How to Crush Your Mortgage: House Hacking and 0% Credit Cards Edition!

[Quinn Eliason]

Are you ready to level up your home ownership game? If you're looking to boost your investment and secure a better financial future, then it's time to try out this three-step strategy. This is the exact same plan that I'm using on my second property, and I guarantee that it works wonders.

Step 1: House Hack. Instead of renting out your entire property, consider renting out extra rooms by-the-room. This smart move can bring in more rental income, which you can use to pay off your immediate mortgage costs. And with property management software like TenantCloud, managing your tenants and rental income is now easier than ever before.

Step 2: Use 0% Interest Credit Cards. Don't dip into your personal savings for repairs and upgrades. Instead, consider using 0% interest credit cards as a free loan for these expenses. But make sure to pay off the balance before the promotional period ends to avoid any interest charges. This smart move frees up your personal savings for other investments or unexpected expenses.

Step 3: Make Prepayments. Some might say prepayments are a mistake, but I disagree. The math works - you just need to make prepayments during the first few months or years of your mortgage when they make the most sense. Prepayments are a guaranteed percentage return year-over-year for almost 30 years, which is almost impossible to beat (especially with today's volatile stock market). Don't let the naysayers deter you from this smart investment move.

Let me walk you through the math of step 3 using my own real-life numbers. Suppose you take out a 30-year fixed mortgage loan for $300,000 at 5.62% APR. In the first month, your mortgage payment (principal and interest only) will be $1,731.71. But did you know that only $321.02 of that amount goes towards your loan balance, while a whopping $1,405 goes towards interest?

Prepare to have your mind blown! Imagine if you made a prepayment of just $321.02 before the first month - that could save you over $1,405 in interest expenses over the lifespan of your loan. If those returns were seen in the same year, that'd be a return on your investment of over 437% in saved interest expenses!

Now, I know mortgages aren't one year long. But even if you divide that return over 30 years, it's still a guaranteed 14.59% return on your investment year-over-year. Yes, you read that right - a guaranteed return of 14.59% year-over-year for 30 years! That's the power of prepayments.

So, if you're ready to take your home ownership game to the next level, give this three-step strategy a try. First, free up your job income from mortgage payments by house hacking, then free it from property repairs/upgrades by leveraging 0% interest credit cards as free short-term loans, and finally deploy your freed income towards mortgage prepayments at the very beginning of your mortgage. The math makes sense, and the numbers all suggest that this three-step strategy is a wise choice for those looking to take their home ownership to the next level.

[Ryan Thomson]

@Quinn Eliason I LOVE this post. Great tips. Renting by the room is a great way to increase the rental income. I have some thoughts on your thrid point though. Let me know what you think. 

Your 14% yearly return is a simple return. Not compound. In order to turn $321 into $1,405 in 30 years you would only need a compound interest rate of return of 5.5%. This should be easily outperformed by saving that money and putting it in the stock market for the long run. I think a better plan than early payments would be saving that money in an index fund. Then you also have more access to that money to put a downpayment on the next house hack and scale!