Every self-proclaimed housing and investment guru (including the realtors and brokers who want to represent you in the sale/purchase) want you to believe that house hacking is the best way to set yourself up for real estate success long-term. While they aren’t completely wrong, they are skipping some of the most important information out there and I’m here to tell you: there are tons of EASY ways to become a long-term success via real estate, just by utilizing the mortgage you currently have. Listen, hacking houses, buying income-generating properties, and flipping houses for profit is cool! But guess what?? Only about .1% of the population have these 3 things necessary to succeed in house hacking: the initial income, the commitment to upkeep, and the necessary time to put in to the process.
So the question is, how can the “average Joe” succeed in a “normal” lifestyle of owning a home and making their money work for them? Easy: Learn how to properly hack your mortgage!
Let’s start with this: Homeownership is AWESOME. It has intrinsic value, and tends to keep families and communities stable, but there are also HUGE financial benefits to owning your home; the most important of which is building equity. I’m going to break down 3 simple “Mortgage Hacks” that allow you to build equity in your home fast, from entry level house hacker, to expert level game-changer. So whether your goal is eventually using your current home as a rental, selling it and buying a step-up home, or if your ultimate goal is to pay off your 30 year mortgage completely and live mortgage-free (***insert heavy breathing from me*** because THIS is a huge goal of mine), I’ve got you covered!
Mortgage Hack 1 – The “Entry Level” Hacker
Pay MORE than your mortgage amount. Guys, your mortgage interest and principal are a similar concept to your credit cards: the earlier you pay off your principal, the less you pay in interest. Additionally, there are *usually* no penalties to paying more than your mortgage amount. So here is an easy tip: if your mortgage is $1440, set up your account with your mortgager to take out $1500 per month. It’s an additional $60’s a month. 8 1/2 days of Starbucks, one trip to the nail salon, a “treat yoself lunch”, the bottom line is: you can find that $60 each month. That’s $720 per year that goes ENTIRELY to your principal amount. It’s easy, and I suggest increasing that amount every time you get a raise at work. That small effort will go a long way!
Mortgage Hack 2 – The Intermediate Hacker
Set it up with your mortgager to pay every 2 weeks! Now let me give you some background: this is what I (me, Kasey, your trusted REALTOR®) does! I am a firm believer in this and have set it up immediately upon purchasing my home. This one is cool: every 2 weeks, half of my mortgage is withdrawn from my checking account ($750 every two weeks). This does NOT mean twice per month. Every 2 weeks means that two months out of the year have an extra half payment made (May of 2020 was $750 withdrawn the 1st, 15th, AND 29th) . Okay, okay, okay, I kind of hate those months more than the others, but trust me, it’s worth it. Truth be told, once you get used to the bi-weekly withdrawals, it comes pretty easily. This technique also means you make an additional FULL mortgage payment (for example mine is $1500) each year that goes ENTIRELY to your principal amount.
At the rate I’m going, I will have paid off my contractual 30 year mortgage in approximately 25 1/2 years (woohoo!!!). This is true for everyone who enrolls in this type of hack, call your mortgager to find out if this is an option. Some mortgagers (Heeyyyy PennyMac) call it Mortgage Budgeting, so be sure and ask if that’s an option for you.
Mortgage Hack 3 – The Expert Level Hacker
This is the ultimate goal for the “average Joe”, and a top-notch way of paying down your mortgage way faster: Make an additional mortgage payment EVERY QUARTER. That’s right, I know this may sound daunting for a lot of people, and in all fairness, this one is still a bit intimidating for me. But, if you can make it work, you will pay off your mortgage ELEVEN YEARS EARLY. Not to mention, you’ll save yourself nearly $65,000 in interest. Congratulations expert, you just shortened your mortgage from 30 years to just 19. You’ve basically won the game.
Whatever your real estate questions are, I’m here to help. I am an incredibly firm believer that everyone should own a home, multiple homes if they can, and that you should do everything you can to build equity in that home. If you’re in the market to become a house hacker, DOPE! I’d love to guide you through real estate investing. BUUUTTT, If you are a homeowner or plan to become one soon, remember that your home is now one of the greatest, if not THE greatest, financial asset you have. Make that baby work for you and make it work for you faster! Happy Mortgage Hacking!!
**Mortgage Hack 2 was based off of a $250,000 purchase price with a 4% interest rate. Hack 3 was based off of a $220,000 mortgage and a 4% interest rate.***
