Here’s a popular topic of discussion when it comes to Real Estate: How to pay off your mortgage early. And this video will tell you EXACTLY how to do that with real world examples that actually work. Enjoy! Add me on Instagram: GPStephan
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Now first, when it comes to this, I think it’s important we address a comment I’ve received far too often that REALLY needs to be talked about, and that’s the concept of “paying down your mortgage early with a HELOC.”
So first, what’s a HELOC: This stands for Home Equity Line Of Credit.
This is pretty much like using your home as a bank account, where you can borrow money against the value of your home. And you only need to pay back what you end up actually using.
First of all, a HELOC is generally at a HIGHER interest rate than you pay with a traditional mortgage.
Secondly, HELOC’s are generally what’s called “Variable Interest Rate Loans” - which means the interest rate you pay will fluctuate over time, meaning it could be HIGHER in the future. Compare this to a fixed rate mortgage, which will not fluctuate whatsoever - what you pay is what you pay for the lifetime of the loan, until it’s paid off.
Third, with a HELOC - there are also transactional costs, including appraisal fees, transaction fees, processing fees, smashing the like button if you haven’t done that already fees, title costs, the list goes on. This all needs to be factored in the overall cost of applying for this line of credit, OR whether or not this money might be better spent somewhere else - like just paying down your existing mortgage a little more.
And Fourth - one of the main reasons I’d absolutely never do this - is that the interest you pay on a home equity line of credit is often NOT a tax deduction if you use that to pay off existing debt.
On the other hand, if you ACTUALLY want to pay down your mortgage faster - and save money - here are the REAL ways to do it:
The first is what’s called a refinance.
This is when you go to a bank and they will give you a brand new loan that replaces your previous loan. This works best when interest rates go down, and all of a sudden you can pay a lower interest rate if you get a new loan.
So if you’re out there and you realize that you can save money on your mortgage by refinancing to a lower interest rate, do it. ALWAYS DO IT.
The second method to pay down a mortgage early is to make bi-weekly payments.
The way your mortgage is calculated is by your total outstanding loan balance. So instead of making one payment per month, you can make half of that payment every other week…and as we all know…or I guess as we all SHOULD know…. there are 52 weeks in the year, so you’ll make 26 bi-weekly mortgage payments. And if we just math a little more, 26 half payments equal 13 full payments per year instead of 12 per year if you had paid monthly - and that cuts down your loan time substantially.
The third way to pay down a mortgage earlier is by making extra payments towards your loan.
Consider that with a mortgage payment, you’re making 12 payments throughout the year, every single month. But if you ever get an end of year bonus, or any lump-sum check or tax return - and you throw it all into the mortgage - that could cut down your mortgage time by a LOT. Just making 2 extra mortgage payments per year could lower your mortgage time by 7 years.
And the best way to pay off your mortgage your mortgage earlier…is just to pay your mortgage off earlier.
There’s no other way around it - I recommend always refinancing if you can get a lower interest rate to save money, you can make bi-weekly payments to speed up the process even further, but beyond that, you gotta pay it off using your own money by just paying it down sooner.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
GET $50 OFF FOR A LIMITED TIME WITH COUPON CODE: THANKYOU50
The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $125 million in sales: https://goo.gl/UFpi4c
Join the private Real Estate Facebook Group:
https://www.facebook.com/groups/therealestatemillionairemastermind/
Now first, when it comes to this, I think it’s important we address a comment I’ve received far too often that REALLY needs to be talked about, and that’s the concept of “paying down your mortgage early with a HELOC.”
So first, what’s a HELOC: This stands for Home Equity Line Of Credit.
This is pretty much like using your home as a bank account, where you can borrow money against the value of your home. And you only need to pay back what you end up actually using.
First of all, a HELOC is generally at a HIGHER interest rate than you pay with a traditional mortgage.
Secondly, HELOC’s are generally what’s called “Variable Interest Rate Loans” - which means the interest rate you pay will fluctuate over time, meaning it could be HIGHER in the future. Compare this to a fixed rate mortgage, which will not fluctuate whatsoever - what you pay is what you pay for the lifetime of the loan, until it’s paid off.
Third, with a HELOC - there are also transactional costs, including appraisal fees, transaction fees, processing fees, smashing the like button if you haven’t done that already fees, title costs, the list goes on. This all needs to be factored in the overall cost of applying for this line of credit, OR whether or not this money might be better spent somewhere else - like just paying down your existing mortgage a little more.
And Fourth - one of the main reasons I’d absolutely never do this - is that the interest you pay on a home equity line of credit is often NOT a tax deduction if you use that to pay off existing debt.
On the other hand, if you ACTUALLY want to pay down your mortgage faster - and save money - here are the REAL ways to do it:
The first is what’s called a refinance.
This is when you go to a bank and they will give you a brand new loan that replaces your previous loan. This works best when interest rates go down, and all of a sudden you can pay a lower interest rate if you get a new loan.
So if you’re out there and you realize that you can save money on your mortgage by refinancing to a lower interest rate, do it. ALWAYS DO IT.
The second method to pay down a mortgage early is to make bi-weekly payments.
The way your mortgage is calculated is by your total outstanding loan balance. So instead of making one payment per month, you can make half of that payment every other week…and as we all know…or I guess as we all SHOULD know…. there are 52 weeks in the year, so you’ll make 26 bi-weekly mortgage payments. And if we just math a little more, 26 half payments equal 13 full payments per year instead of 12 per year if you had paid monthly - and that cuts down your loan time substantially.
The third way to pay down a mortgage earlier is by making extra payments towards your loan.
Consider that with a mortgage payment, you’re making 12 payments throughout the year, every single month. But if you ever get an end of year bonus, or any lump-sum check or tax return - and you throw it all into the mortgage - that could cut down your mortgage time by a LOT. Just making 2 extra mortgage payments per year could lower your mortgage time by 7 years.
And the best way to pay off your mortgage your mortgage earlier…is just to pay your mortgage off earlier.
There’s no other way around it - I recommend always refinancing if you can get a lower interest rate to save money, you can make bi-weekly payments to speed up the process even further, but beyond that, you gotta pay it off using your own money by just paying it down sooner.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
WOW! Excellent Tips!! Bi weekly really made alot of sense including tax returns! Thank you 🙂
Have a question that I cant find a good answer to anywhere!
I send $500 extra monthly to my principal on top of my mortgage payment…..should I keep doing this or just save the 500 every month and then just pay the loan off once I reach the pay off amount?
You should remake this video for 2023
I'm about to be a high school senior and stumbled across your videos a few days ago. I just want to thank you for all this valuable advice because schools truly do not teach any of this stuff (this is coming from a person doing all the hardest AP classes they can) and I feel this will truly be life changing for me by giving me an understanding of the finance world rather than stumbling blindly through life after I graduate.
When you say to make extra payments, are you speaking of making payments to PRINCIPAL ONLY? Or making extra PITI payments?
From experience, principal is everything. Don't bother with bi-weekly, just max out on making lump sum payments on your principal for as much as you're allowed to do (usually 10-20% per year), or find a mortgage that you can pay on the principal at any time as early as possible in the mortgage. Once you make a dent in the principal, your mortgage payments begin to make a difference too.
Refinancing is a joke. You ending up starting over again with interest and cause of the fees you start with a higher total than you started with.
I’ll have mine paid off in 4ys. I added an extra $100 to my mortgage payment. Than every month I put $1000.00 into a high yield account for 12 months. At the end of 12 months I make a $10k payment towards the mortgage. Meanwhile during the year I have that money as an emergency fund. I always leave $2k in for my emergency fund after making that chunk payment in December. Any extra I have coming in over the year I drop on my mortgage. I would never risk using my home as collateral in a HELOC. Prior to all of this I developed a minimalist budget & lifestyle which affords me to be able put that extra $1000 a month aside for this method.
Nothing new in this video. Everyone knows that the only way to pay down your mortgage is increasing frequency of payments and making lump sums on the principal.
Thanks good advice 😊
The way mortgages are presented does make it difficult for a lot of people to understand.
On the bright side it's a lot easier because many banks will show the amortization chart of your mortgage on their website. By looking at the chart and seeing what each payment goes to you can apply simple mathematics to determine how much more to pay extra towards the principle to pay the mortgage off within the time frame that you want to pay it off.
You rock man
I was researching and leaning toward using a Heloc to pay down my mortgage when I came across your video. Everything you said seems correct but you didn’t touch on difference in interest between the 30 year mortgage and the Heloc. Isn’t the compound interest on the mortgage, and the simple interest on the Heloc the big difference where you save on interest?
Hey, graham I got question I would love for somebody to reply. So, how long do you have to pay interest before it goes into principle.
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I turned my volume down three times and he's still f'ing loud.
excelente vídeo well explained
I watched the Kwan brothers and they really sell the HELOC strategy. What is the scenario is if you can pay your whole mortgage off with a HELOC?
@Graham Stephan
So, I have a 2.25% interest rate. Are you saying I should just throw the extra money into VTSAX, VNQ, etc and NOT on the mortgage?
As an experienced mortgage broker that is 100% pro buyer that has testified against financial institutions in trials; this guy is a total Moran that no one should ever listen to. Totally is clueless about what he is talking about. Dude your advice SUCKS!!!
Yes going around shopping for the lowest interest rate is important however every time you go the bank has to do another credit pull this lowering you credit score making it look like you’re “credit seeking”.
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Tell me what you think
You're not explaining amortization which is critical for refi. Refi is only good if you do it early in the mortgage (<7 years) and with low APR. You didn't mention how long you had your other mortgage. Saving $200 a month after 10 years of payments would cost you more in the long run. Plus you're not doing the HELOC method right.
Thank you so much for sharing this video.
Forgot that like fee — Paid it
I don’t normally comment but I have to say this is by far my favorite video of yours to this point and I have watched a lot of them! Thank you!
Refinance your house is restarting your 30 years loan. Imagine you have paid 10 years on your house. If you refinance, you lose these 10 years, you start over. I believe the description given about the HELOC is not acurate.
This is a thing for Canadians. Mortgage interest is normally not tax deductible for primary residence in the frozen land of Canada. But a HELOC used for investment purposes is. So if you convert a mortgage into a HELOC, it becomes this new shiny tax deductible loan 😉
Great simple explanation thank you!!
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