1=5

If the typical new homeowner were to prepay just $1 towards their mortgage, they would save $5. But you don’t want to be typical. If you could pay $1,000, you would save $5,000. If you could pay an extra $10,000, you’d save $50,000.

2 = 1,000

If they typical new homeowner were to prepay just $2 towards their mortgage every month, they would save $1,000. But you don’t want to be typical. If you could pay $20 extra every month, you would save $10,000. If you could pay an extra $200 each month, you would save $100,000.

These two formulas are the concepts. If you can understand them, you are ready to apply them. The challenge in condensing the whole world of finance is:

• The whole world of finance is huge!
• No two mortgages are the same
• No two financial scenarios are the same
• Each homeowner has unique needs

Personalized Finance

If you understand the concepts, you’re ready to apply it to yourself. We have some powerful tools that will help you guage, help you determine how is best to apply it to your personal finance scenario. So, while the concept is 1 = 5, we can personalize your numbers and see what $1 is actually worth for you! For you, it may be $1 = $6.7! Or it could be $1 = 2.7. Not quite as exciting, but you’re still nearly tripling your investment.

As Shawn adds $200 to each monthly payments, the graphs shift monthly. And the savings really add up! By paying just $200 per month extra:

• Shawn saves $97,618 in interest
• Shawn saves 7.92 years of mortgage payments
• Shawn saves 95 mortgage payments.

Wouldn’t it be awesome to not have a mortgage payment next month? Of course! That would be amazing! Just think how amazing it would be to have no mortgage payements for 7.92 years!

If Shawn were to pay $1 extra towards his mortgage at any time in the first 20 years, he would double his investment. In fact, in the first 3 years, $1 prepaid would save him more than $6.

Patience

• Shawn will still have a mortgage payment due the next month
• For the same amount
• Shawn still has decades of mortgage payments

Diligence

Shawn sees the benefit of making a single prepayement. Now let’s look at the benefit of multiple prepayments.

• If you prepay your mortgage, you will save interest.
• If you don’t prepay your mortgage, you will pay interest.
• You don’t have to prepay your mortgage, but if you don’t, you will pay interest.

Committing to paying off the mortgage is hard, and making prepayments is hard. The tough thing about prepaying your mortgage is:

• You will still have mortgage payments.
• You save at the end of your mortgage, but your next month’s mortgage payment is still the same.
• You don’t exactly have immediate, liquid access to those funds anymore.
• When you make a mortgage prepayment, it might feel like it is gone.

But you need to remember, that $1 prepaid goes right to your home’s equity. That $1 is yours. And I’ll teach you how you can access it, later. But for now, just know that you’re not paying your uncle $1 to invest. You’re not paying some broker $1. That $1 goes straight to you. Straight to your home’s equity.

So, here is a more accurate example of what happens when you make a prepayment.

As you can see:

• In year 20, ($1 prepaid) + ($1 saved interest) = $2.
• If you wait until year 24, ($1 prepaid) + ($0.50 saved interest) = $1.50.
• In year 14, $1 prepaid = $3 saved
• In year 9, $1 = $4.
• In year 6, $1 = $5.
  • And it scales!
    • $1 = $5
    • $10 = $50
    • $100 = $500
    • $1,000 = $5,000
    • $10,000 = $50,000

For the typical new homeowner, $1 = $5. Or more!

1 = 5.

• The faster you can get out of debt, the less interest you will pay.
• Those who understand interest earn it.
• Those who don’t, pay it.
• The longer you are in debt, the more interest you will pay.

Let’s look at Shawn’s mortgage from a different perspective, an interest savings over time perspective.

By making prepayments to his mortgage, Shawn will save money. The sooner Shawn makes a prepayment, the more he will save. This is how much interest Shawn can expect to save.

• In year 20, when the Principal and Interest payments are equal, $1 paid extra will save approximately $1 in interest.
• If you were to wait until year 24 to pay an extra $1, then you would save approximately $0.50 in interest.
• In year 14, $1 extra paid will save approximately $2 in interest.
• In year 9, $1 extra paid will save approximately $3 in interest.
• In year 3, $1 extra paid will save approximately $5 in interest. Or…… 1 = 5.

For the typical new homeowner, if they were to pay just $1 extra towards their mortgage, they would save $5 in interest obligation. It’s just math. And it’s guaranteed.

• Those who understand interest collect it. Those who don’t, pay it. (He pays a fortune in interest!)
• Paying off your mortgage will save a ton.
• You don’t have to wait to pay off your whole mortgage. You can make prepayments along the way.
• Making a prepayment can save you a lot of money.
• The earlier you make a prepayment, the more you will save.

That last bullet point is worth repeating. The earlier you make a prepayment, the more you will save. Let’s look at another angle for your mortgage.

In both scenarios, Shawn prepays $10,000.

• He saves $48,984 and 3.13 years in scenario 1.
• He only saves $11,051 and 1.13 years in scenario 2.

So, what’s the difference? Why did he save so much more in scenario 1? The only difference is time. The earlier you get out of debt, the more you will save. The later you get out of debt, the more interest you will pay.

As you can see, in this example, Shawn only saves $11,051. That’s an amazing investment! Shawn just doubled his money. But compared to the previous example, only doubling your money pales in comparison. As you can see:

• The Principal curve on the graph shifts left.
• The Interest curve on the graph shifts left.
• Shawn saves 1.13 years of mortgage payments
• Shawn saves $11,051 in Interest

Saving $11,051 is amazing! But somehow isn’t as exciting as saving $48k!

Shawn starts thinking a little more. Let’s dig a little deeper.

Look what happens when Shawn makes a prepayment to his mortgage.

Shawn makes a prepayment towards his mortgage. Making a prepayment has immediate results.

• The Principal curve shifts left
• The Interest curve shifts left
• Shawn saves 3.13 years of payments
• Shawn saves $48,984 in interest

That is a pretty incredible return on investment! For only $10,000, Shawn saves $48,984. Guaranteed. It’s math, and it’s the laws of math!

Let’s look at another scenario.

In January of year 26 of Shawn’s mortgage, after saving all his money for years and years, Shawn makes a payment of $80,760 and he pays off his house!

Shawn:

• Paid off his mortgage 5 years early
• No longer has a mortgage payment!
• No longer has a mortgage payment!!
• Will have an extra $1,580 in his pocket each month!
• No longer has a mortgage payment!
  • You can’t overemphasize how cool this is.

And if you look at the end of the graph, you will see that Shawn:

• Paid off his mortgage 5 years early
• Has no mortgage payments for 5 years
• Will have an extra $1280 (monthly payment amount) in his pocket each month
• Saves interest payments for 5 year
• Will save $14,050 in interest payments

Paying off the mortgage is a pretty cool thing. And paying off the mortgage….. Pays!

Now let’s dig a little deeper with Shawn.