Pay Off Mortgage Sooner: Home Equity Loan And Other Creative Methods

Q: We thought you would like to know how your column has really made a difference in our lives.

On March 20, you gave examples of how to get better rates for a mortgage that only had $20,000 as a balance. A short time later, you gave an example for another smaller mortgage of $29, 000.

Let’s fast forward to March 31st. Directly using your example, we applied for a home equity line of credit. At a nearby new branch of our bank, they offered the first 6 months at 2.99 percent. The loan will then be tied to the prime rate.

Our remaining mortgage had been $35,000 at 7 percent interest and we were scheduled to finish paying it off in 2012. We had tried to get several mortgage brokers to refinance the loan, but they said they didn’t want such small accounts as it just wasn’t worth it to them.

In the last few years, we had been paying extra to principal and made one $10,000 payment. That made a dent in our balance, but not like your suggestion will.

We plan to pay down an extra $10,000 of the balance in the first 6 months of the home equity loan, and hope to finish paying off the loan completely in 3 years or less, that will be 5 years earlier than for our original mortgage.

We just want to say thank you for the good advice. We are 73 and 75 years, with city, state, and Social Security pensions. This is our only debt and while we have the cash available to pay it off completely, we didn’t want to drain our savings. There must be many others in our situation.

If you have any further advice, we would be interested.

A: Your letter is a great example of how much money there is to be saved by simply looking at your financial options in a slightly different way. I’m printing virtually your entire letter, because I think it’s important for others to see how easy it is to save a whole lot of money.

I’m particularly glad to see seniors willing to look for a different way to improve their cash flow. Because more seniors are entering retirement with mortgage payments, it’s even more important to be open to new financing techniques that can save big bucks.

Although your mortgage balance was only $35,000, this technique might make sense for those with mortgage balances as high as $100,000. What is important is figuring out how long you plan to have the loan.

Congratulations on making such a smart move.

Q: I am a 28-year old single mother and have been thinking of becoming a real estate investor. I’ve read all the books you recommended on your website on this topic and there is so much information out there.

Everyone seems to want to sell their package on how to get started on investing in real estate. Recently someone offered me their package for $2,552.50. That seems like a lot of money, but they promise I’ll be a millionaire in a few short years.

Is it really a good idea to pay someone to teach you on how to go about being a real estate investor?

A: While some people swear by the folks who advertise in the middle of the night via infomercials, I don’t think it’s necessary to pay someone to teach you how to do this.

There are a few basic steps involved with the purchase of investment property and you only need to know basic math. Here are the steps: Find out how much you can afford to spend. Get to know the different types of housing in various neighborhoods. Hook up with an agent who can help you find available properties and understands what a good value is in different communities. Learn how to spot a deal. Jump off the fence when you find the right property for you.

Buying your first investment property is the hardest. What many first-time buyers do is purchase a two-family, or a two-flat, or even a building that contains up to four units. You can move into one of the units and rent out the others.

When that starts to generate positive cash flow, you buy another property. And another.

Building up real wealth in real estate takes time. You need patience, knowledge, and the assistance of an excellent real estate agent who can help you find good deals. Then, you need a real estate attorney to make sure you’re crossing your “Ts”. You also need a great mortgage broker who can work with you over time.

Creating a home buying team is an important step toward giving you confidence. I would also urge you not to bite off more than you can chew. Start off with a condo that you can make minor improvements to (paint, carpet) and rent out for enough to cover the mortgage.

One good book to read is Vern Hoven’s the “Real Estate Investor’s Tax Guide.” Another is my book 100 Questions Every First-Time Home Buyer Should Ask. It will give you an excellent idea of what happens during the process and what you should know.

The bottom line is, you don’t need to spend a couple of thousand dollars on someone else’s program. Instead, put your $2,500 for your down payment. It’ll be a much better use of the cash.

Jan. 19, 2009.


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