How to Crush Your Mortgage

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"Crushing" your mortgage is also known as "smashing" your mortgage. Learn how to crush your mortgage with help from a real estate and mortgage professional in this free video clip.

Part of the Video Series: Finance Tips
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Video Transcript

Hello, this is Sidney Potter with Potter Equities from Pasadena, California. I thank you for your time right now. I've been asked to comment on how to crush your mortgage. It's also known as how to smash your mortgage. I know that sounds very violent but it's actually not as bad as it seems. When you want to crush your mortgage, what is meant by that is how to significantly reduce the amortization period, let's say of a typical 30 year conventional mortgage. The ultimate reason for doing such is considered saving the homeowner considerable amounts of money. So let me give some tips on how to smash your mortgage, how to crush your mortgage. Now it should be known first and foremost that there are questionable practices and nonquestionable practices in terms of crushing your mortgage. When we talk about this topic matter we've got a lot of info commercial type folks that are online late at night. They talk about significant reducing a 30 year amortization period down to 15 down to even 10 years. That's very unlikely. When you see this type of lingo, this type of taut, a red flag should go off. So let me give you some telltale signs of questionable practices in terms of actually crushing your mortgage or smashing your mortgage and whether or not it's actually rather attainable. There are some advocates opponents rather that would suggest that crushing your mortgage can be done effectively by paying everything, any surplus money into their mortgage. I wouldn't recommend that per say, I wouldn't recommend living a spartan type of life in order to reduce the mortgage amount. It's also been suggested that you pay your credit cards off on a monthly basis. That's fine if you can do that in reality but the fact is it's very difficult and it's easier said than done. It's almost like an American Express card, you typically pay the balance at the end of the month. Questionable practices suggest that you pay this amount on your credit cards monthly and then use that surplus, either it be $50, $20, $100 or whatnot and apply that towards your mortgage debt, therefore reducing the amortization period. It's not very likely. Another suggestion is that you take your salary, let's say you get paid on a bi-weekly or monthly period and you have that go directly into your HELOC, that's your home equity line of credit. Now that's possible because that's actually a checking account, technically a home line of credit where you can have an auto deduct in terms of your pay. You can't really do that for a mortgage, let's say you get $1,000 a week, you pay down $1,000 for your mortgage because every two weeks it's emptying into your account and therefore the attribute of that type of methodology is it reduces the home line of equity, therefore, reducing the amount of interest that you have to pay. It seems somewhat ingenious but theoretically possible but not advisable. Another questionable product is to take all the surplus money and make it a direct, a deposit into your mortgage. Once again, not very likely, you'll live a spartan lifestyle and also the dictum on all the latter items in terms of questionable practices is that they aren't really achievable. It would be almost to the point where you start to skimp and feed your cat only four or five times a week as opposed to seven days a week because you want to save a little bit of money as silly as it may sound and yet go to your mortgage. I don't that's very realistic. Now in terms of what questionable or not questionable tactics used for crushing your mortgage, I've got four tips right here and I'll go through them very quickly. Item number one, take an accelerated payment methodology. What that means is this, have your mortgage company set up an auto pay deduct where you have four different opportunities to either pay the minimum amount, to pay the app core amount on the mortgage debt, to pay a payment in half or two payments. Mortgage companies are much more amenable these days in terms of taking extra additional payments. I would also recommend what they call a fortnight week payment methodology. Fortnight in English commonwealth terms means to pay every two weeks. Now what you would do theoretically in this case is you've got $1,000 payment, of course, you make that payment every month then you divide that payment in half and you make a $500 payment. You do that every fortnight, every two weeks. The accumulative effect on something like that in terms of that methodology would mean taking a 30 year amortization period on your typical mortgage and reducing it down to 23 years. If we take a $150,000 mortgage in this particular example, that would save approximately $51,000 in the life of the term. That's an advisable route. Secondly, extra payment plan. The way in which you do an extra payment plan with any additional accounts from tax refunds, from bonuses, okay you want to deposit that into your mortgage. Let's take plan number three, item number three. This is what you call the one twelfth plan. This is when you make your regular mortgage payments but once a month you take one twelfth of the mortgage amount, so if you've got a $1,200 mortgage amount, you want to take $100 monthly which is one twelfth of the mortgage amount and you pay that monthly at the end of the year, that will be one additional mortgage payment and that reduces significantly because we're talking about a 30 year payment, 360 payments, pay period terms will reduce significantly in terms of crushing your mortgage and meeting your goal of reducing substantially the principle amount that you pay. Fourthly, this is somewhat a little bit different but if you happen to have an existing mortgage right now there are several government programs out there, in particular the HAMP program, the HARP program, Home Affordable Refinance Program, Home Affordable Mortgage Payment and HAFA, Home Affordable Finance Alternative and that will give you the opportunity if you're successful in your government modification and this will ultimately result in a crush in your mortgage to significantly do what they call a cram down mortgage which significantly will reduce the outstanding mortgage principle amount. For more information and a wonderful website that I would recommend and in closing would be Mortgagex.com, that's Mortgagex.com, go to that website. They've got a mortgage calculator out there and they'll give you wonderful opportunities in terms of crushing your mortgage. With that this is Sidney Potter. I thank you for your time and I'll see you at the finish line. Good day.

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