How To Payoff Your Mortgage Faster (Mortgage Payoff)

Today’s topic will be all about mortgage payoff, leveraging 0% credit cards. This topic is very dear to my heart. If not months, I spent weeks developing this tool because I wanted to provide it to you to project how fast you can finish paying off your mortgage. I want to take a step back and give you a bit of an explanation about how interest rate works with credit cards versus mortgages. Let’s take a look at it.

In this example, you decided to take $10,000 out of a credit card to pay your $200,000 mortgage. Let’s say you will use a 0% credit card, but assuming that the expiration expires within 18 months or maybe 12 months, I say, for example. Then after the intro offer expires, you’re going to get charged, let’s say 24% in interest rate, but your mortgage is an amortized 6%, 30-year mortgage.

Now, I was working out the numbers, and I wanted you to understand how interest rates are broken down. You’re going to get 0.24, and you’re going to divide this number by 365. When you divide 0.24 by 365, you’re going to get 0.000657, and you’re going to multiply this by whatever amount you have. You’re going to take this number, and you’re going to multiply this by 10,000, which is the amount you took out from your credit card. That means daily, and you will be paying $6.57.

mortgage payoff

You’re going to be paying $2,364 in interest. That’s 12 months’ worth of interest.

Assuming you have a month with 30 days, you multiply this number by 30, which means monthly, you will be paying $197. Now, you’re going to take this number, and you’re going to multiply this by two. When you, like one $97 a month, multiply those by 12 months, you’re going to be paying $2,364 in interest. That’s 12 months’ worth of interest. This is without including the principal. Just bear with me for a second. Just try to understand how this is broken down into.

Now, looking into the mortgage, with mortgages, the concept of amortization gets applied. What exactly is an amortization? There are many definitions out there in the market or Google, but I’m going to use one that will help you understand what I’m trying to achieve today. I’m going to say she means spreading out the interest payments and spreading out the principal payments over 30 years.

What happens with these mortgages that for the first 15 years, you’re going to be paying mostly interest, and then the remaining 15 years, you will be paying towards your principal. 

Every month you’re going to be paying a total of $1,199. But guess what happens to that money. $999 will go to interest, and $199 will go towards the principal, meaning it will be applied towards the mortgage. What you do is you take $200,000 and you minus $199. That’s how much you’re paying every month.

mortgage payoff

$999 will go to interest, and $199 will go towards the principal.

If we were to take this number, I’m just going to round it out for simplicity purposes, at a thousand dollars a month and interest for your mortgage, you’re going to multiply this by 12, which means every year you’re paying $12,000 versus $2,364.

Now, some of you might be saying, well, you’re comparing apples and oranges because this is a $10,000 loan versus a $200,000 loan. This is why I’m telling you that this strategy that I’m about to teach you will only work if you use 0% credit cards. 

 

I spent days, if not weeks, if not months, developing this tool to have something to use as a reference that will help us pay out the mortgage faster and save money along the way. Before we dive into the exercise, a couple of housekeeping items in the cell and this sheet go by colors. You’re going to see a bunch of different colors.

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Let’s start with the red. Anything that you see in red, I mean it, do not touch it because what happens is I have formulas built into each cell. If you key in something by mistake, it can mess up the entire formula, and your calculations will not be accurate, and the payout amount will not be accurate as well. You can probably cost yourself to be spending more money instead of saving more money if you touch any one of these cells. Please, please, please stay away from it.

The only cells that you’re going to be responsible for, keying something in, is anything that has a yellow in it. You have one, two, three, and then four and total that you’re going to be responsible for playing around with the numbers. The flow of this spreadsheet goes by color. You will see everything that has pink in it will flow along with any column underneath the pink ones and the same thing with the blue. Eventually, you’re going to get to see why this is on the way it is.

mortgage payoff

I spent days, if not weeks, if not months, developing this tool to have something to use as a reference.

Let’s go ahead and start playing with the numbers. I know we mentioned a mortgage of $200,000 right back outside when we’re in front of my board. We have $200,000 here.

I believe I mentioned we’re going to do this exercise with an interest rate of 6% and a 30-year mortgage. 30 times 12 equals 360, and this is all you’re going to see here. The way you’re going to read this file is, let’s say, assuming you have a mortgage for $200,000, and then your monthly payments will be $1,199, just like the number you get here. Assuming you pay no additional principal, you pay just the bare minimum, and you’re going to see how the interest rates will be allocated. At $1,199, only $199 will go towards the reduction of your principal. Meaning out of $199, you’re going to take $200,000. You’re going to subtract $199, and you’re going to get $199,800. After you pay $1,199, you’re only reducing the loan by almost $200, and then the remaining $1,000 is going towards interest.

Then you can see the same thing happen in the second month. The second month of your mortgage comes in, and you pay $1,199. You don’t make any minimum payments. That means only $200.10 will go towards the reduction of your principal, which will leave you with a debt of $199,600, then the remaining $999 will go towards interest payments.

If you do this for 30 years in a row, that means the total interest payable is $231,676.38. That’s an eye-opener because you thought you were buying a house for $200,000, and it turns out you’re buying a home for $431,676 because now you’re adding the interest that you pay on top of the loan that you’re repaying as well.

Remember how I told you that you could apply for 0% interest rate credit cards and this exercise, and this will only work, again, and I reiterate that this will only work with 0% interest. After all, the reason why you want to do this is you don’t want to use a credit card that already has interest rates in it because then you’re paying more interest on top of whatever you’re paying in this mortgage.

Let’s say, for example, you open up a mortgage and a couple of months went by and- the order doesn’t matter, to be honest, but let’s say you didn’t know about this technique and you have been six months into your mortgage, and then you discover this, and you said, “You know what? Let me do a test and take $10,000 out of one of my credit cards at 0%, either using Venmo or using plastic. I’ll let you be the judge of that, but let’s say you want to apply this exercise a month seven. You come in, and you didn’t pay anything above the minimum payment, but this month, on month seven, you decide to pay an extra $10,000.

Look at what happens to this number. If you were to be making the bare minimum, the $1,199, you would be allocating $205 towards your principal reduction, but that you’re adding $10,000, now let’s hit enter, now, you’re reducing your principal by $10,205. This is in a blue column. No, no, let’s go back here to one of the initial ones, and let’s look for the blue color right here. Then you’re going to go all the way down and look at what happened to these two cells. You started month seventh with $198,000. You decided to pay $11,199, that’s $10,000 + $1,199. Look at how much your principal went down by, 198 to 188. Look at the beauty of what’s happening up here. This is the total of interest that you’re paying, if you were not paying anything in addition to the minimum payment. The blue now includes the additional $10,000 that you paid in. Just by paying $10,000, look at how much your interest rate went by. You’re saving a total of $48,159.38 just because you decided to pay $10,000.

I’m pretty sure some of these skeptical people might say, “Well, I’m still responsible for repaying $10,000 in my credit card.” The point is you’re reducing this. You’re reducing the total interest pay in your mortgage. Yes, you do have to pay $10,000. Let’s take this $10,000 and reduce it from this $48,000. You’re still saving $38,000 in interest even with you having to pay $10,000 back to your credit card.

Let’s say you do that, and then you decided to leave it for now. Twelve months go by because this is how much it takes you to repay that credit card at 0% before the APR starts kicking in. You wait another 12 months. We’re at month seven. Another 12 months that will leave us at month 19. At month 19; you paid off the old credit card. Your 0% APR has already expired, and you’re in the market to shop for a new 0% APR credit card. You found the right one and apply for it. You get another $10,000 that you get to use towards the mortgage payments. In month 20, you’re going to go ahead and you’re going to take the money out of that credit card. You’re going to do the same thing. You’re going to apply $10,000 towards the principal in addition to the minimum payment that you’re already making.

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Now, your mortgage is going down from 185 to 175. Look at what’s happening up top here. Instead of paying a total of $231,676, you’re now paying $139,000 worth of interest. You’re saving a total of $92,000 just by paying $20,000 more today using a 0% APR credit card.

Again, same thing for the ones who are skeptical. Yes, I still have to repay $20,000 on my credit card, yadda yadda, but minus the $20,000 out of this $92,000. You’re even saving $72,667. That is a no brainer.

Now, I know that if you’re like most of us, myself included in this equation, I was paying a little bit above the minimum before me knowing this. Anything that you can pay above the minimum payment helps out, but it makes a huge difference when adding a lump sum like this. Let’s say you can afford to pay more, and you’re going to utilize the sheet to do the calculation as well.

For example, in the first year, I paid $100 extra every month. Look at how this number changes up here. Remember how we had before $92,000. Now I’m saving $95,000. I’m saving almost $3,000 just because I decided to make a couple of hundred extra in payments. Look at the beauty of this. Remember how I said the mortgage term was for 360 months because it’s a 30-year mortgage. Now, scroll down and look at what starts happening to the principal. Things started changing, and we’re going to find this row. Do you see where the negative numbers are? Instead of making payments for 360 months, now you’re going to make 282, so equals 282 divided by 12, because it’s 12 months, now you’re making mortgage payments as opposed to doing 30 years, you’re paying it off in 23 years. 23 1/2 years is what’s going to take you to repay that.

If you continue to multiply those numbers and apply this exercise every 12 months, look, that’s what’s going to happen. We’re in month 20, so you add 12 to the equation, so month 32. You go ahead, go out to the market, apply for another 0% credit card, and get approved. Once you receive the card, which will probably be the following month, you’re going to apply another $10,000, the same thing. Look at what happens. Now you’re saving $136,000. Again, assuming you want to remove the $30,000 you allocated into the credit card into this equation, you’re still saving $106,000 in interest.

Let’s say I want to take this a step further, and I want to continue to make my $100 payment every month for the next couple of months. Now, look at what happens to the term. Just by making an additional $100 for the next couple of months, you’re going to take equals 252 divided by 12. Now you have reduced your mortgage down to 21 years.

This is again a real no-brainer. I know that paying more than the minimum payment will help you pay off the mortgage. Still, suppose you can leverage credit cards and make this an even faster process. In that case, you’re kind of like creating money, leveraging money applying OPM’s concept, other people’s money, to make this happen.

Now, for those who are still a bit skeptical or maybe a bit concerned about the balance, you might end up at the end of the initial term because, hey, life does happen and sometimes unforeseen circumstances can get in the way. Let’s assume you have an intro offer of 0% APR of 12 months, and then you realize that by month 11, you will still owe $1,000 in that credit card. By then, think of it this way, you have 11 months to demonstrate a good relationship with money to the bank. You have made your monthly payments on time. You have tried to work to the best of your abilities to reduce the amount of money that you own in that credit card. I think it’s safe to say that you can go ahead and apply for another 0% credit card either with the same bank or with a different bank, and hopefully, you’ll get approved for another $10,000. What you’re going to do is that you’re going to take the remaining balance from the old card of $1,000, and then you’re going to transfer it over to the new card.

Let’s say, for example, by the end of the 12-month term, after you continue to pay $100, $100, sorry, $100, and then another $100. Let’s assume by the time you hit this 11th month, and you do a balance transfer, instead of paying $10,000. Now, you have $9,000 available. Instead of making $10,000, then you make a payment of $9,000 in addition to your actual monthly payments in the mortgage.

So that you know, you will not be able to edit or make entries directly into the sheet. What you’re going to do to get a copy once you get the link, you’re going to come in on two files. Make a copy, then decide to name it whatever you want, and then download it to either your computer or to your Google Drive.

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