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.
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