Mortgage pay off strategy.

[Jorge Diaz]

Hi there, I'm new to the community. If this questions has been answered I'd really appreciate you pointing me to the article as I didn't find a search box where I could search for it, that being said...

I recently attended a rich-dad " 3 days real state" seminar in Northern NJ. I must confess it was not worth the  $700 I paid for it, although I knew I was not going to become a real state "investor" simply by attending the seminar I was surprised by the whole thing being a giant sales pitch.. 

Anyhow, there was some useful general information that let me wanting to investigate further. The instructor talked about how to pay off your mortgage in a fraction of the time. He briefly explained how mortgage interest works and how by paying the exact amount going toward the principal on top of your monthly payment one can reduce the interest accrued on the loan, and by doing this every month one can "beat" the interest thus paying off the mortgage sooner. He said that sending more money on top of the monthly payment won't cut it as  the amount must be precised to each month's payment, because the total loan amount varies every month is turns into a challenges trying to find find what the final payment for the month would be.

Now he said all that and told us that they have developed a software that does all the calculations for us, of course in order for us to obtain it we needed to sing up for their classes starting at 15k. 

I have read multiple articles of people suggesting to pay the mortgage on the middle and end of the month by braking the monthly payment in two. Now, is that the "secret" everyone wants to sell or there's really a "science" behind pay off the mortgage sooner?

Thank in advance for your help.

[Thomas S.]

First question: is this a rental property.

Second question (if this is a rental property):  why would you want to pay it off. 

[Joe Villeneuve]

Originally posted by @Thomas S.:

First question: is this a rental property.

Second question (if this is a rental property):  why would you want to pay it off. 

 Third question (which should be your first).  If you're set on paying off the mortgage, "what's the best way to do it?"

Answer:  Let the tenant do it.

[Ronald Morris]

Hey Jorge, when it comes to debt, I’ve always gone with pay more and pay early. @David Greene mentions in his book 'Long Distance Real Estate Investing' that paying half the mortgage every two weeks works out to an extra payment every year. He also mentions every dollar spent on interest is a dollar wasted. Just 1 extra payment per year cuts the amount of payments down significantly and a considerable amount of money is saved. That along with simply rounding up to the nearest hundred could save tens of thousands in the long run.

I believe it’s called loan amortization. Basically, you have interest or how much the lender is charging you to borrow money and principal how much your being charged interest on or the loan amount. When you’re paying off the mortgage anything extra goes towards the principal lowering your overall interest.

I hope that makes sense if not I’m sure someone will correct me or you’re welcome to shoot me a message to clarify. 

[Ronald Morris]

Originally posted by @Thomas S.:

First question: is this a rental property.

Second question (if this is a rental property):  why would you want to pay it off. 

Ideally the renter would pay it off while you get a few bucks extra, but wouldn’t paying down the mortgage give you more equity to work with in the future?

[Jorge Diaz]

It is  for primary residence, a single family house.

[Steve Vaughan]

Certainly dont need to spend $15k on secret software to accelerste a mortgage.  Add $15k to your next payment and watch it fall by.... $15k. LOL

Mortgages need hard principal punches in the face to go away.  I've paid off plenty, but made sure there was a good reason, especially if you are in an expansion phase. Mine had high rates or were commercial and had calls, adjustable rates and bothered me for my financials every year. 

Yes, you can add however much principal to a payment you want. Doesn't have to be exactly double what is amortizing anyway. 

RDPD grows more disappointing to me every week. Doomsday market predictions, bad tax advice regarding 401ks, shady sales pitch seminars.  Should have stopped after writing the Cashflow Quadrant.

[Bill B.]

There is ZERO need for any software to determine how much more to send. I can’t believe anyone associated with rich dads would let their name be used with an obvious SCAM. You can send $1 extra or $100,000 extra. The bank will do all the math for you. 

If you want to cut your mortgage in half download any FREE amortization table and simply add the amount of principle being paid by the next month’s payment to your current payment. bingo. Job done. 

[Theresa Harris]

Different people have different opinions on whether you should pay it down.  For me I don't like debt, so I pay it off faster.  You can find mortgage calculators online that allow you to play with the numbers.  There is no magic number, the more you pay off and the sooner you pay it off, the more you save in interest.  

Your mortgage will have information on extra payments.  For mine I can do 10% of the original loan every year PLUS double the payments.  By taking out a mortgage for the max time (eg 25 years) and then increasing payments, you save.  By taking the mortgage for a longer term, your monthly payments are lower and you have more flexibility and can pay extra.

Imagine a $100K mortgage at 5.34% (because that is the default on the calculator), 5 year term, $601 per month, 25 year amortization.  

At the end of that you are left with $88973 principal and you paid $25010 in interest.

Now double your payments to $1202 per month and you have $47807 in principal at the end of the 5 years and have paid $19933 in interest.

10% extra per year ($10K), and $16,570 in interest and $30504 remaining on your principal.

Double your payments and do 10% per year ($10K), and at the end you have paid off the entire mortgage and $11644 in interest (you actually pay it off in 4 years).

[Jorge Diaz]

Thank you very much for all your input. I'll look for amortization tables as that's exactly what they referred to.

[Jason Medina]

@Jorge Diaz

Here's something that might interest you. There's called an All-In-One Loan where you turn your loan into one big HELOC. It essentially becomes your bank account. If you have rentals or W2 pay you can directly deposit it into it and pull what you need. As long as you don't use more than you make you pay it off significantly faster than a conventional loan. I'm doing it personally and should pay off my 30 years in 10 years as long as the wife doesn't use it...

[Lisa Irimata]

Hi Jorge,

"Beating the interest" just means that if you pay off your principle faster then you'll pay less on interest. You can visualize how the principle vs interest amount you pay per month changes by using an amortization calculator, my personal favorite is this one: https://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx 

Just like Ronald mentioned above David Greene goes through all the different strategies of paying off your mortgage in his book. But a brief overview is below:

1. Make a 1/2 mortgage payment every other week. Typically in a year you'd make 12 payments. With strategy since there are 52 weeks per year you'd end up making 26 half-payments, or a total of 13 full-payments per year.

2. Round up your mortgage. Rounding up your mortgage to the nearest $100 would obviously reduce your mortgage, I think when I calculated mine out it took off about 3-4 years of the total time.

3. Make 2 payments per month, obviously this would cut your mortgage life in half.

4. You can combine the 1/2 mortgage payment every other week and also round up, personally I think this would be the fastest way without causing too much financial strain.

[Thomas S.]

I do not pay down my mortgages. The reason is very simple…..I work very hard for my money and I expect to work hard for me.

If your mortgage has a interest rate of 4% and you pay it down a dollar that dollar will never earn more than a 4% return (or whatever rate the mortgage may go to, higher or lower). 4%  is not my money working hard for me it is sitting on it's a** doing nothing.  

If you have no use for your money or fear is your financial advisor then by all means park it. If you expect your money to earn it's keep then the wise thing to do is invest it.

[Larry S.]

When I saw this thread's headline my first thought was "how long until @Joe Villeneuve minds him of the tenant's job?" Glad I wasn't disappointed.

@Jorge Diaz Fellow northern NJ guy here.  Please, please, please! Don't give the Rich Dad Poor Dad guys another penny.  Shoot me a PM and I'll send you a loan amortization spreadsheet so you can play around with the numbers yourself.  

[Steven McCutcheon]

@Jorge Diaz

If it’s a rental, let the tenant pay it off while you get the cash flow. If you pay it off sooner you’re money is sitting on the house and the value it comes in at. God forbid the market drops, so can your money.

As for the increasing it to 2 monthly payments, you’ll pay off a 30 year note in about 22-23 years. Hope this helps!

[Frank Wong]

@Steve Vaughan

I feel the same way about RDPD.  It was his book that started it off for me and I am grateful for it but his shady business practices are really showing his true character.  Integrity and honor is everything and he's selling it out for money so sad.  

As for paying off the mortgage.  If you have a mortgage to start your investment I think you should just keep it and continue the original plan while using the extra money to save for another property.  If you have the ability to buy a house cash upfront owning it free and clear that way makes the most sense.  This way you can save off of closing fees and buy properties that finance buyers can't which in my case is at a larger discount.