#3: 1 EQUALS 5

Mortgages are great, but not managed correctly, mortgages are EXPENSIVE!

And anyone who has ever made a mortgage payment would love to not have a mortgage, right?

Shawn from the book decides to pay off his mortgage. So, he saves and saves his money until he has enough to pay off his mortgage. Look what happens when Shawn pays off his mortgage in year 25.

In his final payment, Shawn pays $80,760 and pays off his mortgage! Congratulations, Shawn! No more mortgage!!! Let’s look at how much he saved.

By paying his mortgage off early, he saves $14,050 in interest payments. He also saves 5 years of mortgage payments! Boom! (But he also had to save $80,760 to pay it off.)

Let’s look what would happen if Shawn were to pay off his mortgage earlier! In this example, Shawn pays an additional $10,000 at the end of Year 2 for his mortgage.

By paying $10,000 in year 2 of this mortgage, Shawn saves $45,886! He also saves 2.92 years of mortgage payments. That’s an incredible investment for only $10,000.

Now let’s see what happens to Shawn’s investment if he waits to make that extra $10,000 prepayment.

In this example, Shawn would “only” save $11,051 in interest. In the previous example, his same $10,000 prepayment saved $45,886. What’s the difference? TIME.

When you make a prepayment to your loan, several things happen:

1. Your payment goes directly to you. That is your equity. That is your money.
2. You save interest expense. And interest compounded over time adds up.
3. You save time and pay off your mortgage early.

Here’s one more perspective on this loan.

As you can see, generally speaking, any prepayment made in the first 5 years of this mortgage is like this: If you were to prepay $1, you would save $5. And it scales!

• $1=$5
• $10=$50
• $100=$500
• $1,000=$5,000
• $10,000=$50,000

Is there a better investment out there?