Paying Off Your Mortgage FAST!


— Slide 5: Playing with Interest —

But Wait One Minute

You may be thinking that we basically traded $5,000 from your mortgage loan balance and placed the debt onto your ALOC so where is the benefit?

You need to understand two things:

  1. Compound vs. Simple Interest:
    your mortgage payment is based on compound interest, which means interest is compounded daily based on a mathematical formula used to calculate the amortization schedule (see Section 1).

    Banks will only reduce the mortgage loan balance once per month so any payment that you make to your mortgage will not reduce the balance until the following month meaning that you will pay 1-month interest on the non-adjusted mortgage loan balance.

    Home equity line of credit accounts use simple interest. This is where interest is charged on the average daily balance. Every time payments are made to the account, it forces the balance to be adjusted daily.

    Since your income goes into the account, the average daily balance remains low. You will pay minimal interest for use of the advanced payment to your mortgage.

    Also note that your income deposit becomes your ALOC monthly payment. So you will never make a payment to your ALOC.


  2. Reducing the Equity Line Balance:
    your discretional income (income that is in excess of monthly living expenses) will be used to pay down your equity line balance.

    When that balance has reached a mathematical level as determined by the MMA software, you will be instructed to make another lump-sum payment to reduce your mortgage loan balance:
ALOC Account
Starting Credit Line Balance: $60,000

Month
ALOC Activity
Advances from ALOC

Payments to ALOC

Balance Owned
Sep Beginning Balance     $6500
Sep Total Activity $4000 $5000 $5500
Oct Total Activity $4000 $5000 $4500
Nov Total Activity $4000 $5000 $3500
Dec Total Activity $4000 $5000 $2500
Jan Beginning Balance     $2500
Jan ALOC Pay Down Mortgage $5000   $7500
Jan ALOC Living Expenses $4000   $11,500
Jan Pay Paycheck   $5000 $6500
Jan Total ALOC $9000 $5,000 $6500

 

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mortgage payoff (part2)