How to Pay Off Your Mortgage Early - Fastest Method Explained
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- Опубліковано 20 лис 2020
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Thanks for watching! Check out my entire playlist of videos on buying a home here:
ua-cam.com/play/PLscTZuOqKWIz97DBmq5r-4IciwL6uKJfQ.html
the amount of value in this video is astronomical
Haha, I agree Alice! This is more complicated than some people want to make it, but it is the FASTEST method for sure. Cheers!
Absolutely agreed. I was going through depression when I accumulated what felt like insurmountable amounts of debt. I had to put my head down, and grind for almost two years to dig myself out, now I'm debt free and purchased my condo in the city with cash. My mentality and happiness is at all time high. Great video, and great advice. I watch your vids all the time.
Thanks for watching my videos and sharing your story Edgar! Sounds like things are looking up for you. Cheers!
Awesome advice! I'm still amazed at how fast you pump these videos out with such high-quality information! You're a financial knowledge MACHINE!
Haha, thanks Eugene! My goal is one video every 48 hours, but sometimes I just have to give myself a day off. Two videos a week is still good I tell myself!
That’s great advice - thanks! We’ve owned out house for about 2 years and pay a little extra towards it every month, but I love the idea of putting that extra $ into one of those ETFs, like VOO & leveraging that at a later date to pay down/off the mortgage.
This is a great plan! Doing this to buy a car currently. Acting like I have a car payment and paying that amount to my brokerage account each month. Watching it grow and looking forward to buying a car in cash.
Your out of the box thinking is excellent! Keep the videos coming!
Excellent Video! Great, clear, to the point. Examples and calculators helped greatly. Appreciate your time and effort.
Thanks for watching Helen! Cheers!
This video was very informative. I’ve been thinking a lot about this lately…whether to pay off the mortgage with extra payments or invest it and drop a lump sum later. Thank you for the research and calculations. Great video.
Wow thank you so much! This is very educational. Glad I found your channel.
I am glad you found my channel as well! Cheers!
Thanks Jake for that financial advice.
Love it. Straightforward and makes sense.
Thanks Mark! Cheers!
Great analysis and it's enlightening. Thank you, Jake!
Thanks for watching RJ! Cheers!
Holy cannoli! I love this approach of investing extra payments. Your videos are very helpful, thanks for taking the time!
Awesome! Glad you found my video and appreciate this approach to investing. Cheers!
Very nice video. Knowledge is key!
Definitely the best recommendation UA-cam has given me to learn. I am new and I want to learn, I don't know a lot of English but it seems great that there is this type of content, thank you for your time that you invest in teaching what you know.
Thanks for watching my videos pablo! Best of luck to you!
solid information Capt! this also goes to say ,. use the market as a high interest bank account
Thanks D! I appreciate the comment and support!
Awesome content! So glad I found this channel!
Glad you found the channel Paul! Glad to have you with us! Cheers!
Excellant advice and great content. You are awesome!
Thanks KB! Cheers!
Great Video. Thank you for posting.
Thanks for watching and leaving a nice comment Sonny! Cheers!
Very clear!! Thank you so much!
Thanks for watching Jessie! Cheers!
Aaaand, this is how you EARN a subscriber rather than keep on begging to subscribe to your channel every 2 minutes! BRAVO! Thanks for the video. Appreciate all the effort that went into making these videos.
Welcome to the channel Reeewaj! Glad to have you with us!
Great video as always. Congratulations on almost 20K subscribers!
Thanks beachn! I should hit 20K subs next week! I am so grateful!
Great info. I’ve been contemplating this lately as a means to pay off our 4% secondary loan (and our interest rate is so low on the primary loan that we’re not planning on paying that off early).
Glad you found the video Tiffany! Cheers!
Big fan ! This was the video that made me subscribe.
Awesome! Welcome to the channel Raul! Glad to have you with us!
Another great video Jake! This makes sense if we keep with the full 30 yr period, because of the differential interest rate compounded over 30yrs. I wonder would your recommendation change if we sold the house in 5yrs, 10yrs?
This was awesome! Thank you.
Thanks Jeff! Cheers!
That’s a great idea, thank you
You are very welcome Tom! Cheers!
Wow, that was just the information I needed as I am looking into refinancing. This makes so much sense. I'll let you know in 20 years if I was able to shave time off my mortgage payment. I don't want to still be paying it when I retire (got a 30 year loan at age 47) This strategy should give me some peace of mind. Thanks!
That’s slick!!! Great info I’m sharing the bleep out of this. Btw GO ARMY next week!! ⚔️⚔️⚔️⚔️
Thanks for sharing my content Christian! I appreciate that!
Brilliant stuff. Thanks.
You are welcome aSlimtube! Cheers!
That was really good information. Best Regards
Thanks Bora! Cheers!
Jake, great video for those who plan on holding the house for many years. In our circumstance, we paid off a 30 year mortgage in a little over 6 years. I do not believe this particular strategy would have worked for us, but thank you for thinking outside the box.
How did you go that in 6 year? How many months extra year did you have to pay?
I enjoyed this video greatly.
Great video! I’d never even considered that strategy.
Glad you learned about this method Roderick! Cheers!
You are one of the only people on UA-cam besides me screaming the investment account approach. I’ll have mine house paid off after 7 years of owning it.
That's awesome T-CATT! Congrats!
It's important to note that this is the "fastest" method (which you did). You will end up paying more interest this way than in paying extra each month, but you will indeed pay it off earlier. The reason, of course, is that you aren't lowering the remaining principal any faster than by doing nothing (because you are doing nothing until you pay it off in a lump sum). Paying extra each month lowers the remaining principal faster, and interest paid each month is a function of remaining principal.
You'll pay more in interest but isn't that number still smaller than the return on your investment so it cancels it out and then some?
@@DavidLee-js8ew no, it isn’t. In his examples he is taking the money out of the brokerage just when he has enough to page the remaining loan balance so nothing left out BUT as @Jonathan Bennett mentioned you are indeed paying more in interest, so even though you pay some years before the house you end up paying more money…hence this doesn’t look like a good strategy for me.
Agree with this comment. Did the math on my situation and although I will pay the loan off 3.5 years quicker if I invest the extra and payoff in a lump sum instead of apply to principal each month it would cost me more in the long run since the majority of early mortgage payments goes to interest. My loan is a 30 year and only about 4 months old. Difference was about $20k more in interest and that was before factoring in the capital gains taxes. To accumulate that extra money may erode the 3.5 year quicker payoff and will also increase the total out of pocket.
@@alainruben that’s true but would you rather spend 10 bucks on a tool that makes it so you only make $100 a day or would you rather spend 20 bucks on a tool that makes it so you can make $200 a day……… Dot yeah you spent more money on the tool, but you’re able to make way more money because you spent more on something that was able to make you more
Great video!
Thanks Michael! Cheers!
I hadn’t considered this. I going to play with combining two of my spreadsheets and use a very conservative return to see where I am with the payoff date. Thank you so much.
You are very welcome FF! Playing with the numbers is fun for sure!
Great info.
Thanks for the comment! Cheers!
Great video! I was about to pay an extra $100 on my mortgage today. Will put in VOO
Thanks poolking! Cheers!
What's up Jake, good info.
Thanks PN! Good to hear from you!
Good video! My current investment strategy that resets every year:
1. Max out HSA ($7,100 married) as fast as possible. Should take about 2-3 months hopefully done before April
2. Once HSA is done 50% of take home pay goes to brokerage to invest
House payment is $825 right now and we will be staying here for about 5 more years. Mortgage was 170K and we put $34K down (20%)
In 5 years we would like to cash out refinance but leave 20% in current home and keep it as a rental. We would take the excess funds from the refi plus a portion of our savings as a down payment for our next house (the forever home)
Definitely will push to paying off the forever home ASAP but this one we’re good making the regular full payments.
I like the Finance vids! You’re good at credit cards too but these are helpful
Thanks for sharing your strategy Mark! I would definitely consider putting money in a Roth IRA, but you are still doing well. Cheers!
Very informative breakdown! I do wonder what Uncle Dave's reaction to leveraging debt would be 😅
Thanks Asad! Pretty sure Dave is taking me off his Christmas Card mailing list once he sees this video, lol
Thanks for this video
You are welcome Juan! Thanks for watching!
Wow you are so smart!
Thank you!!
You are welcome Jose! Cheers!
I was able to double the principal when I could on my payments every month, and the house went way up in value after fixing it up. When I got the check a few years later after selling it did give me money to reinvest while waiting to buy a new house after this assignment.
That's awesome Geocon! Sound like you made a great amount on the sale!
I wish if you could do these financial videos more.
Wow really helpful for those looking to buy a house 🏡 ty👍
Thanks for watching tauai! Cheers!
I love the point that you stressed to be "Disciplined".
Thank you for the video. Really great way of looking at paying off the mortgage early. Is this strategy as effective for a 15 year mortgage loan?
Hey Charles! It would not since the 15 year requires more money to go to the principle. Check out my 15 vs 30 year video. ua-cam.com/video/lZnwu2NwwtQ/v-deo.html
Damn... mind blown. This is why I enjoy watching YT vids
Thanks for watching! Cheers Billy!
Thanks, Jake, for this video. What do you think of opening a Schwab intelligent portfolio just for setting aside extra cash for paying off the mortgage? Can you think of any downside of it?
Subscribed!
Awesome! Welcome to the channel ImpeccableMoment! Glad to have you with us!
Great video. I have to wonder though how mortgage tax deductions could play into whether this is the best thing to do.
Interesting idea! I'd have to run the math.
Any good spreadsheets out there for calculating this, so I can check different payoff amounts and where the equilibrium happens?
Jake what about cash out refinancing at some point and putting that freed up cash into the investment account? Would love to see the math on that!
Jake you should make a video about the national debt. Approaching $30T and another stimulus check on the way, the value of the USD is dropping fast.
Haha, I would love to get political, but that is going to have to wait until I get out of the military.
Firstly, my understanding is that the earlier you start paying extra toward the principle on your loan the less interest you would pay on the long run. Secondly, can I open a second investment account and put the extra payment in there then use the profit to pay more on my mortgage yearly?
Jake, I’d like to bounce an idea off of ya...What if by about year 16 or so, the earned interest on the brokerage account is used to pay the annual mortgage payments. That way at the end of the term, you’ll still have about $150k or so at the end of the mortgage rather than zeroing it to zero the mortgage’ s balance. Thoughts???
Hi, what would you give more weight to for older man still working on list after #4? With a lower int mortgage, small mortgage payment, but growing property taxes factor in CA.
House pay off, brokerage, or 401k. I'm thinking brokerage, because of taxes on 401k, and less years for it to grow.
What ur saying is great, and it works. However I think most ppl dont over wont do it because they may think it's complicated.
Yep! Just paying down the mortgage faster is easier for people to understand and plan for. But I am just the kind of guy who likes to optimize my money for the best results!
What if you take your example and pay just 10% and invest the $30,000 while paying the PMI? What would the following three scenarios look like? 10% down, $30,000, some PMI payments, no contribution vs. 10% down, $30,000 and $100 monthly contribution vs. $60,000 down and $100 monthly contribution.
Hi Jake. Do you recommend a similar strategy with student loans? Federal loans have a fairly small percentage on interest and could would out the same. Only asking since the federal loan interest freeze is due to expire the end of December. Thanks!
Hey Josh! No, I wouldn't recommend this for student loans. Your house is an asset that should be gaining value over time and saving you money by NOT renting. It is a true financial asset and mortgage interest is fixed for decades. Student loans is just debt. Does nothing to help you. I would completely pay those off before getting aggressive about investing in anything other than a 401K matching from your employer (always take that).
Another great video Jake! I don't know if I would count on a consistent return rate from the stock market but the basis for this idea is solid. In general, if you can make more money investing than the rate on your debt, why not do it?
Pretty much! People can plug in their own numbers. Anything greater than 3% and this strategy is viable.
A 9.8 percent rate long-term, say 15 plus years is completely doable.
Given the time frame, would a Roth IRA make sense to avoid the taxes if you are old enough when you first buy the house?
Yep! Absolutely! If you are comfortable with your 401k retirement balance, then maxing out your Roth IRA and using that money after the age of 59.5 would be a better option than using a taxable brokerage account. Brilliant idea!
Bruh... This is a fantastic video. Thanks for posting.
Thanks for the comment and support Michael! I hope more people find this video, lol. I think it's a pretty good idea.
I am torn between buying a home with cash, therefore no debt and great peace of mind, and putting only minimum down payment and use the remaining cash to work on the Stock market returning 7-8% a year.
Jake THE MEN😎
Thanks RG! Cheers!
Good content as usual. Would you recommend investing in something like FZROX or do you have a better suggestion? Thanks!
Hey Kyle! FZROX is great, but it is a mutual fund and you need to be banking with Fidelity to buy it and avoid any fees. If you bank with Fidelity, it's a great option. If you don't, you can't go wrong with Vanguard's VOO ETF. You can buy that with any account that is zero commission trades.
@@JakeBroe Thank you for the reply.
The problem with those zero fee index funds is that the dividends and capital gain payouts are lower than a normal index fund. Less money to reinvest.
FXAIX has low fees, .015% and higher dividend and capital gains payouts.
in regards to the mutual funds company you suggest, which of the three do you recommend best?
Hey Nati! All three are good and I'll eventually make a video explaining the differences. If you want me to pick one for you now, go with Fidelity. ua-cam.com/play/PLscTZuOqKWIxSG8kRA7uxvJZQkz0q9Hko.html
What index fund recommendations from Fidelity and Vanguard do you have that will provide those returns?
With any brokerage account you have, you can purchase shares of Vanguard's VTI or VOO index ETFs. Just make sure you re-invest the dividends and the long term average of those funds are close to 10% a year.
This broke my brain, but in a good way. Oooh, it “broe-k” my brain...Jake Broe...get it? Okay no more coffee today.
Hahaha, thanks Joe! I think you are doing just fine with your coffee.
Hypothetically: If i’m married filing jointly, say about $120k on the mortgage, did this investment strategy and have enough money to pay it off. Could i take out just below the max of the 0% tax bracket, wait a year then take out the reminder of the money to pay off the mortgage to avoid paying capital gains?
Thank you very much Jake. I have been watching a ton of youtube tutorials on investing and growing your wealth. I can say with quite certainty that your channel is one among the best if not the best, the way you explain little things in detail is what makes your videos stand out. Liked, subscribed and looking forward to more from you.
Edit: For once i would like to thank youtube for recommending a correct video.
Thank you so much Tenzin! It is great to have you with the channel. I like to keep it simple and informative around here. If I learn something useful or interesting, I just like getting the information out there. I'm not trying to sell anyone anything, lol. Happy New Years!
Really enjoyed your video I have a question my situation is I want to pay off my mortgage early I a balance of 280,000. 15 years at a 2.7 how can pay off my mortgage early.
Hi Jake, what are some financial benefits of paying off a mortgage early other than peace-of-mind and the potential for a new mortgage? In one of your examples, you considered a 30 year loan with 3% APR, and contributing $100/month into a taxable brokerage account at 9.8%. In this example, you have enough to pay off the remaining loan after 23 years (the calculator I'm using says $93,763.76 instead of $102,009, I'm not sure why but I'll go with mine for the example since its what I have). However, if you instead continued investing just the $100/month and see the loan through for the remaining 7 years, if my math is correct, you would have $191,721, which, after accounting for taxes, is $132,362. I can't directly compare this number to yours to show the loss of potential since the calculators didn't match perfectly, but it seems to me that continuing for the remaining 7 years would be the better financial decision. So, to bring the question full circle, what reasons would a person have to cash out the investment and pay off the loan, aside from peace-of-mind?
Hey Austin! I believe there is none. If you just look at the math, it is better to keep your money invested and only pay the minimum on your mortgage. But this isn't how ordinary people think. At some point, people would rather earn/save less and just be debt free. I think you understand!
Another way to look at this. The average mortgage payment is around 1200 dollars a month. If you go into retirement without a mortgage, you're gaining positive cash flow for your mortgage amount without worrying about the stock market, at all. Well, for that portion at least. To each their own. We prefer having a pension, a ROTH 401k, 2 ROTH IRA's, AND a paid off mortgage as we retire.
Hi Jake! Great video. If I am currently paying an extra 1,400 into principal, and according to their amortization schedule I should be done in 16 years (330k, 2.75 VA loan, refinanced). Doing it via a brokerage as you mention, about how long will it take for me to pay it off? Also, do you recommend just putting this money every month on just one S&P ETF or multiple?
Hey Mayrah! I don't have the number for your specific scenario, but $1,400 a month is a lot! If I were you, I absolutely would be investing in index funds first and making the minimum payment on the house. Then pay off the house once you have enough in a taxable brokerage account. I guarantee you could do it sooner than 16 years. Check out my playlist on Fidelity if you don't already have a ordinary brokerage account! ua-cam.com/play/PLscTZuOqKWIxSG8kRA7uxvJZQkz0q9Hko.html
Why Roth if i live in a high income tax state if I will move to a no income tax state when I retire?
Wow, i wish i knew this 30 yrs ago. Definitely will do on my next house. Jake, i guess i could use this same idea as to buy a bass boat?. 1) start contributing now before i buy a boat 2) then keep contributing after i purchase the boat until i get it paid off early. But would I take whatever money I saved out for a down payment once i find the boat then keep contributing or skip the down payment and just keep putting $ into acct until I have enough to take out and pay the boat off?
Hey Mike! It depends on the interest rate you are paying on the loan. With mortgage rates being so low right now, money is better being invested in the market at a higher rate. But yes, this idea applies to other loans if the interest rate is low enough to make your time and effort worth it.
@@JakeBroe Thanks for the info Jake.
Quick correction. Please google phrase "What Is the Average Annual Return for the S&P 500?" It is from Investopedia (I am uncertain if I can give a link or not). It states, and I am quoting here: "According to historical records, the average annual return since its inception in 1926 through 2018 is approximately 10%-11%.[cite] The average annual return since adopting 500 stocks into the index in 1957 through 2018 is roughly 8%."
Therefore, more accurate is to state the S&P 500 averages 8%, and not 10%.
Personally, I have a few houses. All rented out. I am using the overflow of rents (after mortgage, insurance, taxes, etc.) to pay off only one other mortgage. Then after than is paid, I pay off mortgage two, mortgage three, etc. Here it snowballs. While the idea of putting cash in the S&P is a nice idea, I personally will just put it direct in my mortgages. My investment money is different. At present however, your way, considering what is going on in the world nowadays (pandemic, mentally unstable president who is attempting a coup, zombies supporting him, etc), I will just pay it off straight. Besides, now it takes just a year to pay off each mortgage in full, so why mess with it.
Hey Jon. Starting the index at 1957 wipes out all the gains made by companies in the post world war 2 boom... more years equals more data, I'd rather use the average since 1926 which gets us closer to 100 years. If we look at just the years since 2010 it is over 13%. The government TSP C Fund (S&P 500 index) goes back to 1988 and averages 10.5%. Lots of way to slice it. I am going with the 100 year average.
Hi Jake, what do you think of investing in an s&p roth over the years with the intention to paying off the mortgage in 11 years. )So I pay the tax up front). I’m aggressively trying to pay my mortgage off in 11 years by the time I’m 70. (Prepaying $800-1200 extra a month to mortgage) thanks for the advice.
Yeah! If you are going to be over the age of 60, then there is no penalty for taking money out of your Roth IRA. You are free to invest in there and then take out the money when you are ready to pay off your home. Solid plan!
Great video! Would be cool to have an update when interest rates are way above 3%. Does the strategy still make sense when your mortgage interest is above 6%? Also, thank you for donating your birthday to Ukraine and your support in general!
I am at a loss for words.. If only I would have known this a few years ago. Thanks for the info.
A quick question what if what I put in contribution is enough to pay it within 5 years. That is not taxed since it was the contribution amount correct?
@Juan, you're correct. If you invest in a Roth IRA, you can withdraw the contributions in year 5 tax free. Remember, you can always withdraw the money you contributed with no tax or penalty.
...four years sooner, plus savings on the interest on the mortgage. Way smart!
Hey Vicki! You left this comment 5 months ago, but I can see it right away now. Thanks again for being a member!
Brokerage account? Can you explain this and the process to get one?
Hi there , would it matter if you are into lets say 8 to 10 years into the mortgage ? since in a mortgage you pay a lot more in interest in the first years ? thank you.
Nope! Doesn't change the math at all. Any money you would have saved putting toward your mortgage, you can make more if you just invest it over the long run instead.
We have 12 years left 8/2033 mortgage would be paid off. We have $45,272 left on the mortgage and want to pay it off by March 2027. Just started putting extra $50 a month to principle. Then plan to put my bonus $1500 in march 2022 and $2000 tax return to the principle payment or would it be better to invest that money?
My comment is a bit late, but I think I can add to the "big brain idea" by suggesting putting your money into a robo advisor which performs tax loss harvesting. That way you wouldn't even have to worry about capital gains as much, if at all (in theory).
Awesome
Cheers J B!
Great video as always! I've opened a brokerage account and started investing in the S&P index fund (FXAIX). I have a few thousand dollars in the money market account because I'm not sure if the best route would be to invest it all in the S&P at one time (after all, I will be invested for 10+ years), or make smaller, regular deposits being that the market is at an all time high, and should it crash, then I would still have the few thousand dollars to dump into the market when the shares go on sell. Not looking for financial advice just wondering if you could speak on this in a video at some point. If you have already, please point me in the right direction! Thank you for the videos!
Hey Chris! If you are holding for the next 10+ years, then what happens the next 6 months is irrelevant and you can just put it all in there and ignore it. However, if you want to dollar cost average in and put 20% of the amount in at a time over the next 5 months, there is once again, a small difference in how your money will perform over the next 10+ years. Best of luck!
I prefer the idea of using my equity to buy positive geared investment properties, that pay my mortgage off faster. Once that is done, the tenants can finish paying off the investment properties and I'll either live off the rental income or cash in some real estate to supplement my retirement fund. Do you talk about this method in any other videos.
Hey Jannelle! No, I don't have any videos on property investing yet, but I will soon. Definitely pro and con arguments for each idea! Cheers!
What if you had the properties during a 1.5 year pandemic and there was an eviction moratorium and you didn't have tenants that paid a single dime for a year and a half?
@@reversiontothemean6129 That's terrible. It makes my stomach turn thinking about it, for the landlords unlucky enough to have crap tenants like that.
Even in normal years managing a rental can be a pain in the neck if you are unlucky
I shudder a little at the word. Mortgage essentially means “pledge till death.” The English word mortgage is derived from the Old French : mort, meaning dead (from Vulgar Latin *mortus ) + gage, pledge, of Germanic origin
The one potential factor you did not mention is the likelihood that the long term capital gains tax rate will be increased. With the federal deficit at 3.007 trillion dollars as of 9/30/2020 tax rates ARE going up in the future. The SECURE Act will cover a portion of this deficit by speeding up the income received from inherited qualified accounts (IRAs, 401ks, etc,), but I doubt long term capital gains will be spared. There has been much talk in the past about raising this tax rate to at least 20%, so 15 or more years from now, the rate will probably no longer be at 15% meaning you will need additional time and growth in the account to cover the higher taxes.
I agree, long term capital gains might be going up. Ideally they need to change that 0% bracket to something higher. Then maybe none of the rest of them have to change.
Would it be best to max out a Roth 401K to $19,500 annually by putting your extra "mortgage" payment here instead of opening an individual brokerage account to avoid capital gain taxes annually? Or no, because you would pay higher taxes at withdrawal and maybe a penalty for early withdrawal by using it to pay off a mortgage?
Hey Krysta! No, you got the right idea. I would rather max out your Roth 401k and keep the money in there until you turn 59.5. Once you can take the money out penalty free, then you can pay off your mortgage. This would yield you way more money, but you have to wait until 59.5 to officially pay off your house.
Wheres a "really like" button when you need one?
Haha, UA-cam is going to have to make one! Thanks Shijo!
If you go to a 15 year loan, you usually get a better interest rate than a 30 year year loan. That is what I did
The example you gave of paying 300 extra a month would be applied to the principle right? Because that actually reduces the 30yr term by 12 yrs and not 8 like you said on this video.
Did I make a math mistake? Possible... I just used a website's calculator.