Posts

BIGG Success Logo boxed

A Better Way to Pay Off Your Mortgage Early

home_mortgageOver the years, a number of ways have been touted to pay off a mortgage early. Recently, we’ve seen a number of solicitations for a new way to do it.

The basic idea is to take out a Home Equity Line of Credit (HELOC) with your chosen bank. You use this account like your primary checking account. You will pay all of your bills out of this account and deposit all of your income into it. Any left over money goes to pay off your mortgage.

——

——

The benefit is appealing – you may pay off your 30-year mortgage in as little as 10 years. Of course, if you have any other debt (e.g. credit card debt or car loan), it’s almost certain you should pay that off first.

We’re talking in generalities here; you and your financial planner can determine your best financial move based on your specific situation.

The pluses

We liked that the program we looked at included a great visual that showed you the exact month and year your mortgage would be paid off if you stuck with it. We also liked that you could easily see your money coming in and going out.

Using intuition

The example showed a rate of 6% on the first mortgage and an 8.6% rate on the HELOC. Intuitively, it didn’t make sense to us to borrow at 8.6% to pay down a 6% loan.

So we decided to do some calculations to see if our intuition was right.

New vs. old

We decided to compare this new way of paying down a mortgage to the oldest of the old ways – including an additional amount with each regularly-scheduled payment.

The example we looked at was for a couple who made $5,000 a month and had bills totaling $4,000 each month. They held a $200,000 mortgage, with a 30-year term, and an annual interest cost of 6%.

The main driver – with the old way or the new way – was the $1,000 in discretionary money each month. The new program also accessed the HELOC in the first or second month, but once again that money is being paid back at 8.6% instead of 6%.

Apples to oranges

We found that the new program lived up to its promise – you will pay less in interest over a 30-year period. The problem is that it’s an apples-to-oranges comparison.

Their basic assumption is that you will use ALL of the $1,000 in discretionary money each month to pay down your mortgage if you are on their program. If not, you won’t use ANY of it – that is, you won’t pay down your mortgage OR invest it.

Apples to apples

So we decided to do our own comparison. We used the simple, old, do-it-yourself extra mortgage payments method – we added the $1,000 of discretionary income to our monthly mortgage payment.

The result?

We paid off all of our debt (which consisted of only a first mortgage) eleven months faster than they paid off theirs (which included the first mortgage and the HELOC)!

We found some of the assumptions about the timing of income and expenses questionable. With a more conservative approach, we would actually pay off all of our debt fourteen months faster using our old-fashioned strategy.

As for total interest savings, we would save between $10,989 and $24,210, depending on the timing of income and expenses discussed in the previous paragraph. This takes into account the cost of their software as well as a small annual fee on the HELOC.

Conclusions

In a strictly financial sense, the old-fashioned way is your best bet. However, it’s important to also consider the human side.

That’s where programs like this come into play – some people would be more likely to pay off a mortgage early because they could track their progress so easily.

Of course, you could set up one account yourself. With basic spreadsheet skills, you could set up a chart (or talk a friend into doing it for you) to show the effect of additional mortgage payments.

The bottom line – the old way is the better way if you’re looking to save the most money. But if you’re a little light on financial discipline, programs like this may be helpful.

Get the tips and tools you need to be a BIGG success.
Subscribe to the Bigg Success Weekly – it’s FREE!

Next time, we’ll discuss a resource that great athletes wouldn’t do without … and neither should you. Until then, here’s to your bigg success!

 

Related posts

734] 

(Image by svilen001)

BIGG Success Logo boxed

Your Potential Power

Today we’ll discuss how to tap into your hidden potential – that powerful force that lies within you. Find ways to bring it to the forefront and you’ll change your life, the life of those you love, and perhaps even the world!

A lot of us tap into our potential, but the real question is this:

Are you tapping into your FULL potential?

If you’re like most of us, you’ve just scratched the surface of what you can do. You want to be all that you can be.

The secret is to expose yourself to expose your potential.

We’re not talking about doing something that will get you arrested! We mean that you should expose yourself to the following four “P’s”:

#1 – Plan
Start with where you want to be. Some time ago, we discussed how to 11 visualize the life you want]. Develop a clear vision of your dream life. A vision so clear in your mind that you FEEL yourself living it, as if it were actually happening right now.

Then look at where you’re at now. Connect the dots – figure out how to get from where you are to where you want to be.

#2 – People
Spend your time with the right people – people who have already done what you want to do or people who are TRYING to do the same thing you are. The common denominator is common experiences.

We recently attended a seminar with a speaker who talked about this very thing. She pays to get coached by mentors who can help her get to the next level. They’ve been where she is; so they can help her get where they are now.

#3 – Programs
We’re talking about media, books, and other resources that are available to you. Of course, we like to think that Bigg Success is your most important source for great information and inspiration. Pat, who is a regular listener, said this:

“I listen to The Bigg Success Show every day on my way to work.
It gets my mojo going.”

Okay, enough shameless self-promotion. The point is there are a lot of great resources out there. One of our favorites is The Big Idea with Donny Deutsch. The only thing we don’t like about Donny’s show is that he spells “bigg” wrong!

#4 – Projects
Tackle a project you’ve never done before. Stretch yourself – get out of your comfort zone.

It may be a project at work. Or a volunteer project. You can always take up a hobby. Or sign up for a class. It may be completely new to you or you may do something where you learn new skills in your specialty.

Think back to your childhood. Was there an activity that used to fascinate you? Why not explore it again. You’ll find that it helps you personally and professionally. It will also help you learn more about your potential.

Our final thought is simply this – TAKE ACTION! Finding your potential is a process. Pick a “P” and go for it!

Subscribe to our show, our blog and/or our weekly newsletter – they’re all free!
What have you done to discover your potential? Leave us a comment!

Our Bigg Quote today is by Wilma Rudolph, the great athlete.

“Never underestimate the power of dreams and the influence
of the human spirit. We are all the same in this notion.
The potential for greatness lives within each of us.”

There is power in your unfulfilled dreams and desires. Only you can find that latent potential within you and do the great things you were born to do.

Next time, we’ll discuss the one ingredient that guarantees your success. Until then, here’s to your bigg success!

Related posts:

108]

144]