How To Payoff Your Mortgage Early With A Separate Account

How to pay your mortgage off early with a separate account Many of you that watch this channel and other financial channels are looking for ways to accelerate your mortgage payoff time much earlier than 30 years. On this channel, we spend a lot of time helping people accelerate other debts around their mortgage to the point where once we get to the mortgage, we get to decide whether we want to keep it or whether we want to refinance it into a first position home equity line of credit or obtain a second home equity second position home equity line of credit and use that to accelerate the first lien mortgage. Or maybe we're going to use a whole life insurance contract, we're going to save money first in a separate account, fund it, borrow against it, pay off the home in one shot. Or maybe we're going to go and take big risk, try to 10x our income first, eliminate the mortgage later. So there's a lot of different ways that one can go about eliminating their mortgage. My goal in this video is to give you an unbiased example review showing you the numbers, showing you what's possible. If we were to instead of do the traditional thing that majority of financial educators, professionals, advisors, teachers, gurus online say to do in regards to paying off your mortgage early, using extra payment, instead of just relying on that one method, you can compare that to some other methods and again, totally unbiased. I will let you know in advance when I'm going to give my opinion. Other than that, I'm going to do my very best to remain unbiased and just share with you the numbers. With that being said, let's dive right into the scenario. Here we have an individual 35 years old with a 30 year fixed mortgage. At the very beginning, 400,000 is the loan amount, 6% is their interest rate, the mortgage payment. This is just principal and interest, $2,398.20. If this person does nothing, does not try to pay off their mortgage early and keeps it for the whole 30 years, they will pay $863,352.76 in interest. They would have paid $463,352.76. That sounds like a lot of money and it is. This is probably a huge emotional pain point for a lot of Americans today that do not understand how the interest works in their mortgage. And so when they become aware, this becomes a major pain point and they want to then tackle that as quickly as humanly possible. And so they the first thing we normally think is, well, let me what pay extra directly at this mortgage so that I can reduce how much interest I pay. The conversation that almost never gets had even on this channel is opportunity cost. It's this concept that many are unaware of, which is if I take extra money and put it toward this mortgage, what am I exchanging, what am I losing for putting my money directly into my mortgage versus putting my money somewhere else so that it can grow. Is there a scenario when we look at over a 30 year period of time or if we're solving for trying to still accelerate the mortgage, what this could potentially look like? So opportunity cost is essentially where how much you could have earned by not doing this thing yet still paying interest over here on this mortgage, that 463,000, still paying it over here, yet potentially earning more somewhere else. That is a very healthy conversation to have with your financial advisor, with your coach, with your strategist, with your partner, with your spouse. And the goal of this video and all my videos to really give you as much information, as much real life numbers and case studies I possibly can to help you make the best decision. Again, going to keep this unbiased. So I'm not going to inject my opinion and when I do, I'll let you know. So this is the traditional way that almost everyone is aware of. And we're going to use an example of this individual having an extra $2,000 to $2,500 a month. So I did two scenarios. If you were to make an extra $2,000 a month payment each and every month, let's make it easy. Right on the due date of the mortgage. So you're going to pay 2,398, 20 and you're going to dump 2,000 in principal directly into the mortgage. You do that every single month, faithfully, with no interruptions. Your home is going to be paid off in 10 years and two months. So basically 20 years sooner than the original timeline and you would have saved hundreds of thousands of dollars in interest, no doubt. Then if you were to make extra payments of 2,500, that reduces it down to 8 years and 10 months. Pretty powerful. Okay, no argument there. That's, that's pretty nice. Now the other option, let's say you have the intent to pay off your mortgage early, but you're going to do it with a saving separate account now. So instead of sending that 2000 2500into your mortgage directly, what we can do is either set up a high yield savings account. So I'm going to use a high yield savings account as an example and a brokerage account where we're going to look at what it would, what it would perform if I simply saved money and earned more than the national average in the United States, and what it would look like if you invested your money, grew it. Okay, so that involves taking risk and see what those numbers would look like. Now, when it comes to making extra payments, although the timeline is nice, right? 10 years, 2 months, or 8 years and 10 months to pay everything off, one of the biggest drawbacks when it comes to accelerating your mortgage via extra payments directly is you lose liquidity, which means you lose options. You limit your household to opportunities, so you lose options and let's say opportunities. What do I mean by that? Well, for the person that saves $2,000 a month in a separate account, and let's say on average they earn two and a half percent on their money, in about eight years, they would have $274,911.26 off to the side, growing, compounding. And along the way, if an opportunity presented itself, for example, maybe they could earn 20% on their money if they did a deal with a friend on a real estate property. So that could dramatically increase what they were originally earning, right? And they're still paying their mortgage. So eight years go by, the balance is at 351,89,42 cents. And they got this over 250 grand built up savings. Now, to give you some more transparency, I did not take away taxes on the gains of this money. So keep that in mind. That 274 is a gross number. The net number will absolutely be slightly lower when you factor in the taxes that comes with your money growing in a high yield, savings or investment account. Okay? But that's one of the biggest drawbacks is opportunities. You lose options, you're not as liquid. And when life happens. Not if life happens. When life happens. The reason why the vast majority of people do not pay their mortgage off, according to what the spreadsheet said, right? And what the numbers say, 10 years, eight years, is because life happens. You have a new child, right? You get married, you get divorced, you have to replace the roof in the home, you got to install impact windows. Wife wants a patio. Wife wants a this, wife wants a that. You want a new car, you need to do repairs to your car. There's always something that happens when you put a financial plan together. When you put a blueprint financial plan together, life always happens, which can be very frustrating. And the likelihood of people paying off their mortgage ends up being far and few who actually end up Doing it in the timeline that they set out. Because life happens. And when life happens, they're not as liquid. Their money is trapped in equity jail in their home. And so in order to access that money, what do they have to do? They have to borrow. Now, most people do not have the wisdom, unlike you watching this YouTube channel that you're subscribed to. Most that do not watch this channel or others have no idea how to borrow. So what do they do? They take personal loans out at double and double rate interest rates. They take credit cards out at 25% or more. They do a home equity loan, they do a second position home equity loan. So they create a second payment on their home of a big lump sum amount. And before you know it, you intended to pay off debt. But somehow along the way you got yourself into more debt because life happened. And when life happened, you didn't have money set aside or you didn't have enough money set aside and you now have this issue. And once you solve that issue, then the next issue arises and you just find yourself in this trap that is almost feels impossible to get out of. What I have just said is not opinion. This is real. This happens day in and day out. My experience ask many others, you might be someone that experiences this. You're like, yes, I, I can resonate with that themselves. Most do not end up hitting their goals because of these drawbacks. So now that you know this, this helps you figure out whether I want to go ahead and do this or not. And the other thing to keep in mind is sometimes speed is not the only measurement to determine whether or not a strategy makes sense for you. My opinion, letting you know right now is the best financial strategy in my opinion. What I've learned coaching people over seven years now, connecting with over a thousand plus families, what I've learned is the best financial strategy is the one that you're actually going to commit to. Even if the numbers aren't as efficient as maybe another strategy that might be more complicated and hard for you to comprehend, I, as your coach, your accountability partner, partner, would encourage you to do the one that you're actually going to stick to. Because if I try to put you in the one that's more complicated and hard for you to comprehend and you end up not doing it and you do worse. What was the point when I could have had you over here doing something you actually understand, you actually commit to? So now that we have a baseline now, what I do like to do with all of my clients is establishing foundation. So I Use the extra payment method as a foundation, as a, as a way of measuring progress compared to whatever the other strategy is. So I say look, if you make extra payments in this way, here's our range. 10 years and 2 months, 8 years and 10 months. Here's what we lose. We lose liquidity, we lose options, we lose opportunity to look at other things along the way. We are not prepared for life unexpected event. If we don't have separate money set aside. Now, you could eliminate that the whole life's unexpected events. If before you even started this strategy, you simply saved the money first in a separate account, call that emergency fund and that money is out of the actual strategy. So that eliminates one problem. But you still lose liquidity, you still lose a lot of options and opportunities by doing extra payments, by having a high yield savings account saving at 2000 or 2500 at 2.5% eight years out, if I'm not mistaken. Let me double check my numbers here and what I'll do is share my screen with you so that you can see me actually doing the math. So we got 2500 eight years, 2.5% growth. The money grows to 268,004, 3129 again without minusing taxes from that number. So the gross net number will be a little bit less. Nine years out it's at 305 and 10 years out it's at 343. So the issue here as it relates to the speed pay down of the mortgage in year eight, let's say I didn't pay extra payments and I just took my 2,500 or 2,000 and put it in that separate high yield savings account. And I earned on average about 2 1/2 percent. Could be more, could be less, no doubt about it. But I think two and a half percent is a safe number right in the middle again today in 2025 you could easily earn about three and a half percent right now, maybe even 4% in 2025. But again, how long is that going to last? Maybe another year or two if that probably will come down. So safe to say two and a half percent by year eight, my mortgage balance, without making extra payments, I'll owe 351, 89, 42 and I'll have anywhere between 274,000 or 268,000 in that eight year period. Let me see what the number is. Want to make sure I have it right. 2008 years at two and a half percent, I think the number is less. Yeah. So 214. So I think this 268 number was based off of probably like 10 years. So this right here, 268 at 20, let me see, 2000 at two and a half percent. I think I got these numbers mixed up here, but that's fine. So we got eight years. At 2000, eight years you'll have 214,745 and 3 cents. At 9, it's 244, 452, 5, 2. And at 10, it's that number, 10 years. I see what I did. 2000 at 274 to match 10 years making extra payments at 2000amonth. I see why I did that. So 274,010 years from now. What's the drawback here? Well, I can't pay my mortgage off in full. I still have to keep saving more money. Okay, that's the drawback with that. And I'd say that's your only drawback, is with a high yield savings account, taking no risk, earning whatever you earn year over year over year, come eight, nine or 10 years out, you're still not in a position to pay your mortgage off. So 10 years, 274, the balance is 334 on the mortgage. We don't have the money. At eight years you're at 214, 351. At nine years you're at 244 and 343, you're about $100,000 or more short in terms of paying off that mortgage. But what's the upside? What's the benefit? Well, you have over $200,000 saved. How many Americans do that? Almost nobody. Almost nobody does that. So that, you know, you can look at it from that perspective. Like wait a second, I've paid almost 50 to 80,000 in principal on my, on my mortgage. The value of that home must have increased over those eight to ten year period. I got that fixed mortgage not going anywhere. And I've got multiple six figures saved in the separate account, earning whatever it's earning, taking no risk whatsoever. If life unexpected events happened along the way, more than likely I would have been able to cover those things. Two, if an opportunity presented itself, I most likely would have been able to cover it. And I stayed liquid in, in the process. It's a different mindset. I think in order opinion, I think in order to execute the separate account method to paying off your mortgage early, you got to be thinking long term. And the emotional part of that interest cost on that mortgage right here, the emotional impact, if it's not as deep for you, then you're probably going to gravitate to this idea instead because let's look even further out. Okay, let me share my screen. If you allowed time and compounding to really take into effect, what would it look like 20 years from now? So at 20 years contributing 2,000amonth into your savings account, earning 2.5% on average, you'd have $625,000 saved. I'm going to put that on my whiteboard here. $625,245.14. Let's see where the balance of your mortgage would be at in year 20. You owe 216 on it. Now what we can also do is kind of figure out at what year would I be able to pay the mortgage off. So probably year 13. 306 and I'd have 370. So sooner let's go to year 11. 306 saved. 325. It's about year 12. Between years 12 and 13, you would be in a position to potentially pay your mortgage off in full. Three, 16 owed. Yeah, between 316 and 306, you'll got anywhere from 338 to 370 grand. Again, minus taxes. You'll probably be able to be in a position where you could pay off your entire mortgage in full with that separate account. Or you say, no, I'll just keep saving. What happens if you saved for 30 years, 2,000amonth, contributing 2,000 monthly, earning 2.5% for 30 years. Now, more than likely that average would increase over a 30 year period. It probably would go to like honestly 3 or 3.5%. So if you're earning like 3% 2000 now you got $1.1 million and you have a paid off home and you're 65 years old, that's, that's pretty powerful. So it's something to consider in your journey of figuring out the mortgage dilemma. Do I pay it off early or do I not? And if I do want to pay it off early, what is the most efficient way for me to pay this house off early? With a separate account. Now, let's say you were going to take some more risk and you open up a brokerage account and maybe you play it simple, you buy the s and P500 or the QQQ fund and you just buy the entire index. Do something simple like that and average earnings of 6.2%. Let's see what that would look like. If you were to save $2,000 a month in your brokerage account and then invest that money over eight years at 6.2%. Let's take it back, see what we got here. 6.2% eight years out, you'll have $251,000 nine years, $291,000 10 years, $335,000. At 10 years, contributing $2,000 a month into an investment account, your mortgage balance would be at 334 and you'd have 335. So you probably would need at least another year because you got a minus taxes from those gains more than likely. And you'll be in a position where you could probably pay your mortgage off in about year 11, maybe year 12. Again, you'd have the option to. Your views might change in a decade from now, you might struggle departing with 350 plus thousand dollars that you tucked away in this, in this investment account or in this high yield savings. And you might, you might look at this like, technically I'm debt free right now. Technically I'm debt free. I'm in a position where if I wanted to, I could eliminate this mortgage in full. But I also have the option, the opportunity and the liquidity to keep going and I can keep managing this mortgage payment. What's the drawback? The drawback is I'm going to pay $463,000 in interest. But now there could be a tax play here. What's the tax play? Well, you can deduct that mortgage interest that you are being charged on your primary and you can save some of that money off of your taxable income. So by maintaining that mortgage at its high balance all the way through, you're getting your mortgage interest deducted, let's say off your taxable income. And then you're earning dollars over here that as long as you don't sell, you're not paying any taxes as long as you don't sell. So then the question becomes, am I willing to get into this more complicated strategy? Because you have to admit it is a little more complex. Again, making extra payments you could argue is the simplest way to pay off your mortgage early. But it doesn't factor in liquidity, options, opportunities and unexpected life event. By saving and or investing your money instead, you remain liquid. You open up options and opportunities. The opportunity cost is not missed. And it's a game of essentially trying to earn more than 6% on your mortgage. So we can identify here that I would need to earn on a 6% mortgage in terms of keeping up with the acceleration timeline, I would need to earn more than 6%. How much more? At least net, 6.2 plus percent or more. And to be a little more conservative, you could say 7% or more is what I would need to earn on average every single year to keep up with the person that is making extra payment. But then if you look over a 30 year period by not accelerating the mortgage at all, and you look over a 30 year period, you end up with a lot more money. Let's look at that. 2,000amonth with 30 years, 6.2%, you have $2.1 million and you'd have a paid off property by the time you're 65 years old. What's the drawback? Well, Denzel, I gotta wait 30 years to see that. A lot can happen in 30 years. That number could be vastly different. I could lose money. Denzel. Yes, you can so understand, each one of these options have their pros and cons. And if you're someone that does not like risk, you don't resonate well with risk. You can make a strong argument for maybe just doing the high yield savings. Now this is a bonus. If you're someone watching this whole entire discussion here and you're like, I lean more toward using a high yield savings account because I don't take any risk and I'm pretty confident I can earn more than 2 1/2 percent. If I can get to like maybe 3 or higher, I'm okay with me coming short only about a year or two. If that compared to if I would have made extra payments on my home and I will take that large lump sum of savings, pay my mortgage off in full, recover that cash flow of the 2398, 20, now you got 400398 and you can start to rebuild your savings and essentially your investments back up at that point. As a bonus though, what you could consider that I believe takes the best of all these options and gives you the most amount of options, highest amount of liquidity, opportunity, safety, protection and guarantees, plus additional insurance protection in this process. And that could be instead of the high yield savings using a properly structured whole life insurance contract, where if you were to save anywhere between 2000 and 2500amonth in a properly structured whole life insurance contract, we could look at what 10 years would look like, 13 years, 15 years would look like. And the some of the advantages going with this route is it's pretty much identical to a high yield savings. You're going to be earning a guaranteed return of the money you contribute inside of this policy that's properly structured for High cash value, you're going to have a death benefit that is more than likely going to be close to the $400,000 mortgage balance, if not more on 2000 to 2500 bucks, you're going to have living benefits such as cash value. Cash value is a living benefit that you can borrow against the dollars that are inside of your policy and use that for opportunity to create more cash flow or earn or acquire more assets that create cash flow, that earn interest. The money that grows inside of the whole life is going to be tax free. It's actually tax deferred. And if used properly via withdrawals or policy loans, you can access the money tax free. And you've got all those layers of protection and you've got the liquidity and you're able to handle unexpected life expenses that may come up along the process that could stretch the timeline out. So in part two of this mini series here of paying off your mortgage early with a separate account, I'm going to take, I'm going to transfer these numbers to part two video, but then I'm going to add a layer of whole life insurance so that you can see these different options. And then in part three, we can introduce velocity strategy where we can show what a home equity line of credit could do in this case. So this will be a three part series to help you process, but just understand that there are these other options that exist. And if you're willing to train your mind, check your emotions, distill the numbers, make the comparisons and pick the one that's most efficient for you, I think you're going to end up being in a very, very healthy position financially and you might even draw to a final conclusion not paying off your mortgage at all. Especially if you're someone that has a mortgage in the twos and threes and the 4% range, you can make a pretty strong argument for not paying your mortgage off. You see, if you had a mortgage at 2.75% and you could save $2,000 a month safely and earn over 3% on average over an 8 to 10 year period of time, the numbers are going to look different. The numbers are going to look really different. Actually they're going to look more attractive. Okay, so if you like this kind of video, please comment below that you want to see more scenarios. You could even comment an entire case study for me. Maybe it's your very own mortgage with, with the amount of cash flow that you have. And I could put together some videos where I compare extra payments as our standard comparing it to a high yield savings, a brokerage account, a whole life policy, and even using a line of credit just so that it can help you make the best decision. I also recommend that you have an accountability partner, financial coach, a consultant, a strategist, someone like myself or others on the Internet that are professional, that are happy to serve, that this is their passion, that they love doing this so that you can have someone in your corner to bounce these ideas off of you. And hopefully you work with someone that's transparent, that's not just one sided, that's.