A buddy confronted me at work about a video he’d seen about paying off his mortgage in under 7 years, so I had to see it. After watching the video, I found I had some fundamental problems with Laura Pitkute’s assessment; however, her overall message was clear: Pay more on your Mortgage each month, and you’ll pay it off faster. This is a well-known truth, I think. There were some problems with some of her assertions. I cover each of those in the video.
First off, here’s Laura’s video:
For my video on the difference between buying a house on a 30 year mortgage and paying the minimum payment versus paying it off as quickly as possible, I couldn’t find the video. Perhaps I haven’t uploaded it yet. I’ll add the link here when I find it again :p
Here are the problems I had with Laura’s assumptions:
1) She took no consideration for FICA or Fed/State Income taxes taken out of the average paycheck
2) She didn’t recognize how much of the $600 payment to the Line of Credit was Interest Expense
3) The Car Payment was too high and it would be paid off in 60-72 months, allowing for a larger payment toward the mortgage.
4) If you’re going to pay off the Line of Credit rapidly to make large payments to the mortgage, you might as well skip the middle man and pay the mortgage.
5) She rounded the income up instead of doing the math based on the number she chose.
6) She confuses daily compounding under revolving debt as simple interest.
7) The Line of Credit assumption is too high (the payment).
8) The Average American (or anyone in the world) is NOT this disciplined when it comes to money.
Where she was right:
1) Making extra payments toward your mortgage will pay it off much faster!
2) Most of your payment at the beginning of your loan is going toward interest rather than principal. Accelerating payments on the mortgage help cut down how much interest is paid in the long run.
Based on the numbers she used in her video, you really can pay off your mortgage in 7 years. Using my method, you can pay off your mortgage 6 months faster and save money on interest. Don’t use a Line of Credit to pay down your mortgage, with the exception that you find a Line of Credit that charges less interest than you have on your home loan-which is not likely!
If you’re interested in learning about real estate, check out my other videos. I also have other channels you can check out at http://www.watchbobonyoutube.com
Here’s the spreadsheet I used: https://docs.google.com/spreadsheets/d/1fBEhK_WKHhknJ_A0ocp3-WsDeJOv5MDO5BAUOdjW8Ww/edit?usp=sharing