Why You Should NOT Pay Off Your Mortgage Early

What do you think who benefits from getting all extra payments that someone is sending to a bank?

Well, it's the person that you're sending your extra payments to, which is probably the banker, not your family.

Yeah. And what does he do with this money?

They're going to take the money that you are sending them to put it in something that is more worthwhile for them, Right?

Exactly. Not for us, not for the family. Right.

Anything that they use our money for to make. They're in the business of banking. They're not going to share that profit with us.

How would you feel about giving too much money to a banker who makes lots of profit from this extra money?

Well, I'm on the other side, right, Roman? I know. I don't want to send my money to the bankers. I want to send the money to myself in my own banking system.

Paying off your mortgage in five, 10 or 15 years early and saving on interest may give you peace of mind. People say dollar saved is a dollar earned. For example, say you're mortgage free in 10 years and you saved hundreds of thousands of dollars in interest. Feels great, right? But what about the flip side of the coin? Being mortgage free is awesome, but is it really worth giving all your discretionary income to a banker? Stick with us till the end of this video and we will show you how much you're giving up, the lost opportunity cost and what you can do instead of throwing cash at your mortgage. We will look at real case example of paying mortgage 15 years early and we will compare it with a banker's mindset approach. Hi, I'm Roman Pushkar and today I'm with my friend and colleague and amazing person, Henry Wong. We are authorized infinite banking practitioners with Nelson Nash Institute and we're also our financial coaches with Ascendant Financial. If you haven't heard about the process of becoming your own banker after you have watched our video, please go to watchibc.com again it's watchibc.com and you will be able to sign up for a free on demand webinar for Canadians. So imagine you're mortgage free and it only took you like 10 to 15 years to pay it off because you've been making extra payments, you saved lots of money and now your cash flow improves because you no longer have to pay those mortgage payments anymore. And if you know what to do with this cash, you will not be spending it right, you will be putting it aside and investing it, most likely. And good for you if you understand that and you're doing really, really well. Because you're mortgage free. In fact, only 12% of Canadians who own a house don't have a mortgage. But ask yourself these was there a more effective way to grow your wealth? Second question. Now you have 100% equity in your house. How can you access this equity in your house? If you need to purchase a car or if you need to send the children to school, or maybe you want to invest, chances are you need to borrow again. And you will borrow against this property in the form of a home equity line of credit, or you need to refinance your house, which means you're going back to debt where you started with. Right. If that's the case, why did you pay off your mortgage so aggressively in the first place just to be able to borrow again and pay interest to someone else who has capital? Henry, what do you think? Who benefits from getting all extra payments that someone is sending to a bank?

Well, it's the person that you're sending your extra payments to, which is probably the banker, not your family.

Yeah. And what does he do with this money?

They're going to take the money that you are sending them to put it in something that is more worthwhile for them.

Right? Exactly. Not for us, not for the family. Right.

Yeah. They don't share any of that. Anything that they use our money for, to make, they're in the business of banking. They're not going to share that profit with us.

Yeah. And how would you feel about, you know, giving too much money to a banker who makes lots of profit from this extra money?

Well, I'm on the other side. Right, Roman? I know. I don't want to send my money to the bankers. I want to send the money to myself in my own banking system.

Absolutely. So the banker will enjoy the benefits of the cash flow and will make outrageous profits from it. The last question we want to ask you, what, what would the outcome be for you if you didn't send that extra hard earned cash to the banker and you could keep this cash and put it to work for yourself? We wanted to show you an example of two brothers, Keith and Peter. So I'm going to share my screen and we will look at this example. Keith and Peter, they are brothers, they are 39 years old, they don't smoke, they are software engineers and they make about the same income, $170,000 per year gross. Keith understands that paying off mortgage is important because he can save on interest. And he's right. So when you pay down the mortgage quickly, when you make chunks of money payments, he understands that what you're doing, you're jumping in a schedule of payment forward, skipping many months of payments. Right? So this way you are saving on interest. And we will look at this example and Peter's. Peter's objective was different. He understands that building wealth today is far more critical than waiting until you pay off your mortgage and then starting building your wealth. So he came to Infinite banking. He found Infinite Banking. He discovered this book, becoming your own banker by R. Nelson Nash. If you haven't read this book, you have a chance to order it today. We will post a link under this video to order this book on our website. It will be delivered to you in just couple business days. And yeah. And then so Peter found a better way to go about paying off his mortgage. Now they both have the same about income and they both had a discretionary income every single month, about $2,500. $2,500 times 12 comes to $30,000 extra money that they had left as a discretionary income. So Keith decided to pay off his mortgage early. So he is sending once a year, at the beginning of the year, he's sending $30,000 payment to his mortgage. This way he is reducing his debt. And then Peter has the same exact discretionary income. Now what he does, he uses this money to start his own banking system because he understands that it is very important to start growing wealth early. And let's look at their real numbers.

Let me just jump in here. That when he makes extra payments to his mortgage because of the structure and how the mortgage is designed, Roman, is that going to change his payments of what he needs to pay to the mortgage when he makes an early payment, is he still required to make the same amount of payments each month?

Unfortunately, yes. He has to pay the same exact mortgage payment. And yeah, you're absolutely right, Henry, it's a great point. You know, when you do extra payments to your mortgage, your payment monthly payment doesn't change, it stays exactly the same. What you're doing, you're reducing the number of payment periods. Basically like I shared, you're jumping ahead in a schedule of payments and then skipping many payments. And especially it is important in early years where you can skip many payments of interest. And this way Keith wants to see.

Save on interest, he just wants to pay earlier. Whereas Peter is just going to make the same payments that he has in his schedule as part of the mortgage, but he's just going to redirect instead of that extra money going to the mortgage, he's redirecting that money to his banking system.

Exactly. Yeah. He's not working harder than Keith. He has the same, the same cash flow. He's not putting on more risk on him. But what he's doing, he has just redirected those extra payments from giving it away to someone to keeping it in a family and having control. And let's look at real numbers, what it looks like.

In this spreadsheet. So I'm gonna share this.

Slide. So they have a mortgage of $500,000 both.

And then the interest rate is 2.3%. For the simplicity of this example, we're not going to be talking about different rates at renewal. Let's imagine that 2.3% stays till the end of the mortgage with both of them. Right. So we're not going to be talking about different renewals rate and stuff like that. I know rates change right now. Rates go up in Canada, so we will be.

Ignoring that fact. Now, amortization for both of them is 25 years. So this is Keith again. This is Peter. Discretionary income is about 2,500 per month, which means Keith is doing extra payments, $30,000 per year. And then he is able to pay off his mortgage is only nine years in nine months. Peter wants to stick with his original plan, original schedule. And his mortgage payment is for 25 years. And he is not changing that. He is paying mortgage for 25 years. And Henry, so how is mortgage structured? So when you pay your mortgage payments, can you expand more about, you know, interest part and the principal part of this mortgage payment?

Yeah, when we actually look at mortgages and you know, what a lot of people may not understand is a mortgage is what's called a amortized loan. And an amortized loan, Roman, you touched upon payments being if you paid extra, it doesn't change the payments. Amortized loans fixes payments to be level throughout the term. And again, for our example that we're sharing here is it's going. We're going to do it all the way to 25 now every five years or three years, depending on the term that you sign with the bank, they may reevaluate the interest on that period. Now, once the. When we go back to looking at payments, a component of a payment in a structured loan, like an amortized loan has principal and it has interest and so which combined form the payments. And when you make your payments in your mortgage, the beginning of it actually a lot of that is weighted towards the interest and then. And that smaller portion is the principal. And over time the interest shrinks. But the amount that Your payment goes to shifts towards to the principal. And, and if you don't refinance then you don't start the cycle again. But however, going through your mortgage you're always shifting more and more of that payment that you're doing. It will go into your principal rather than your interest.

Perfect. Yeah. Let's look at real illustration. So this is Keith and these are his mortgage payments. So as you can see on the left side this is years, so 25 years.

So what he's doing, he's paying his mortgage payment of 21.936 and it comes to annual payment of 26,317. And because he has extra payments now he is sending those extra payments to his mortgage company and then reducing the interest. And by the virtue of sending those extra payments he was able to actually pay off mortgage in 10 years. You see that in the 10th year his payment is actually lower than 26,317. It's only 19,415 is because he only has nine months to pay. And he also.

Made a payment of 30k chunk this year as well. And before the end of the 10th year he's mortgage free. Awesome. That is awesome. And congratulations to Keith. He did really well. He did much better than most Canadians because he has no more debt. Yes. Now he has sent 300k. Thank you Henry to his bank, extra money. Now because he used to sending those payments to the banker, now he has to continue doing that. Right. And he wants to start investing. This is what he does. He starts investing actually from year 10 and then he goes all the way down to year 25. We can see that he's sending exactly the same payment, 26,317. Now this payment goes into some sort of saving. It can be a GIC account, it can be non registered account with like investment account. And this money is setting aside and working for him. Now his total outlay for 25 years is 957,918. This includes his mortgage payments and this includes his investments. Let's look at what this comes to. So his mortgage amount he paid is $556,266. And then interest paid is 56,266. So Keith and Peter they had the same exact mortgage. So this is what Peter did, he stayed with his original plan and his mortgage payment, total mortgage payment is 657,918.

So if we do a math here then we will see that Peter pays way more interest to the banker. So he pays $101,000 and Keith saves this money. Right. So interest paid is 56,266. And Keith paid interest 157,918. This is $101,652 more than Keith did now because he started Investing, he invested $401,652 and Keith put exactly 30k for 10 years, which comes to 300k. Okay, now let's look at how Peter.

Is doing with Peter. The only thing is, instead of sending the extra 30,000 to the mortgage company, what's happening is that extra 30,000 is going into building his banking system.

Yes. And you can see, you can notice that he started from year one.

He didn't start at year ten as Keith did. Right. So this is very critical, this is very important. He didn't wait to pay off his mortgage. So you see, his mortgage is exactly the same. His payments go through 25 years and then he doesn't worry about, you know, saving on interest. It may be good, maybe not good strategy for everyone. Not everyone should do it. We're not saying that everyone should, should do it. What we're saying, we're just showing a difference right now. Let's compare them side by side. Henry. So he can invest in something like a GIC fund. He can invest in something like a GIC account. And we are assuming 2% net of, net of taxes, net of fees. So it can be any different saving account. It can be unregistered account. And so this is his account that is compounding and growing at 2% when he invests this. So when do you think he can put his money into Henry?

Well, he can put his money into anything he wants. He can put it into GICs, stocks, ETFs. It can be held in a registered account, unregistered account. But we're just going to show a very simple example of what that is going to look like. And I see here, roman, you have 2% rate of return.

Exactly. Yes.

One of the things talk about is that rate of return. Is this 2%, Roman? Is that guaranteed?

No, not at all.

Could the markets go up?

Markets can go up and can go down. And if the markets go down, then it may take a couple years even to recover. And then the average rate of return is very.

It's a fake, right? So average rate of return doesn't really represent the actual returns that you can get in your account. That's why, please don't, don't look at average rate of return.

Oh, yeah, no, there's definitely, there's a lot of messages that will say presume an equal whatever rate of return over an extended period of time and you'll be a millionaire. But we now we know that that doesn't. Average rate of return doesn't represent actual rate of return.

So on the other side, this cash value. So this cash value is a project that Peter has in his account because he puts his money into his own policy and he only does it for 10 years. Just to compare apples to apples. We're doing exactly the same amount every single year. What Keith does the same exact amount of money Peter does.

Keith is paying extra to his mortgage, whereas Peter, instead of put paying extra to his mortgage, he's putting it into his IBC policy.

Right.

Properly designed whole life insurance policy.

Yeah. So Henry, let me ask you this. So what happens if, God forbid, anything happens to Peter? He gets hit by a bus or, you know, just has a stroke and he dies in year two, how much will his family receive?

Well, they're going to receive $724,000.

Yes. He created a death benefit only by the virtue of doing this with an insurance company. By banking with insurance company, he created money that has never existed before.

Okay, go on. From when I said the 724,000 tax free, what I was going to tie it to was how much money did he put in to get that? 724,000.

Maybe you can take that. And how much money did he put in to get this? 724,000. If he passes away prematurely, it's 60,000 only. Right. So what rate of return is that in order to put in 60,000 and get 724,000? You can calculate it yourself, but it is a huge amount. Right.

So he got 12 times his money by putting his money in a properly designed policy. Yes.

Perfect. So now Keith doesn't have this in place and we can assume that he doesn't have life insurance in place at all. So what happens to him if he gets hit by a bus? How much will his family receive?

Nothing.

Nothing. And most likely his spouse and children will need to qualify for a mortgage to continue making those mortgage payments. Right. First of all, they're going to lose his income. There's no death benefit paid to the family and they still have to pay off this mortgage because it is an outstanding balance. So his wife actually needs to qualify for a mortgage to continue doing that. So how much will his family get if the mortgage is paid off? They are now mortgage free. Great job. And year 14, if he gets hit By a bus. Then how much will his family receive? If he put in $112,000, how much will his family receive, Henry?

They've invested $112,000 and have grown in. And now what would be left behind would be what's in the account.

Yes, just this money. And is this money taxable, Henry?

For sure. Well, if the spouse there, then it would roll over to the spouse. But otherwise, depending on where it's being held, it may roll over to the spouse, but ultimately it can be taxed. It's exposed to tax.

Yes, perfect. So let's look at total numbers here. So let's see what Keith and Peter have been able to achieve. Yes. Keith saved $101,000 on interest. So he invested $401,652. And Peter only put in in his own bank, $300,000. So he put, he puts in less money. But then he created money that never existed before. This money is a death benefit. Right. And also in addition to that, what else did Peter created, Henry? If he needs, let's say he needs to purchase a vehicle in year three, what can he do?

I mean, the life insurance is nice when he's not here. What I'm presuming you're talking about is what about the money that he gets to enjoy while he's alive and can use it? He gets access to cash values.

Yes.

So how much can he borrow from these cash values in year three, Henry?

Well, he can borrow in some particular carriers. They may be different, but the particular carrier I'll just kind of use an example is 90% of the cash values.

Yeah. Which will be around 77,000. Can he buy a car and be the banker for himself and his family and pay car payments back to his system?

Of course.

Absolutely.

He understands the benefit of becoming his own banker and getting other banks out of his life. And why would he buy, why would he borrow money from another bank to buy a car when he can access and get the money from his own system?

Yeah. And what would Keith do if he needs to purchase a car this year as well?

Well, if he hasn't saved up enough money, he would probably need to borrow money from another banker that was going to lend him that money.

Yeah. If he can qualify for this loan, then he can borrow. If he cannot qualify, then he may not be even able to.

Get a loan from a banker. How fair is that? They put exactly the same amount of money.

So they put against mortgage and some sort of savings, $168,950. Both of them is the same equal amount. This is actually the amount total outlay. You can see it here. But how come Peter can borrow from himself, basically from his bank, I should say, and be the banker in this transaction. He has access to cash. And how come Keith doesn't have it?

Well, in Keith's scenario, he's sending his money away to someone else's bank who's benefiting from that money. And instead the money that he, instead of sending it to someone else, he's sending it to his banking system that creates a value for him that he can access.

Yes, yes. And now their objective, they both wanted to also, in addition to being mortgage free in 25 years and maybe even sooner, they both wanted to have passive income at retirement. They wanted to create some sort of saving account where they can tap into that when they stop working, when they stop receiving income.

Keith wanted to pay off his mortgage early so he didn't have the burden of extra payments for that 25 years. Was Peter again is deciding to do his own banking system. And with his own banking system, he realizes the power of building the wealth in his own bank account rather than sending that money to to someone else. So instead of sending that money to someone else, he's using it to in his own banking system to build that wealth. Ultimately it's for retirement. Now let's take a look at the outcome of what that would look like if Keith and Peter now approached retirement. And let's say they decided to retire at 65 and pull money out at 66. So when they decide to pull money out at 66, so Keith would have built up a value at 66 of 461,862 in his investment account. And when we look at Peter, if we look at him again, they both put $300,000, just sent it in a different place. Peter built up 712,418 in terms of his values. Again, number one, he started early, but he also put it in his own banking system. We also just designed something where he can withdraw. They decided to withdraw money at the same amount at the same time. And after going through that evenly through the years, and there's a few things that didn't consider here, which includes taxes, but it will kind of dive into those taxes afterwards. So afterwards what we're going to find out and let's assume Peter every both of them pass away at age 90. So we'll see at age 90. What do we see? Well, if Keith accesses the same 30,000 from his investment portfolio, which is what he believes he needs for retirement. He can only access that money for about 18 years before he runs out of money. So he's going to have a duration here where he actually has no money. And unfortunately for a lot of Canadians, this is what most people fear. When you are around the age. Can you imagine being around age 85, Roman, whether you are an active individual or not, most elderly may not be. And you now have run out of money in your investment account, can you go back to work and make more money?

I don't think I would be able to at age 85, Henry. No.

Is that something you want to do?

No. I mean, it is my biggest fear to, you know, to be out of money. So that's why I don't do what Keith does.

That's exactly it. So in this example that we're sharing with you, he's taking an even $30,000 and he runs out of money. Whereas Peter, because again, starting early and putting it in his own banking system, he's not interrupting his compounding in his money also. And when with these, this is allowing a cash value to increase these cash values, unlike the temp, unlike Keith, putting money into a stock market where the markets can go up, the markets can go down, no pandemic, no recession, no manipulation in the stock market is ever going to impact these cash values. They only go in one direction, which is up. And when they go up, this gives a good basis for Peter to access money for that retirement. And you can see, not only can he access money all the way until his eventual death, he's going to leave behind $681,000 compared to Keith, when he accesses money While at age 65, he's built up a nice nest egg of 483,156. But every time he's accessing that money, that money's going down. So it gets less and less and less. So he's actually not going to leave behind anything. And it's to the point where he actually has no money left to leave behind and even live off of if he lives till age 90. So if we kind of compare these two scenarios, I mean, whose outcome do you want to be a part of, Roman? Do you want to be on Keith's outcome or do you want to be with Peter?

I want to be on the right side, Henry. I want to be. I want to be a Peter in this. In this outcome. Yeah. And also one, one. Another question I wanted to address is what happens if they actually, actually die sooner than 90 years old? What happens to Peter if he dies at let's say at 70? So he would have received.

Passive income tax free. Passive income of 150, 1,750 and he leaves behind $1.2 million. Isn't it amazing?

It is good.

How much in total he has Access to and + leaves behind is 1.38 million compared to Keith.

He spends this amount while alive and then leaves behind this.

Let's go to Keith.

So Keith spends the same amount while he's alive, but he leaves behind a lot less.

Yes, he spends 151. And by the way, this potentially can be taxable. Plus he leaves behind only 372, which is about 1 million less than Peter.

Which is also potentially taxing.

It is insane, Henry. I can't really believe my eyes. I mean it's just insane to see real numbers like that. It just drives me nuts to be honest with you.

And let's here and it could be confusing. So let's maybe move it to a more summarized slide.

Yes, absolutely. Yeah, let's look at the summaries here. So with this summary, so for the passive income we also want to look at a government benefits that potentially may be around 20k. We know that it is much less today, but we're just assuming $20,000 government benefits. And then passive income is exactly the same, 30,350. But in Keith example it is taxable. In Peter's example it is tax free. This is one difference. Another difference is the amount of taxes they have to pay. And Henry, would you please expand on this tax thing?

Yeah. So when we look at the passive income that comes from the investment portfolio, which is taxable, right. When liquidated and used, depending again where it's stored. But I just kind of want to label that as taxable. And we assume the government benefits of the total passive income for that year would be $50,350. No different for Peter's situation, $50,350, except a portion of that is not taxable. Now once we take that into consideration, the combined income source for Keith, what the taxes he would approximately pay would be about $8,361, which kind of sorts out to an average tax rate of 16,000 0.61%. If we look at it from Peter's standpoint, since the 30,000 is tax free. But this $20,000, remember this is the OAS that you would get. You would potentially get. This would be the CPP that you would potentially get. So these are all the combination of benefits that you would get annually. This is all taxable by the government. Right. And so the approximate taxes you would pay there is about 6.95%. So the average tax rate in this example. So you can very much by virtue of the taxes. You can see in Keith's example, because the base amount of income, the 50,350 is considered all taxable. He has to pay more taxes. We live in a progressive tax system compared to Peter, because of the source of how he's accessing the money, which is tax free. His base to what he has to pay taxes on is much lower. So it's 1,389. If we kind of extend that example all the way through. And look at Keith's example again, he ran out of money in 18 years. Peter can go all the way to when he graduates from this planet of 25 years. So if we kind of look at that in combination now, after 18 years he runs out of money. So all he's relying on is his government benefits. I think. I don't know if 20,000 can extend that far in that time, but that's not the conversation for today. So in total amount of money that he was able to access while he's alive is 573,506 from his investment portfolio. Then there's 500,000 from the government benefits over that period of time. But how much money does he leave behind at 90?

At 90 years old it's yeah, in our example it's 0 because he has run out of money. He has spent all. Yes, he has still house, but Peter also has house. Right, but the investment part, he spent all of it and then he paid taxes and it's gone.

And how much taxes did he pay over that lifetime? He paid 160,221. Now let's look at Peter's example. So if we look at Peter's example, we can see here that he was able to access 25 years of money which gave him a passive income 758,750, access the same government benefits 500,000. However, because of again where his money was residing in a properly structured whole life policy which was his banking system to build his wealth, he's able to leave behind another 681,063 when he's not here to his family completely tax free. And not only that, the last part I do want to highlight is again, after the 25 years he's only paid 34,725 compared to the 160 now Roman, if you want to just share, compare the difference between them. Just show, expand that column.

Absolutely. I want to start with how much interest Keith saved and how much more interest did Peter pay to the bank. It's only $101,000. And because he started creating his own wealth system, his own banking system and put put his money to work for him where Keith gave all the money to a banker to save this $101,000 interest because Peter did this, this is what he has been able to achieve so far. So he received more passive income and for longer, for seven more years than Keith did. Peter received $185,244 tax free passive income than Keith did. He also left behind.

$681,063 when he passed away at 90 years old. In addition to that, he paid less tax which is $125,496. If we combine everything then the total difference between these two brothers because between these two examples is almost $900,000. Henry, can you believe this is true? So only $101,000 interest that Peter did not save on his mortgage, but he instead he put his money to work. How amazing it is that he has been able to create a wealth. He has been able to create a wealth machine that produced so much cash for him and his family.

Isn't it crazy where you think that paying off your mortgage early and sending your payments to another bank who puts it to work that doesn't share with you any profits, where if you put it in your own banking system that is built and designed to serve you, you come out almost eight to nine times ahead. In this particular example we shared with you, the two problems come out eight to nine times ahead.

It is just absolutely mind blowing. Henry, we also know that this was also mind blowing for you, dear dear viewer. And we encourage you to go to watchibc.com to learn more about how Peter did it, how Peter created his banking system and you can do the same. We're not saying that this is the only way you can build your wealth, but we're saying that paying off mortgage may not be the best strategy. Thank you so much for watching this video. Subscribe to our channel and go to watchibc.com again it's watchibc.com to learn more about the infinite banking concept and we will catch you at the next one.