hi my name is Laura piccata thank you so
much for tuning in to my channel today I
want to talk about how to pay off a home
mortgage that is a 30-year home mortgage
in just five to seven years I'm going to
be going over the strategy and a lot of
people ask me can I apply this towards a
car loan or student loans and yes you
can but I'm going to insert a disclaimer
that before you jump in and start to
start using the strategy I want to make
sure that you understand it understand
it fully first or consult with a
financial advisor before you implement
anything so now without further ado
let's jump over to the whiteboard and
get started all right I drew a little
stick figure on the board and this stick
figure is going to represent an employee
and the average person in the United
States makes fifty six thousand dollars
per year for easier math I'm going to
run that up to sixty thousand dollars
per year which will come out to five
thousand dollars per month in that
household income so this employee all
that they know of how to do is go to
their employer and trade their time for
money now I want you to take a minute
and think about the process of what is
the first thing that most people do as
soon as they get paid
[Music]
alright so the first thing that most
people do is as soon as they get paid
they go to the bank and it deposit their
money into either a checking or a
savings account the savings account
simply represents an emergency fund in
case of unforeseen events happening and
you need to spend some extra money on
something now we're going to take a look
at some average monthly expenses and
since I am covering how to pay off a
home mortgage the first expense that
we're going to take a look at is a home
loan
[Music]
the average price of a home in the
United States is $200,000 so that's the
example that I'm going to use now we're
gonna have a 30-year fixed mortgage with
payments that gonna come out to a
thousand and two hundred dollars at a 6%
interest the next most common expense is
minimum payments on credit cards so I'm
gonna take a look at a line of credit
[Music]
and the limit on this line of credit
which we can say is just a Visa credit
card will be $15,000 hmm kind of
everything looks very squished so I'm
going to move it over 15,000 the present
balance already is gonna be $12,000 and
the minimum payments if the balance is
12,000 is gonna come out to somewhere
around $600 per month
add a 21 percent APR okay so looks good
so right off right from the start we
already have our two monthly expenses
this is per month I just want to include
that in here so that it's clear all
right so I'm gonna take that out of the
checking's because that would be the
process so our first two expenses home
mortgage hm next is $600 for credit card
see see next most common expense are car
payments because most people have a car
and I'm just going to say it's somewhere
around $600 for car and everybody's got
living expenses so living expenses for a
family can add up to somewhere a
thousand and two hundred dollars and
that includes everything from groceries
to utility bills to paying for the phone
for the internet services
and then whatever is left over will go
into a savings account which in our case
is going to be eight thousand four
hundred dollars and this will include
both long-term and short-term savings
okay so at the beginning of the month we
had five thousand dollars coming in so
that was our input and by the end of the
month we if we add up all the expenses
and what went into the savings we have
minus five thousand dollars so that is
our output so at the end of the month if
we subtract our output from our input we
have a zero cash flow and this is the
model that 95% of the population live by
it doesn't matter how much input how
much someone is making per month because
somebody might be making a hundred
thousand dollars per month but if their
output and their monthly expenses add up
to a hundred thousand dollars by the end
of the month they are still broke
because their cash flow is zero so now
how do you start to operate like the
other 5% of the population do with their
finances so the first thing is
understanding the difference between a
loan and a line of credit and we're
going to take a look at specifically the
interest rates because if I was the bank
and you had to borrow money for me would
you rather pay me a 6% interest or 21%
interest of course most people would say
6% because it's it's first of all it's
the smaller number than 21 which
actually in everyone's mind
automatically me
means that you're going to be paying
back less money in interest so but to
understand the difference between these
two I'm going to use a little different
example if I was to ask you what
temperature would have to be in order
for rain to freeze you'd say either 32
degrees Fahrenheit or zero degrees
Celsius but then what if all of the
sudden in 1 up to 1 degree Celsius now
which one is hotter of course you would
say that one percent I mean the one
degree Celsius is hotter but isn't 32 a
bigger number than one of course it is
but we're looking at a different unit of
measure so in our case even though 32 is
bigger and it looks like it is bigger
one is hotter because of it being a
different unit of measure it is the same
exact idea when it comes to first
understanding the difference between
alone in the line of credit even though
this is a bigger number and it seems
like you're going to be paying back more
in an interest first we have to
understand what effects the interest
rates so that we see how both of these
work so now on a line of credit the
interest first of all is simple what
that means is that the bank doesn't know
how long it will take for a person to
pay back this balance and therefore the
interest is calculated daily and charged
monthly it is also revolving what that
means is that is to
two dimensional so I'll just draw it
over here
two dimensional it means that as soon as
that $600 minimum payment is paid you
can use your line and credit you can use
your Visa credit card to go to the
movies to buy some groceries to do any
shopping that you need to do or to spend
that money again that means as soon as
you pay you can go back and use it again
and it's revolving however on a home
loan or just on a loan in general as
soon as you pay your monthly payment of
a thousand and two hundred dollars it is
1-dimensional so it means that when you
pay that monthly payment it just goes
straight to the bank and you cannot use
that money again to do any shopping to
go to the movies that's it another main
differentiator is that it is amortized
what that means is that the bank knows
that you have 30 years to pay back the
the loan and therefore they calculate
the interest for the whole 30 years and
they they bill it so when you're making
your monthly payments a portion of the
main portion actually the biggest part
of your payment is going towards paying
down interest and just a very small part
of it is paying down the principal to
better see how the banks calculate this
and what that looks like I'm going to
draw an amortization schedule
all right so I got the amortization
schedule right on the board and as you
see we have the monthly payments on this
side and we have the time the timeline
down here which is basically how long
you have 30 years to pay off the loan so
since our monthly payments are a
thousand and two hundred dollars nine
hundred and fifty of that thousand and
two hundred is going towards paying down
the interest two hundred and fifty is
going towards paying down the principal
which is two hundred thousand dollars so
this is what the chart looks like as
you're making your monthly payments
every single month interest goes down
and gradually you're paying more and
more to pay off the principal right
where they intersect is actually 17
years into the loan that represents a
point by when the interest begins to
decrease enough where your monthly
payments are paying off the principal
more and more so you see it's only
starting to take your payments are
really just starting to take effect
17 years into the loan or it's actually
starting to add up to pay off this
principal sooner but nowadays a lot of
people throughout their whole entire
life aren't able to pay off their
mortgage for their home and the reason
the main reason for that is what happens
at the four-year mark let's take a look
four years equals 48 months since our
payments are a thousand and two hundred
dollars every single month I'm gonna
multiply that by 48 and that gives us a
total of fifty seven thousand six
hundred dollars and that is going to
represent total
pay down now 950 was going towards
interest that equals 46 thousand five
hundred dollars I believe let me check
that really fast forty five thousand six
hundred went towards interest so
interest pay down total pay down on loan
don't want to get that confusing two
hundred and fifty dollars equals twelve
thousand and that is principal pay down
alright so I really want you to take a
look at this and see that in four years
of making consistent payments of a
thousand two hundred dollars on your
home loan for that for four years which
equals forty eight months you've paid a
total of fifty seven thousand six
hundred dollars okay in our example nine
hundred and fifty of this would go
towards the interest so right off the
bat out of the fifty seven thousand
dollars six hundred forty five thousand
six hundred dollars went to the interest
and only twelve thousand of your of
these payments not yours I don't know
what your numbers are but of that of
those payments went towards paying down
the principal of the home loan so that
only knocked off twelve thousand dollars
so now what is the main reason that most
people never end up paying off their
home mortgage is that at the four years
mark
the bank will call up a homeowner and
say are you interested in a great and
lower rate and all you have to do is
just refinance your home mortgage and
most people will say okay it sounds
great let's do it without maybe even
realizing what that what that really
does because what that does is that
you've resets the clock and it actually
puts a person back at the beginning of
this whole schedule so you see as time
progresses you gradually begin to pay
less and interest but now even though
you have better baby interest it doesn't
really matter because as you're paying
those payments now you're still back at
the beginning where most of it is going
towards paying down the interest and
people get stuck in this cycle and if
they keep refinancing every four years
that is the reason why they're not not
paying off their home there's a great
rule app it's called calls mortgage
calculator I will leave a link for it in
the description of the video and if
you're interested in checking it out
it's free as of right now but what it
does and why I like it and why I'm
suggesting it is if you actually want to
plug in your own numbers for your home
loan and you can see basically what I
explained over here just with charts and
a graph but it basically will show you
the numbers for your home mortgage so
you can actually see how the payments
and the interest are tipping at the 17
year mark
and how everything adds up that I'm
explaining right now all right so I just
wanted to show you the app Carl's
mortgage calculator this is what it
looks like and if you download it you
can input all the values say what is
your property value what is the
principle that you have on your mortgage
what is the interest for how many years
and then it's going to calculate the
payment then you will have all the
buttons right at the top
here and then if you just click on
summary right over here it's gonna give
you all the values so I just took the
numbers from our example and as you see
at the very bottom the total interest
paid is two hundred thirty one thousand
and six hundred seventy six dollars and
38 cents so as you see the six percent
is not really six percent because if you
calculate everything you technically
bought your yourself a house and then
you bought a house for the bank also if
you click in this app on table you can
see how all the payments are adding up
until you pay off your home loan in 30
years so I think it's a really cool app
to check out for your home now I just
want to say that does this look like 6%
and people don't realize this a lot of
the time because everybody when they're
taking out a home mortgage is just
focused on their monthly payment but as
soon as you begin to see what is the
total payments versus interest paid and
you start to calculate that over time it
doesn't look like 6% and the bank
doesn't doesn't lie about it it is all
told and listed in the Truth in Lending
statement in the paperwork when you're
signing for your home loan so now that
we have this mortgage what do you do to
pay it off faster and save a lot of
money on this interest all right so this
is where I get into the strategy this is
where I start to explain how to use what
I'm gonna what I'm gonna show you to
save a lot of money on interest and to
pay off that home mortgage faster I just
made some room on the board but
basically what this strat
gee that I'm going over requires is that
you bypass the system of depositing your
money into a checking and savings
completely and take everything that is
earned for the entire month your entire
income and apply it towards your line of
credit so we're gonna move our monthly
income towards our line of credit now
might sound crazy but I'm gonna explain
to you what it does and how to you
continue to pay the bills using this
method now before I go on I just want to
say why are why are people saving
because a lot of people from a young age
are told that it's important to save and
it is but wealthy people know that you
never want to let your money just sit
what the people usually invest their
money and let just letting it sit in an
inactive account it actually does more
benefit to the bank rather than the
person saving their money by letting it
sit in the savings the reason for that
is that when you go to the bank and you
deposit money into savings account the
bank will offer you 1% but when you're
just letting it sit there and an
emergency comes around and let's see you
have to get a brand-new car you go to
the bank and you ask for a loan to be
able to get a new car and the bank says
great so we're just gonna give you a car
loan but all you have to do is just pay
us a five point five percent interest on
it so essentially what the bank does is
they lend out your money that you're
just letting it sit in the bank back to
you and making money off that money
that's just essentially how the bank's
make profit that's how it works
now that we're bypassing the system and
no longer letting the bank control our
money but rather we are in control of it
and putting it towards the line of
credit which is actually an active
account this is what it's gonna do
okay so I just drew another graph on the
board and since we are taking our whole
monthly paycheck and putting it towards
the line of credit right off the bat we
had $15,000 limits so that's illustrated
over here with a balance of $12,000
currently on the card and down here we
have the time line because we're making
payments every single month so we have
monthly increments now if what if you do
what the strategy says you would take
your entire monthly paycheck which in
our example is $5,000 so we take it from
our checking that's depositor checking's
but we're taking all of it and applying
it towards our line of credit so that
will knock our balance down by 5,000 but
we still have our living expenses so by
using the strategy let's see what what
happens to not just our living expenses
but all of our expenses so since we're
we moved our money over here we no
longer have to worry about our minimum
credit card payment since it
automatically gets taken care off
because we're paying we're putting money
in that card towards that card so that
automatically creates a $600 cash flow
again since we're no longer saving our
money into a savings account that
creates $1400 cash flow so that equals a
$2,000 cash flow so now if we add up the
expenses it equals $3,000 because we
still have to pay our home loan mortgage
payment we still have our car payment of
$600 and we still have our living
expenses of $1,200
so to pay those we're gonna use our card
and that same month that's gonna bump us
up by $3,000 so this is our first month
okay
next month we are doing the same exact
strategy and that bumps us down by
five thousand dollars but we're gonna
use our card so it bumps us up again by
three thousand dollars second month
third month January same exact strategy
again we're paying for everything using
art card K one two three
[Music]
okay so what Iowa straighted is you keep
applying the same exact technique
month-in month-out
and actually if you begin to add up the
numbers for this example you'll be able
to pick your balance off completely
within six months okay
so next month after six months since you
are at zero or in our example we are at
zero you can't take that money again and
apply it towards a car that has a zero
balance so what do you do well this is
where we have to create more debt and
you see not all that is bad if you know
what you're doing
there's actually good debt so what you
would do is you go to the bank and you
tell them that you want to apply $12,000
from your line of credit towards paying
down the principal of your home mortgage
your home loan it's very important that
the person at the bank that you're
talking to understands you're applying
the money towards principle pay down and
not a regular payment because if they
process this as a regular payment it's
just gonna take a bulk of it and apply
it towards interest and that's not gonna
work so it's important that they
understand that $12,000 is principal pay
down as soon as you do that your line of
credit balance bumps up to $12,000 and
you keep applying the same strategy to
pay it down where it is important to see
how this is working is that you're able
to pay down $12,000 in six months
whereas the regular way it had taken you
four years from our previous example so
this is kind of the so this is the
strategy so every six months you keep
going back to the bank and applying
$12,000 because you're paying it down
six months and you keep going through
this process again and again until you
pay down this balance and that's how you
pay it off within five to seven years
now what about emergencies well we have
all this cushion over here for
emergencies emergency money
okay since we're no longer putting
anything into savings again since we're
using an active account and not an
inactive account to put our money
towards what is the bank gonna do well
the bank is gonna notice so they're
gonna actually increase your limit
because we're making monthly payments
and we're paying off balances rather
quickly
another thing that's gonna happen is
your credit score is going to go up
okay so credit score is gonna go up and
it's important for me to mention is that
you never want to max out your credit
card to the very limit because that I
will actually have a negative impact on
your credit score so you always want to
stay below the limit so this is
essentially the strategy and now I want
to just say how would you rather pay 21%
or 6% thank you so much for watching
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strategy please leave them in the
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in the next video thank you