hi my name is Laura pitk thank you so much for tuning in to my Channel today I want to talk about how to pay off a home mortgage that is a 30-year Home Mortgage in just 5 to 7 years I'm going to be going over the strategy and a lot of people ask me can I apply this towards a car loan or student loans and yes you can but I'm going to insert a disclaimer that before you jump in and um start do start using the strategy I want to make sure that you understand it
understand it fully first or consult with a financial advisor um before you implement anything so now without further Ado let's jump over to the Whiteboard and get started all right I drew a little stick figure on the board and this stick figure is going to represent an employee and the average um person in the United States makes $56,000 per year for easier math I'm going to round that up to $60,000 per year which will come out to $5,000 per month in net household income so this employee all that they know of how to do is
go to their employer and trade their time for money now I want you to take a minute and think about the process of what is the first first thing that most people do as soon as they get [Music] paid all right so the first thing that most people do is as soon as they get paid they go to the bank and they deposit their money into either a checking or a savings account the savings account simply represents an emergency fund in case of unforeseen events happening and you need to spend some extra money on something
now we're going to take a look at some average uh monthly expenses and since I am covering how to pay off a home mortgage the first expense that we're going to take a look at is a home [Music] loan the average price of a home in the United States is $200,000 so that's the example that I'm going to use now we're going to have a 30-year fixed mortgage with payments that going to come out to $8,200 add a 6% interest the next most common expense is minimum payment on credit cards so I'm going to take
a look at a line of [Music] credit and the limit on this line of credit which we can say is just a Visa credit card will be $115,000 kind of everything looks very squished so I'm going to move it over 15,000 the present balance already is going to be $122,000 and the minimum payment if the balance is 12,000 is going to come out to somewhere around $600 per month at a 21% APR okay so looks good um so right off right from the start we already have our two monthly expenses this is per month I
just want to include that in here so that it's clear all right so I'm going to take that out of the checkings because that would be the process so our first two expenses Home Mortgage hm next is $600 for credit card CC next most common expense are car payments because most people have a car and um I'm just going to say it's somewhere around $600 for car and everybody's got living expenses so living expenses for a family can add up to somewhere 1,200 and that includes everything from groceries to utility bills to paying for the
phone for the internet services and and then whatever is left over will go into a savings account which in our case is going to be [Music] $8,400 and this will include both long-term and short-term savings okay so at the beginning of the month we had $5,000 coming in so that was our input and by the end of the month we if we add up all the EXP expenses and what went into the savings we have minus $5,000 so that is our output so at the end of the month if we subtract our output from our
input we have a zero cash flow and this is the model that 95% of the population live by it doesn't matter how much input how much someone is making per month because somebody might be making $100,000 per month but if their output and their monthly expenses add up to $100,000 by the end of the month they are still broke because their cash flow is zero so now how how do you start to operate like the other 5% of the population um do with their finances so the first thing is understanding the difference between a loan
and a line of credit and we're going to take a look at specifically the interest rates because if I was the bank and you had to borrow money from me would you rather pay me a 6% interest or 21% interest of course most people would say % because it's uh first of all it's a smaller number than 21 which actually in everyone's mind automatically means that you're going to be paying back less um money in interest so but to understand the difference between these two I'm going to use a little different example if I was
to ask you What temperature would it have to be in order for rain to freeze you'd say either 32° fah or 0° CS but then what if all of the sudden it went up to 1° C now which one is hotter of course you would say that 1% I mean the 1° cus is hotter but isn't 32 a bigger number than one of course it is but we're looking at a different unit of measure so in our case even though 32 is bigger and it looks like it is bigger one is hotter because of it
being a different unit of measure it is the same exact idea when it comes to First understanding the difference between a loan and a line of credit even though this is a bigger number and it seems like you're going to be paying back more in in interest first we have to understand what affects the interest rates so that we see how both both of these work so now on a line of credit the interest first of all is simple what that means is that the bank doesn't know how long it will take for a person
to pay back this balance and therefore the interest is calculated daily and charged monthly it is also revolving what that means is that is to two dimensional so I'll just draw it over here two-dimensional it means that as soon as that $600 minimum payment is paid you can use your allot and credit you can use your Visa credit card to go to the movies to buy some grocery IES to to do any shopping that you need to do or to spend that money again that means as soon as you pay you can go back and
use it again and it's revolving however on a home loan or just on a loan in general as soon as you pay your monthly payment of $1,200 it is onedimensional so it means that when you pay that monthly pay payment it just goes straight to the bank and you cannot use that money again to do any shopping to go to the movies that's it another main differentiator is that it is advertised what that means is that the bank knows that you have 30 years to pay back the the loan and therefore they calculate the interest
for the Whole 30 years and they they bill it so when you're making your monthly payments a p the main portion actually the biggest part of your payment is going towards paying down interest and just a very small part of it is paying down the principal to better see how the banks calculate this and what that looks like I'm going to draw an amortization schedule all right so I got the amortization schedule right on the board and as you see we have the monthly payments on this side and we have the time the timeline down
here which is basically how long you have 30 years to pay off the loan um so since our monthly payments are ,200 $950 of that ,200 is going towards paying down the interest 250 is going towards paying down the principal which is $200,000 so this is what the chart looks like as you're making your monthly payments every single month interest goes down and gradually you're paying more and more to pay off the principal right where they intersect is actually 17 years into the loan that repres present a point by when the interest begins to decrease
enough where your monthly payments are paying off the principle more and more so you see it's only starting to take your payments are really just starting to take effect 17 years into the loan where it's actually starting to add up to pay off this principal um sooner but nowadays A lot of people throughout their whole entire life are unable to pay pay off their mortgage for their home and the re the main reason for that is what happens at the 4-year Mark let's take a look 4 years equals 48 months since our payments are $1,200
every single month I'm going to multiply that by $48 and that gives us a total of 57,600 dollar and that is going to represent total pay down now 950 was going towards interest that equals 46,000 $500 I believe believe let me check that really fast 45,600 went towards interest so interest pay down total pay down on loan don't want to get that confusing um $250 equals 12,000 and that is principal pay down all right so I really want you to take a look at this and see that in four years of making consistent payments of
$1,200 on your home loan for that for 4 years which equals 48 months you've paid a total of $57,600 okay in our example 950 of this would go towards the interest so right off the bat out of the $57,600 $45,600 went to the interest and only 12,000 of your of of these payments not yours I don't know what your numbers are but of that of those payments went towards paying down uh the principle of the home loan so that only knocked off $122,000 so now what is the mean reason that most people never end up
paying off their home mortgage is that at the four years Mark the bank will call up a homeowner and say are you interested in a great and lower um rate and all you have to do is just refinance your home mortgage and most people will say okay sounds great let's do it without maybe even realizing what that what that really does because what that does is that it resets the clock and it actually puts a person back at the beginning of this whole schedule so you see as time progresses you gradually begin to pay less
than interest but now even though you have a better maybe interest um it doesn't really matter because as as as you're paying those payments now you're still back at the beginning where most of it is going towards paying down the interest and people get stuck in this cycle and if they keep refinancing every four years that is the reason why they're not not paying off their home there's a great little app it's called Carl's mortgage calculator I believe leave a link for it in the description of the video and if you're interested in checking it
out it's free as of right now um but what it does and why I like it and why I'm suggesting it is if you actually want to plug in your own numbers for your home loan and you can see basically what I explained over here um just with charts and a graph um but it basically will show you the numbers for your home mortgage so you can actually see how the payments and the interest are tipping at the 17year Mark and how everything adds up that I'm explaining right now all right so I just wanted
to show you the app Carl's mortgage calculator this is what it looks like um and if you download it you can input all the values say what is your property value what is the principle that you have on your mortgage mortgage what is the interest for how many years and then it's going to calculate the payment then you will have all the buttons right at the top here and then if you just click on summary right over here um it's going to give you all the values so I just took the numbers from our example
and as you see at the very bottom the total interest paid is $231,600 38 so as you see the 6% is not really 6% because if you calculate everything you technically bought your yourself a house and then you bought a house for the bank also if you click in this app on table you can see how all the payments are adding up until you pay off your home loan in 30 years so I think it's a really cool app to check out for your home now I just want to say that does this look like
6% and people don't realize this a lot of the time because everybody when they're taking out a home mortgage is just focused on their monthly payment but as soon as you begin to see what is the total payments versus interest paid um and you start to calculate that over time it doesn't look like 6% and the bank doesn't doesn't lie about it it is all told and listed in the truth and lending statement in the paperwork when you're signing for your home loan so now that we have this mortgage um what do you do to
pay it off faster in SA save a lot of money on this interest all right so this is where I get into the strategy this is where I start to explain how to use what I'm going to what I'm going to show you to save a lot of money on interest and to pay off that Home Mortgage faster I just made some room on the board but basically what this strategy um that I'm going over requires is that you bypass the system of depositing your money into a checking savings completely and take everything that is
earned for the entire month your entire income and apply it towards your line of credit so we're going to move our monthly income towards our line of credit now might sound crazy but I'm going to explain to you what it does and how to continue to pay the bills using this method now before I go on I just want to say why are why are people saving because a lot of people from a young age are told that it's important to save and it is but wealthy people know that you never want to let your
money just sit wealthy people usually invest their money um and just letting it sit in an inactive account it actually does more benefit to the bank rather than the person saving their money by letting it sit in the savings um the reason for that is that when you go to the bank and you deposit money into savings account the bank will offer you 1% but when you're just letting it sit there and an emergency comes around and let's say you have to get a brand new car you go to the bank and you ask for
an a loan to be able to get a new car and the bank says great so we're just GNA give you a car loan but all you have to do is just pay us a 5.5% interest on it so essentially what the bank does is they lend out your money that you're just letting it sit in the bank back to you and making money off that money that's that's essentially how the banks make profit that's how works now that we're bypassing the system and no longer letting the bank control our money but rather we are
in control of it um and putting it towards the line of credit which is actually an active account this is what it's going to do okay so I just drew another graph on the board and since we are taking our whole monthly paycheck and putting it towards our line of credit um right off the back we had a $155,000 limit so that's Illustrated over here with a balance of $112,000 currently on the card and down here we have the timeline because we're making payments every single month um so we have monthly increments now if if
what if you do what the strategy says you would take your entire monthly paycheck which in our example is $5,000 so we take it from our checkings it's deposit into our checkings but we're taking all of it and applying it towards our line of credit so that will knock our balance down by 5,000 but we still have our living expenses so by using this strategy let's see what that what happens to not just our living expenses but all of our expenses so since we're we moved our money over here we no longer have to worry
about our minimum credit card pay payment since it automatically gets taken care of because we're paying we're putting money in that card towards that card so that automatically creates a $600 cash flow again since we're no longer saving our money into a savings account that creates $1,400 cash flow so that equals a $2,000 cash flow so now if we add up the expenses it equals $33,000 because we still have to pay our Home Loan mortgage payment we still have our car payment of $600 and we still have our living expenses of $11,200 so to pay
those we're going to use our card and that same month it's going to bump us up by $3,000 so this is our first month okay next month we are doing the same exact strategy and that bumps us down by $5,000 but we're gonna use our card so it bumps us up again by $3,000 second month third month January same exact strategy again we're paying for everything using our card okay one two three okay so what I Illustrated is you keep applying the same exact technique month in month out and actually if you begin to add
up the numbers for this example you'll be able to pay your balance off completely within 6 months okay so next month after 6 months since you are at zero or in our example we are at zero you can't take that money again and apply it towards a card that has a zero balance so what do you do well this is where we have to create more debt and you see not all that is bad if you know what you're doing there's actually good debt so what you do is you go to the bank and you
tell them that you want to apply $122,000 from your line of credit towards paying down the principle of your home mortgage your home loan it's very important that the person at the bank that you're talking to understands that you're applying the money towards principal pay down and not a regular payment because if they process this as a regular payment it's just going to take bulk of it and apply it towards interest and that's not going to work so it's important that they understand that $122,000 is principal pay down as soon as you do that your
line of credit balance bumps up to $122,000 and you keep applying the same strategy to pay it down where it is important to to to see how this is working is that you're able to pay down $112,000 in 6 months whereas the regular way it had taken you four years from our previous example so this is kind of so this is the strategy so every 6 months you keep going back to the bank and applying $122,000 because you're paying it down in 6 month and you keep going through this process again and again until you
pay down this balance and that's how you pay it off within 5 to 7 years now what about emergencies well we have all this cushion over here for emergencies emergency money okay since we're no longer putting anything into savings again since we're using an active account and not an inactive account to put our money towards what is the bank going to do well the bank is going to notice so they're going to actually increase your limit because we're making monthly payments and we're paying off balances rather quickly um another thing that's going to happen is
your credit score is going to go up okay so credit score is going to go up and it's important for me to mention is that you never want to max out your credit card to the very limit because that it will actually have a negative impact on your credit score so you always want to stay below the limit so this is essentially the strategy and now I want to just say would you rather pay 21% or 6% thank you so much for watching this video if you did find it helpful please be sure to leave
it a thumbs up as I would really appreciate it and if you know of somebody that might find this helpful then please share it with them also if you enjoy information about business and real estate investing I will be putting out content around those topics every single week so please subscribe to my channel to stay up to date with my videos and if you still have any questions regarding this strategy please leave them in the comments right below and I will see you in the next video thank you
