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How To Cut Your Mortgage In Half (2)


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I've been teaching homeowners a strategy that cuts tens of thousands of dollars of interest of their mortgages. This method is not a bi-weekly mortgage, it doesn't require a home equity line of credit and it is 100% flexible to a homeowners requirements and abilities.

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How To Cut Your Mortgage In Half (2)

  1. 1. Mortgage Pre Payment Strategies So much has been written and thousands of pre payment programs are sold every year because people desperately want to reduce the amount of interest they pay on their mortgage. And why not? Even at today's low interest rates, over a 30 year period, homeowners will pay more than what they borrow in interest alone. Add principle repayment and you end up paying back twice as much as you borrow. And we all know that amortization works for the lender and against the borrower, with the interest being front-loaded. This has turned a number of mortgage interest reduction programs into very profitable businesses. One popular mortgage interest reduction program is the "bi-weekly mortgage repayment" plan. While the bi-weekly program is better than doing nothing, you have to pay an upfront fee plus debit fees for each payment. These additional costs cut down on your savings. And bi-weekly payments only cut about 1/3 of your total interest - not bad but you're still paying an awful lot of interest if you ask me. Another interest reduction program is offered by a company called United First Financial. This program also has benefits but you need to have a home equity line of credit to make it work and it is very expensive... $3,500, last I looked.
  2. 2. There's Got to be a Better Way! I have been teaching homeowners a better way to reduce mortgage interest costs for over 22 years. Thousands of homeowners have benefited from my strategy - and that's without them having to lay out a penny. See, I've never charged people for this information. I gave it to them because they were my clients and I wanted to do something for them that would make them remember me. And let me tell you, it worked. Many clients have written me letters to tell me how great they are doing with the program. And if don't get letters, I call them. I ask them how they are doing. Even if they weren't using the information, they always had more questions. Because everyone wants to do it... some just don't get around to it. But one day it struck me that this information would be great for realtors to share with their homebuyers. So after 25 years in the mortgage business, I contracted with a national title company (with the convenient name, National Title) to bring this information to Realtors. My job is to bring in business for National Title. But you probably won't see me in your office. I bring business to National Title by "giving" first. See, I believe that as I share valuable information with you...then its ok for me to ask that you give National Title a try on your next transaction. Just once. And then, if you feel the service we provide exceeds the company you are using now, I ask that you use us again. And that's it. Fair enough? So, after you watch this video, if you like what you see and would like a copy of this video to share with your clients, just give me a call at 1-866-RON-BORG. I will send you this video but with your name and contact information. So YOU get the credit. Let's begin.
  3. 3. How to Cut Your Mortgage in Half with Fast Forwarding Second only to children and taxes, mortgage interest will be a homeowner's next largest lifetime expense. If there was a guaranteed way to dramatically cut down on that expense, wouldn't it be wise to learn how? By Ron Borg National Title 1-866-RON-BORG (866-766-2674)
  4. 4. Mortgage Interest - Friend or Enemy? Most homeowner's have been conditioned to think that mortgage interest is good because its tax deductible. Let me dispell that myth right now. Let's take a $200,000, 30 year mortgage at 5.5%, a historically low interest rate. Over a 30 year period, you'll pay $208,808 in interest! At 6.5%, that interest jumps to over $255,000. Of course, on top of that, the principle needs to be repaid also so you end up paying back at least double of what you borrowed. But it gets worse.
  5. 5. Amortization is Not Your Friend! Mortgage interest is paid through a process called amortization. It's great for the lender... not so much for the borrower. Using the same $200,000 mortgage at 30 years, let's look at how the interest is paid back. In the first year, you'll pay just under $11,000 in interest. At the same time, you'll only reduce the principle balance by $2,694! Meaning, over 80% of your payments in the 1st year go to interest. You'll pay more than $10,000 in interest every year for 6 years. By then you will have paid over $63,000 in interest, yet you'll have reduced your balance by less than $19,000.
  6. 6. Okay, but what about the tax deduction? Assuming your income is less than $372,000, the top tax bracket is 33%. If your mortgage is on your primary residence, you may deduct the amount you pay in interest from your income. So, if you pay $10,000 in interest, you will save $3,300 in taxes. Now deduct the tax savings from the interest you paid: $10,000 - $3,300 = $6,700 = net interest paid. You paid off less than $3,000 from the balance. So your tax savings + your principle reduction is less than what you paid in interest. There's no other way to put it... that sucks. And that's assuming your in the 33% tax bracket... which most folks with $200,000 mortgages are not.
  7. 7. Understanding "Amortization" In order to understand how to minimize the interest you pay, its important to know how amortization works. Each mortgage payment you make is made up of 2 parts - interest & principle, often expressed as P & I. Your mortgage may also include an escrow payment for taxes and insurance but we are speaking now of only the P & I. Amortization is "front loaded" with interest. This means that initially, our payments consist mostly of interest - on very low interest rate mortgages - less than 6%, about 20% of our total payment goes to principle, the rest is interest. And on every subsequent payment, there's a little less interest, a little more principle. This continues for the entire mortgage. You might think that on a 30 year mortgage, the payment will be equally divided between principle and interest around the halfway mark... year 15. You would be dead wrong. An evenly divided payment won't be reached until around year 22 - 23! This means that on a $200,000 mortgage, it will take nearly 23 years to pay off $100,000. The second $100,000 will be paid off in the last 7 years!
  8. 8. More on Amortization... When most of our payments go to interest and only a small portion goes to principle, that is an inefficient payment. When you pay principle, your balance goes down. But not so for interest payments. For the borrower, amortization is very inefficient for the entire first 15 years and it doesn't become "efficient" until after the 20th year. Thats because its only after 2/3rd's of a mortgage has been paid that finally, at least half of our monthly payments are applied to principle repayment. Up until that point, all of our payments have been more interest than principle. So, in order to effectively reduce the interest we pay, we need to get to that last third of our mortgage as soon as possible. How? Well, we need to accelerate our mortgage... fast forward it, so to speak. Get to the efficient part... the last third. So, to recap, a 30 year mortgage has 360 payments. For the first 240 payments or so, we pay more interest than principle. To dramatically reduce the interest we pay, we need to "Fast Forward" our mortgage - getting to that 241st payment as fast as possible.
  9. 9. Lets Take a Look at the First 10 Years of Amortization - $200,000 over 30 years at 5.5% You can see that even 10 years down the road, there is still twice as much interest being paid as principle. That is why we consider these payments to be inefficient.
  10. 10. The first 20 years of the same mortgage. Notice that it takes almost 19 years before we finally begin paying more principle than interest. Remember, this mortgage is at 5.5%... at higher rates, it will take even longer. But whatever your rate happens to be, the point is this... the faster you get to this part of your mortgage, the better. Get to where your payments become efficient... meaning at least 50% of your payment is applied to principle, as soon as possible. So how do we do this?
  11. 11. By "Fast Forwarding" Our Mortgage Its important to understand that when we pre-pay principle, or pay principle before it is scheduled, it moves ahead on our schedule. Our schedule may have 360 payments... but we're NOT REQUIRED to make 360 payments. When we pay the principle portion of future payments ahead of schedule, we eliminate the interest portion of that payment. So by pre-paying a little, we can eliminate entire payments! Each early payment of principle moves us ahead.. we are Fast Forwarding our schedule. Now this is important... next month, you still need to make a payment... but you will be making the following months payment. Let me show you what I mean on the next slide.
  12. 12. Let's Fast Forward This Mortgage Let's assume we're about to pay the January 2010 payment. The payment has $916.67 of interest and of principle for a total payment of $1,135.58. With the $1,135.58 payment we send in an additional $219.91 - the principle portion of February's payment, see that? We have now eliminated February's payment. The interest of $915.66 is no longer due because we sent the $219.91 principle early, ahead of schedule. Come February, we still need to make a payment because a mortgage note typically calls for 12 payments per year, but on our schedule, we'll be making March's payment. We've fast forwarded one month on our schedule. Now, along with March's payment, we add April's principle of $221.94. In March, we'll be on May's payment and we'll add June's principle. See how we are going twice as fast as our schedule? And it gets even better...
  13. 13. Fast Forwarding a Mortgage When we pre-pay our mortgage or, in other words, pay additional principle earlier than scheduled, we accelerate (fast forward) where we are on the schedule. Here's the wrong way to Fast Forward: Say you would like to make a pre payment of $500. So you send in an extra $500 with your May 2010 payment. You've just Fast Forwarded. But to where? See how that with $500, you paid more than 2 months of extra principle but not enough for 3 months? ($223.97 + $225.00 = $448.97) And that is the problem with pre paying random amounts of principle... you know it's good but you just don't know exactly what it does for you. That is why I teach Precise Principle Fast Forwarding.
  14. 14. Precise Principle Fast Forwarding With Precise Principle Fast Forwarding, or PPFF, we think in terms of the number of the payment rather than the month itself. We make January's payment of $1,135.58 ($916.67 + 218.91). We see that February's payment consists of principle of $219.91 and interest of $915.66. February 2010 in our mind is payment #2. When we send the principle of payment #2 ($219.91) with January's payment, we no longer have to pay February's payment #2) interest of $915.66. We are skipping payment #2. Does that make sense? By pre paying the $219.91 principle we eliminated the $915.66 interest payment and therefore, we eliminated the payment. We skipped it. We fast forwarded. Pay $220, save $915... is that a good deal? Now, we know we need to make a payment every month. But we start to think about the number of the payment rather than the month, you see? Once we begin Fast Forwarding our mortgage, the name of the month no longer means anything... we concentrate on the payment number instead. We want to get to those higher numbered payments.
  15. 15. Now Keep it Going! You made 2 payments in the 1st month by pre paying the following month's principle. In February, you make a regular payment of $1,135.58 which is really March's payment - payment #3. You add the principle of payment #4. On the calender its now March. But you already paid January, February, March, & April. On your schedule, that is payment numbers 1 - 4. So in March, month 3, you pay payments 5 & 6. Month 4, payments 7 & 8. By the time you get to your 12th month, you be making payments 23 & 24. You'll have paid off 2 years of your mortgage in just the first year alone! You're going twice as fast as your normal schedule. You are keeping track of where you are on your schedule by crossing off the months you have paid. Whether you paid the whole month or just the principle (early), matters not... you are crossing them off. Your Fast Forwarding. As you do this, you see exactly where on the schedule you are and exactly how much interest you've saved. Plus, you'll know your exact principle balance at any given time. When the day comes to sell your home or if you refinance your mortgage, you'll know exactly what you owe. If your lender says otherwise, you can prove exactly how much you owe because you will keep all your statments which show the additional payments. It's a proven fact that banks make mistakes. Think most of those mistakes will be in their favor? Those people that just send in random amounts of principle? You think their lenders always apply those pre payments correctly?
  16. 16. How Much Control Do You Have With Precise Principle Fast Forwarding? Good question. And the answer is 100%. You can skip a month. Even better, you can make a larger pre payment than next months principle. Just add up future months principle until you get close to the number you are looking for. Say you already have a mortgage. It's February 2010 and you just learned of PPFF. You would like to make an extra principle payment of $1,000. Here's what you do: Add up the principle column of future months until you get close to $1,000. March + April + May + June = $939.97. Do you send in $1,000? No. You send the Precise Principle - $939.97. You stay on schedule. Cross off those months - March through June. Come March, you'll actually be paying July's payment. Neat, huh?
  17. 17. Won't the additional payments become too large to handle?Nov. 2025. Additional payments are Lets jump to now over $500 and its too much to pay each month. Not a problem. Look 2 months ahead to January 2026. Take Jan.'s principle ($526.71), divide it in half. Make Nov's payment as usual but set aside half of Jan's principle in a savings or checking account. Come December, take out the half you saved, add another half and now you are paying January's full principle payment in advance. See that? You're not going twice as fast anymore - you're making 3 payments every 2 months... but that's still excellent. You can make an additional payment every 3 months, 4 months, whatever...its up to you. Figure out a comfortable amount you can pre-pay each month. Set that amount aside each month. Look ahead on your amortization schedule. Find the month where the principle is a multiple of the amount you are saving each month. As an example, say you can only set aside $150. Well $150 X 3 = $450. If you can stretch to $175, then you can make that extra payment every 3 months. If you can't do that, then jump 4 months ahead, divide that principle amount by 4 and just save that amount. Now you'll make an extra principle payment every 4 months. And that's ok too. Stay on the schedule by making precise principle payments amd crossing off the months as you go. You've done a great job - you've fast forwarded to the efficient portion of your mortgage.
  18. 18. How to Get Started... If you happened to have discovered this pre payment method before you actually get a mortgage, you're in great shape. The sooner you start the better and there's no better time than the very first payment. If you are already into a mortgage, that's fine. You just need an amortization schedule for your particular loan. Just do a search for "Free Amortization Calculator" and you'll find dozens. One caveat. If you have already made additional pre payments, I recommend you get your schedule from your lender. It needs to be customized to your exact loan. Hopefully, they have been properly crediting you for your additional payments.
  19. 19. To Recap... Your mortgage has a certain number of payments - 30 year mortgages have 360, 20 year mortgages have 240 and 15 year loans have 180. But you are not required to stay on that schedule. Each time you make an early payment of principle, you eliminate a huge chunk of interest. Make those early payments precise, and you knock off full payments. Go 2X as fast, 3X as fast, or go slower... just go faster than your schedule and you will automatically save huge amounts of interest. But do it precisely. Have a game plan. Set aside half, a third or even a quarter of the payment in advance... it's entirely up to you. The main thing is that you do something!
  20. 20. Good Luck! I bring this information to you in the hopes that you will take advantage of it and make a better life for yourself. It was only a couple of years ago when the prevailing thought was to leverage your home as much as possible. I'm glad those days are over. Look at the mess such thinking has gotten us into. The best way to own a home is free and clear. With the Precise Principle Fast Forwarding Strategy, you'll get there a whole lot faster. I'd love to hear your comments and your stories. Please visit www. and let me know how you're doing, ok? And when you need title insurance, call me at 1-866-RON-BORG (866-766-2674)
  21. 21. Final thoughts and of course, the ubiquitous legal disclaimer Before making any early pre payments, verify that your mortgage will allow pre payments without penalty. Many loans that were taken out over the past few years had pre payment penalties. The PPFF program is based on fixed rate mortgages. While it is possible to prepay adjustable rate mortgages, they work differently in that the term is not reduced; instead, the next time the loan is adjusted, it will be based on a new lower principle balance. The PPFF program has worked for thousands of people. But I must tell you that I am not an attorney nor am I an accountant. You may wish to consult with your attorney and/or accountant before beginnning with this program. In the event your designated professional would like to discuss this program with me, please tell them they may contact me through my website at 1-866-RON-BORG or All efforts have been made to present accurate information but under advice of attorney, This information is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this site. Accordingly, the information on this site is provided with the understanding that the author and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. Before making any decision or taking any action, consult a professional. While we have made every attempt to ensure that the information contained in this site has been obtained from reliable sources, I am not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Ron Borg,, its related partnerships or corporations, or the partners, agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this site or for any consequential, special or similar damages, even if advised of the possibility of such damages. Certain links in this site connect to other Web sites maintained by third parties over whom Ron Borg & National Title has no control. Ron Borg & National Title make no representations as to the accuracy or any other aspect of information contained in other Web sites. Also brought to you by - making online mortgage shopping a breeze.