principle balance
okay and let’s say you have a interest rate of 5% at
30-year amortization okay I’m gonna abbreviate that do you do
you actually understand how much you’re gonna end up paying in terms of interest
like a lot of people look at that 5% like oh it’s just 5% innocent it’s not
gonna cause me any harm but if you fully advertise this out on a 30-year
amortization you’re gonna actually end up paying close to nearly almost double
the amount so this is just gonna be your interest and that’s your principal so in
total you may end up and you can do this calculation on an amortization
calculator this there’s no trick there’s no gimmick but if you get a Twitter
$50,000 loan on your on a mortgage 5% interest 30-year average amortized
you’re gonna quote you’re gonna pay close to $250,000 in interest alone
which gives you which leaves you about total of $500,000 that you’re gonna pay
to the banks so you essentially bought a bank another house on top of paying for
yours right which is terrible so that 5% interest guys it’s it’s being compounded
right it’s not just 5% of that $250,000 it’s gonna be a compounded interest and
you’re gonna end up paying close to twenty fifty thousand dollars of
interest now another reason why I don’t like the mortgage especially the 30-year
mortgage is is this gonna draw a chart for you this is called the amortization
schedule chart and in this chart this right here represents the time so this
is time okay and our goal obviously is to get to the 30-year mark and I know a
lot of you guys are saying well that’s 30 years of a long time I don’t have 30
years I’m gonna be bet I’m gonna be dead by by the time that I pay off my
mortgage well our goal again is again so pay off our mortgage within five to
seven years of that you can accelerate towards retirement maybe you want to you
want to take that extra cash flow and invest in real estate I don’t know what
your goal is but our goal in general is to pay off your 30-year mortgage this
represents the amount your monthly mortgage payment okay I’m actually raise
the dollar sign so this is your represents your mortgage payment every
month okay let’s say your mortgage payment is
around $1,500 a month okay I’m just gonna throw a NAR but Raja
number I know I arbitrary number not a higher charge arbitrary number I know
some of you guys have more in terms of your monthly payment some of you guys
may have less I’m just gonna throw a number out there for the sake of
illustration so this line right here actually looks different I know I think
this nice and clean and organized for you guys
so $1,500 a month roughly this line and this line okay
this downward curve you guys are seeing here that represents the amount of
interest that you’re gonna pay in the span of 30 years the the curve line that
goes upward represents the principle payment now you notice here that this
portion right here out of your entire mortgage payment approximately let’s say
$1,200 a month in the beginning of your mortgage lifecycle vast majority of your
monthly payment is going towards your interest first so essentially you’re
paying the bank’s their fee to borrow the money upfront they’re getting paid
first and then towards the end of your mortgage towards the 30-year mark this
is where we get to go and start paying off your your actual principal balance
which is what we want right the faster we pay off our principal the faster we
can get to building our equity and wealth and becoming debt free now the
problem with this is that it’s okay that you know if you have patience right if
you can wait 30 years you can ride this out completely fine but in a real life
scenario there’s two things that happen during the 30-year mortgage that pretty
much sort of puts you in a perpetual debt the first thing is what happens
this part right here let’s say okay this is your kind of halfway mark so let’s
say this is your 10-year mark I know it’s not quite half but that’s just my
drawing is terrible so let’s say this is your 10-year mark and you’re starting to
gain more principal right as you as you go towards the 30-year mark you’re
getting more principal and you’re paying less interest now there’s two things
that happen the first thing that happens is is actually a bit more common you get
to this point your banker may call you right
ringing ring hey mr. and mrs. Baker congratulations you made it to 10-year
mark you’re doing really great not a single late payment you’re you’re doing
phenomenal you’re a great power and for that reason we want to give you a
refinance rate instead of a 5% interest rate come on down to our bank in our
office and we’ll give you a file we’ll give you a four point seven five
interest and we’ll give you a discount of point two five percent interest come
on down in so you can save money on interest or they may commute convince
you to say hey let’s go and bring down that $1,500 a month payment let’s
refinance and bring you down to maybe thirteen fifty a month saving you an
extra $150 now here’s the truth guys and there’s a reason why they they the
bank’s want you to refinance the bank’s never ever want you to make it to this
part here because you why now they’re making less interest in they’re not
making enough money from you so if they wanted what they want you to do is get
to this part right here when you start to make more money on the principal when
you start to accumulate more principal they want you to come refinance in the
name of saving an extra $150 a month or more or less or they may convince you
say hey mr. mrs. Barr let’s go and bring your rate down to four point seven five
now the problem is if you do refinance you start all over back to square one to
ear zero you have that 30-year time clock that resets and you’re gonna have
to pay all this interest back again to do none of them banks okay so the bank’s
want you to stay in this zone right here because they can continue to recycle you
back and forth back and forth making more money out of you having a large
balance and they’re taking interest from you well it’s just what banks do right
they need to be see they need to stay profitable now you might say well Sam
I’m disciplined enough to not do those refinance I know the refinance will
reset me well another thing that happens quite often at least here in the United
States I know some of you guys were watching from Canada Australia England
but what happens here in the United States is that there’s a new to
statistics that Americans have new job every three to five years or they may
get fired from their job or whatever so there might be a situation where
you get a new job you may need to get a new job and you need to move and sell
your house now what happens if you sell your house and you buy a new one with a
new mortgage do you get to continue progress from here right so you’ve built
up all this equity and you paid off you’ve done paint you to paint off most
of the interest do you get to continue paying off the the remaining no right so
when you go and get a new mortgage you have to again same thing you start from
the square zero from zero ears and you get to 30 years and it resets your clock
so you’re sort of stuck aren’t you right you either have to refinance to get a
lower rate or to save that extra money on that monthly payment or if you have
to move for a new job career change maybe your kids retire then you may have
to downsize whatever that may be you don’t get to continue your progress you
don’t get to continue building that principal or equity you have to start
all over so the the the 30-year mortgage the odds are stacked against you guys
and this is one of the biggest reasons why I’m not a big fan of the mortgage a
because if you let’s say you do have a 5% interest rate or even 4% interest
rate you’re gonna end up paying close to double the amount of your your original
principal amount and you have this disadvantage of having to refinance
either because you have to move or you get persuaded by your banker telling you
that you’re gonna save money okay not again not a good way to pay off and I
know most of you guys don’t want to wait 30 years to pay off your your loan and I
can’t either but luckily there’s a better there’s a better strategy and
there’s a whole new opportunity where you guys can take advantage of the
strategy called a debt free acceleration and you guys are gonna be able to pay
off your mortgage within one third of time and one through the interest
without having to make more money so I’m gonna introduce you to a new instrument
that we’re gonna use a new opportunity instead of using a mortgage we’re gonna
use something called a home equity line of credit okay home equity lines of
credit now hold my client credit it’s often abbreviated and it’s called HELOC
okay it’s not Halleck okay it’s HELOC we’re gonna use a home equity line of
credit to pay off your mortgage now I know there’s a lot of objections that I
get you might be watching this video saying well why in the world would we
ever want to take a higher interest rate variable rate home equity line of credit
and pay off our lower rate mortgage I’m gonna get to that in just a sec okay but
I want to give you a distinction between a mortgage versus your home equity line
of credit the first thing that we want to highlight with the mortgage it’s
closed and then and what that basically means is that once you make your monthly
payment to your bank you can’t get that money back unless you again refinance
which we don’t want we’re not we don’t condone any refinancing here but on a
home equity line of credit it’s open-ended okay I just like the I just
like the word open right it just makes you feel a little more ease open enemies
that you can pay into the home equity line of credit and then reuse the
principal portion of the home equity line of credit and then pay back reuse
and pay back so almost like a credit card in fact your credit card is a type
of a line of credit so the first thing that we need to remember is that
mortgage is closed-ended and home equity line of credit is open-ended cool with
the mortgage it could be fixed rate or it could be variable right this is why
we have the stuff called armed with a home equity line of credit contrary to
the myth and the the common belief home equity home equity line of credit can
also be fixed and variable as well more often what’s more common as the variable
but there are banks that offer fixed-rate key locks I’m not gonna talk
about that today cuz we can go on a whole different rabbit hole but just
remember these two things when you compare a home equity line of credit in
a mortgage there’s a lot of different differences that I can list out today
but again we don’t have a lot of time to go into the details I’ll give you more
of the overview of this strategy again at the end of this video I’m going to
give you a special gift that’s gonna help you understand a strategy even more
to give you a visual illustration let’s say this is your checking account okay
and you got your HELOC here with the key lock you could you can go ahead and pay
cash into the home echo Minecraft’s do a principal payment against the whole my
home equity line of credit and you can get that money back out to use for other
purposes with a mortgage because it’s closed
ended you can only pay the mortgage and not get the money back out unless
you go through the refinance process which we now know that we don’t want to
refinance because we don’t want to reset our clock and pay all that interest all
over again so keep that in mind guys and what I’m gonna do is gonna put a star in
this thing called the open and a feature the ability B to be able to pay back and
reuse the HELOC that’s probably gonna the B be the most important part of this
or the feature of this strategy the next thing that’s really important to
highlight with the HELOC is that it uses the concept of average daily interest
some people call it simple interest but the average daily interest is another
big big reason why this strategy works the way it does so I don’t like math I
know some of you guys don’t either but this is the only time you’re gonna see
math I promise so the way that the interest is calculated a home equity
line of credit is it uses average daily balance okay and average daily balance
is the balance of whatever debt you have for that specific day so let’s say we
have a hundred thousand dollars in our home equity line of credit today we’re
gonna have a set interest for today’s balance and tomorrow let’s say we have a
completely different balance on our home equity line of credit it’s gonna be
tomorrow we’ll have we’ll have a different amount of interest depending
on whether the average daily balance went up or the average billion daily
balance went down okay in fact if I’m if I’m describing a
specific day I’m just gonna use daily balance average daily balance describes
what the daily balance was as a whole and in a month so we’re gonna go ahead
and actually erase this and just simply call it daily balance and how the
interest is calculated is it takes two daily balance divided by 365 days
because that’s how many days we have a year
okay times the interest rate of your line of credit equals average daily
interest okay so that’s the interest that we get charged on that specific day
so if today we have hundred dollars in that in the line of credit divided by
three and sixty five times that say 5% interest whatever that number might be
is going to be the interest that we get charged today tomorrow we may have 100
five dollars okay obviously the interest is gonna go up a little bit because our
daily balance went up so two things to remember about the key lock and before
we get to the I’m gonna show you a sort of a real-life concept as to how the
strategy’s gonna work and why the strategy works the first thing to
remember is that the key lock is open-ended okay number two is the key
lock the interest rate is calculated based on average daily balance if you
understand those two things you’re well on your way to understanding why this
strategy works and how you can apply the strategy to pay off your mortgage within
five to seven years so okay I’m gonna ask you has a question I think this is
gonna sort of prepare prepare your mindset for how the strategy works so
what if you can go ahead and supposedly okay pay off take all of your income and
your savings and your whatever money you have in your checking account throw
every single dollar of it into the line of credit a home equity line of credit
bringing down the average daily balance flow so that you’re subject to lower
interest while still giving you the access to that same money the income and
the savings for future use some of you guys are like wait hold on so you mean
to tell me that I can go and take all my income and savings lower down the
average daily balance in my home Atlantic credit but I can still access
that money in the future yeah so let me give you a version of the strategy I’m
actually going to show you two separate versions the first version involves in
having an income source okay and traditionally what you guys been doing
is you’ve been taking all your income and putting in a checking account or
you’ve been putting on a savings account okay and savings account today don’t
really earn you much money right it’s like two percent three percent a bet at
best so a lot of you guys have a mortgage and let’s say you have a
mortgage of $200,000 a balance okay I know some of you guys have more some you
guys have less stick with me here this is just an illustration so what this
strategy involves as a more of a 30,000 feet overview is you’re gonna get a
HELOC okay as a second position let’s say we have a limit of 25 thousand
dollar limit remember home equity line of credit works similar to your credit
card you don’t get that $25,000 up front you get a limit so you can use up to
$25,000 pay it off use it again and pay it off so what we’re gonna do from here
is that once we have your V lock your mortgage of $200,000 let’s say you got
your checking account your income coming in one of the big things we’re gonna do
the first move that we’re gonna make gonna use red for this one is take your
$25,000 let’s say we’re just gonna use $20,000 of out of the $25,000 and we’re
gonna do a principal payment against that mortgage now the thing here is that
we didn’t incur more debt guys we just transfer one set of debt a portion of
one debt over to another so obviously it’s no longer $200,000 we’re down
$275,000 in terms of your mortgage balance principal balance I’m sorry it
should be 180 because we’re only used 20,000 a bit right and we have $20,000
of balance incurred in the HELOC so $180,000 plus 20,000 dollars still
$200,000 we didn’t have we don’t have more debt it’s we’re still at the same
same amount of debt now what you’re doing here is that when you do your
$20,000 principal balance payment on the mortgage
you brought the amount of the principal balance down for mortgage which now
consequently you’re gonna pay less interest on your mortgage by doing this
this should also save you multiple months depends on what the interest rate
you have on the mortgage it should save you anywhere between gosh anywhere it
could be it could be anywhere in two to three years that you save just by doing
that $20,000 chunk does that make sense so now we have $20,000 debt here don’t
we so what we’re doing here is that we take
our income we go instead of from checking account where you go straight
into the HELOC all of your money let’s say you make about five thousand dollars
a month take all of your money put in your home equity line of credit and
treat your home equity line of credit as if it’s your new savings / checking
account let’s say you have some extra money sitting here and say
same thing put it in your HELOC remember we can reuse that money we can go and
pull money out of the home equity line of credit pretty much whatever you want
so the next objection I get from people is well Sam if we take all of our income
and put in the home equity line of credit how in the world who can I pay
for our bills how are we gonna pay for diapers groceries gas go buy movie
tickets how are you how are we gonna spend the money right if we throw all
the money in there we can’t get it back we’ll remember guys we can get the money
back from the heel off so what we’re gonna do is we’re gonna take money out
of the heel op for gas groceries right those diapers you name it all at the
same time you still do need to make your monthly mortgage payment because
obviously if you don’t you’re gonna get into a foreclosure and I don’t want you
to do that so make sure you continue to make monthly payments to your mortgage
to make sure you stay current on that so what this does is two things number one
it brings down your average daily balance by the amount of your income and
number two still gives you the access to that $5,000 of income for your expenses
so while the balance is down let’s say we take that $5,000 put it against that
$20,000 balance we’re gonna be down to $15,000 balance and remember how we
talked about the average daily balance the lower the balance we have okay we’re
gonna be subject to a lower interest amount for that specific day now you’re
gonna have expenses but chances are you don’t have all of your expenses incurred
all at the same time that right Nick the next day so next day chances are once
you make that $5,000 deposit into your home equity line of credit chances are
it’s gonna stay relatively at the same same amount of balance right unless you
go spend hard dollars or 200 dollars at groceries so let’s say you do go and
spend I’m gonna put it put this in a chart format so it’s a little bit more
easier to see mathematically so let me give you a week of example a seven day
example so we got day one here of $20,000 balance and we we bring it down
by $5,000 we have an income you should let me just label this there
you go income of $5,000 okay you guys see that so it brings down
the balance daily balance I’m gonna just use the
word write the letter B in there and it’s gonna represent balance our balance
is gonna be $15,000 okay the next day let’s say we spent hundred dollars for
groceries okay or a gas or whatever you got you
guys might be using so our new daily balance is gonna be fifteen thousand
eight hundred okay that’s day two day three I’m gonna actually it might not
not even have room for all seven days so I’m just gonna use three days but I
think you guys will get it Dave three we’re gonna spend five hundred bucks on
a car payment or whatever that should bring our balance up again to fifteen
thousand six hundred now if I do the math on the the interest side of things
let’s say our interest is 5 percent or let’s make it little bit more realistic
6 percent interest on this line of credit I’m gonna actually grab my
accommodator you show you guys the actual numbers and on the interest okay
so brought my calculator out so we got fifteen thousand dollars as our daily
balance times or I should divide this by 365 okay times point zero six which is
our interest rate okay our our interest we’re gonna pay is two dollars and 46
cents okay let me actually use red to highlight the interest two dollars and
46 cents the next day we incurred a balance increase of hundred dollars so
I’m gonna take fifteen thousand one hundred divided by 365 days times point
zero six right our interest went up to two dollars and forty eight cents so you
guys get the idea right every day the interest is is changing but what if we
kept the balance at $20,000 day two day three day four day five days six
right we would continue to pay that $2 I’m sorry I should be higher than two
dollars and 46 cents you would actually be paying $20,000 divided by 365 time
0.06 you would actually be paying three dollars and 28 cents as long as you care
that balance of $20,000 but you can see why bringing that balance down to
$15,000 using all of your income your savings we save that I mean I’m gonna
guess men say a doll about dollar and couple cents right actually it’s less
than that lessen dollar so it’s it’s saving I know less than dollars in sound
a lot but if it adds up in multiple days and it compounds you’re gonna end up
saving a lot of interest version two of this strategy now that you guys kind of
get the idea of why the average daily balance is so important version two
involves in taking your entire mortgage let’s say of two hundred thousand dollar
balance using the same example okay and instead of getting another HELOC what
we’re we’re gonna do is this is called the first position key lock strategy we
replace the entire mortgage with a HELOC so you’re replacing your mortgage with
the HELOC and you’re essentially the same thing from there you take all of
your income your savings throw into the Tiki lock lowered the average daily
balance down all the while you can spend that money out of your key lock for
expenses and so on cool all right so the strategy that’s pretty much a
just a strategy I mean we can go into the details of what to do with credit
cards what to do with if you have different multiple different mortgages
we can go into all of that which you don’t have all the time the world but
what I’m gonna leave you with is the free gift what I’m gonna give you is a
an excel sheet calculator where it’s gonna show you guys where you can punch
in your own number so you can put in your original balance your current
balance your interest rate on your mortgage you can put in your line of
credit information as well as your income your expenses and it’s gonna spit
out the result of how soon you can pay off your mortgage how much money you’re
gonna save using our strategy as well as a target deadline for the payoff period
so you can go and get this I’m also gonna through I’m sorry to
check the the free excel sheet I’m also gonna even throw a free ebook in there
for a further explanation and how this strategy works so that’s chopped my
mortgage.com so if you go to chop my boys calm all i
have to do is fill out your information and it will give you a free excel
calculator to go and punch in your numbers figure out why this strategy
works how the strategy works and we’re also gonna give you an e-book i’m also
after you get the free ebook and the calculator you guys are gonna be asked
to participate on an hour and a half training session where i’m gonna go
deeper into the strategy i know we spent the last couple few minutes going over
the 30,000 feet overview well for the hour and 30 minute video I’m gonna
actually go into details I’m gonna actually use the calculator or show you
the math show you the the excel sheet and and really show you why this
strategy works what does it look like on a daily daily timeline what does it look
like on a monthly timeline how much are we actually saving we’re gonna go into
the more details on how to how to work this strategy in your current situation
whether we just have a mortgage student loan etc so go to chop my mortgage.com
guys go and download the free ebook as well as the Excel calculator one thing
that I do want to note is that the Excel calculator only works on desktop laptop
and tablets not just not yet on a mobile phone we are working on that feature so
the calculator is absolutely free you’re not gonna pay anything trust me there’s
no gimmick in that just go to chop my movies calm get our free ebook attend
our free train hour-and-a-half training we’re gonna go into deeper level as far
as why this strategy works how the strategy works and again this is for
debt acceleration strategy also known as HELOC strategy velocity banking mortgage
acceleration there’s different names to it alright guys that’s pretty much it
i’ll see in the next video the hour-and-a-half presentation as well as
having you download the calculator I’ll see you guys in the next step

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