“This is the stuff they should teach in high school”. Absolutely, I was fortunate enough to take a personal finance class. We learned this exact thing. It should be part of common curriculum everywhere.
I was about twelve years old and a real estate agent explained this to my mom, not sure if she used it, but I did. Paid off my mortgage early, have not had a mortgage for 30 years, enable me to invest in my future, life is good. The farmer is not going to tell the cows where the fence is weak.
I still confused. Am I susposed to send 2 different payments. 1 to the principal and 1 to the interest. Or do I just send bigger monthly payments when paying my mortgage?
Mortgage rates are currently at an all time high since 2000(23 years) and based on statistics on inflation, we might see that number skyrocket further, a 30-year fixed rate was only 5% this time last year, so do I just keep waiting for a housing crash before buying or redirect my focus to the equity market
The stock market is no different, to maintain profit you need to have some in-depth knowledge on the market. I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
In my opinion, it was much easier investing back in the 80s but it’s a lot trickier now, those making consistent profit in these times are professionals reason I’ve been using an advisor for the past 5 years to consistently build my portfolio in preparations for retirement.
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
The "tables" that shows the "columns" that show how much of your payment is going towards principle and interest is called an "amortization schedule" 👍 Hopefully I just helped out a few of you guys 😎
When I did a refi in 2014, I created an Excel spreadsheet that showed exactly how much principal and interest I was paying month by month, as well as the remaining balance. I paid off the 10 year loan in 5 1/2 years.
Excel is better. I have it display how many months I save and you can put in extra payments of different amounts for every month. The calculators online are gross simplifications. A whole, variable accelerated-pay amortization schedule with descriptive stats and stats comparing to a normal amortization schedule is very powerful.
I am probably about to get a townhouse, which is insanely nerve racking, but once I get into my townhouse I am immediately going to print out a spreadsheet of my balance and mortgage and I am going to put it right on the fridge so I see that EVERY DAY and I am going to make sure to try and pay as little interest as I possibly can!!!!! Those bankers are going to make as little money off me as I can help!
Ok Mr. Ramsey...I've become this crazy Gazelle on steroids. I've been attacking my mortgage since May 2018 all thanks to you and listening to your shows. I have skimmed off 5 years worth of payments so far. I must say this is def not easy but pretty rewarding once you see big chunk come off after a certain point. I def live like no one else. Not many understand what I am doing and the same people often times say I am crazy. They speak to me as if there is nothing else to do after a mortgage is paid as I am often asked... "So, you get your mortgage paid and then what?" I say.. then I live like no one else does :) If my amortization numbers hold true with the numbers I believe I can apply to mortgage each month.. I'll be doing my debt free scream in 6 years. maybe 5! Who knows maybe I'll surprise myself and be done earlier. I'm hungry and determined to be free from financial slavery. Amen!
Chase Cochran you should be leveraging OPM(other people money) to gain even great returns on you money by creating cash flow for other investments. Putting all your extra cash into equity ties your money up and the only return on it you get is appreciation. If someone doesn’t have the desire or mental capacity to invest, I would suggest a whole life insurance policy that allows you to still access the cash value of your policy or investments/emergencies. It’s risky as it ties your money up in a non liquid place and if someone loses their job, with half of their mortgage paid off, they will still lose the house if they can’t make the monthly payments. Smarter to keep cash, invest it in something with greater returns. Until the house is fully paid off, it’s returns are small.
Jake Shanklin Anyone who promotes whole life insurance and advises against paying off a mortgage early on DAVE RAMSEY'S YT channel is most certainly a troll, and not a particularly bright one.
Point is, you can pay off your mortgage in 30 years... or if you pay the principal down each month, you can pay off the same mortgage in 25 years... or 20 years... or 15... or 10... or 5 years, depending on how much you prepay. You can save literally hundreds of thousands of dollars in interest, by making early prepays on the principal. Just make SURE the bank is applying the prepayments to the principal, NOT to the interest.
Also gives you some leeway in case you run into h financial troubles. My next truck payment isn't actually due till something like august so if I have something come up and can't make a payment this month it won't hurt me beyond having to pay a little extra interest next time.
olstar18 this does not apply to mortgages. You could owe only 2 years left on a 30 year loan and they can and will foreclose on you. No matter how much extra is paid.
@@jcrawford1471 Depends how you pay. If by check with bank coupon or online there should be a box identified as extra principle. If there is none on the coupon write it in and on your check. If online and there is no box to enter then you need to contact your motgage company and ask. There also should be boxes for extra escrow payment etc.. if you are doing auto payment, need to look at your statements to check if the principle amount is going down with the normal and extra principle payment. If not call call call call. Its illegal to apply extra payment to interest.
It depends on the interest rate and how much gap there is between inflation and the interest you pay. The 500 USD or whatever you pay do not have the same purchasing power in 20 or in 25 years from now.
This vato is awesome! I have been paying $250-300 monthly, but after coming across this guy I’m determined to make at least $1000.00 to the principal. I just need to make an upgrade to my house, and after I’m done, I might be making $2000.00 monthly payments to principal. God willing.
God bless Dave Ramsey, he changed my life for the best, all you have to do is listen to his teaching, believe in your self and work hard to build a better future.
Dave, I have an MBA, and some of the ways you explain things is so clear and straightforward that I wish you had been my professor for all of my finance classes. I would've gotten so much more from them with your clarity and breaking it down approach!
If anything, it's likely to get worse. Affordable housing will soon become unaffordable. Therefore, I advise taking action now because today's prices will seem like bargains tomorrow. Until the Fed takes more decisive action, I expect we will see hysteria due to rampant inflation. You can't just halfway rip the band-aid off.
I suggest you offset your real estate and get into stocks, A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying, cash isn’t king at all in this time!
Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
Melissa Elise Robinson is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
This really makes it clear the power behind making extra principle payments on your mortgage. Not only does it bring your principal down, but increases the power of future payments in bringing your principal down.
I don't see anyone saying this woman is crazy; sometimes really intelligent people have these personalities. But she's getting better information than I had when I bought my first house, because I would be lying if I claimed I understood this at the time.
What should be said is that the first few years are nearly 100% interest. This is when you should increase your payment amount that goes directly to principal as it will radically lower the number of total payments. But in the final 5-10 years of a mortgage, it’s almost 100% principal so the need to pay more is less important.
One step further, because more of your payment goes towards the principal than the previous payment did, you will pay off your mortgage much quicker than if you weren't making extra payments. It's implied, but I think it's good to outright state it. She was hoping her monthly payment would decrease, it doesn't. The trade-off is you pay off the mortgage sooner, however.
Like the other guy said, you could make more with that 1000 in the market but Dave wouldn't tell you that because it goes against his plan which is great for the majority of people.
WCGwkf Well since Dave actually tells people to be investing 15% of their income in step 4, and paying extra on the mortgage doesn't come until step 6 I don't think he would tell them not to (assuming ur debt free and have ur emergency fund fully funded). The $1000 would just be part of the 15% invested But he probably wouldn't advise to put it in stocks
I work in the mortgage industry. If you have a online account with your bank/mortgage company there is sometimes an option called an amortization schedule.. It breaks down how much you pay per month toward principal and interest for the life of the loan. So let's say you want to put a 1,000 extra payment into a 30 year mortgage, it will self calculate down the amount of payments due, example 360 to 355 payments left.
@Paid to Deliver Food true, but everyone's situation is different. I'll never pay off my mortgage bc I'm selling and downsizing. My equity is climbing faster than I can pay it off.
One thing that I haven’t seen mentioned is that some mortgage companies will do anything possible to not apply the extra money to principle alone, but rather call the money “curtailment”. If one mix the extra money with your monthly payment then some will categorize as curtailment instead of principle.
Make sure the payment is against the principal. I think I used to send two checks, one for the payment and the other was marked "principal only". There might have been a special payment slip for principal payments. Many years ago. We did Dave Ramsey before we ever heard of Dave Ramsey. Good show.
What about the interest you just left it the way it is? By only paying the morgage (principle, interest, insurance & taxes)? And just making a principle payment only?
Its a shame that everyone who buys a home with a 30 year mortgage only pays one payment a month. You can pay off a loan 8 years early just by splitting your payments in half each month or by paying extra principal each month...so many ways to getting the mortgage paid off early but we aren't taught this at any time.
My mortgage company lowered my mortgage payment when I started paying more on the principal. I didn't fall for it. I'm going to get that sucker paid off as soon as possible!!! 😁
The same thing happened to my car payment when I started paying extra on the principal!! And they didn't want me to pay til Aug when I paid double in june 🤦♀️ wish I would have started this sooner!
On the surface it seems like a dumb question but schools need to do a better job teaching this to people. I wish I learned this in school. (Graduated in 2015)
We were fortunate to have a money s.m.a.r.t class my senior year (2015) bit it was an elective class. part of that course was completeing daves online classes. Still checking in with dave every once in a while but their are better advisors to follow once you climb out of debt
I’m that nerd that has an amortization spreadsheet that I can see how my extra principle payments impact the bottom line. I’m a visual type of person and love to see those lines of red print at the bottom of the spreadsheet (months shaved off of my mortgage) because of payments I made now... then figuring out how much I’m saving on interest I’ll never pay.
I am about to buy a townhouse for $130k, I put $28k down, so a loan of $106k @ 6.375%. So I looked at a calculator if I pay NOTHING extra to my mortgage I will pay $132,068.75 in interest 😱😱 (over 30 years) bringing my total to, $238,068.75...... If I make $500 of extra payment towards my principal each month, then I only pay $39,405.57 of interest. If I make a one time payment of $20,000 (which I plan on doing), and an extra $1k a month then my interest goes down to $14,982.48 which is MUCH more reasonable.
Knowledge and discipline are so sweet and rewarding. I am starting to enjoy the benefits of Mr. Ramsey's advice, and the best part of his info...... It is free.
Love Dave Ramsey. My one thought on splitting payments into weekly or biweekly is the idea that youd be making an extra payment a year. Bi weekly is 26 payments which works as the same as making 13 monthly payments.
@@nancampbell3647 What Dave said was partially correct. The interest is still only calculated once a month on the balance at the time of payment. By making bi-weekly payments and keeping up with how those payments are being applied, eventually, you’ll have made a 13th payment for the year, which in turn reduces your principal by whatever your monthly payment is. To see it on paper, I would recommend checking out Pennies not Perfection channel. She has no less than 4 videos explaining this exact thing, as this is what she does with her own mortgage loan and how refinancing from a 30 year to a 15 year note is saving her even more in interest and more is being applied to principal. Pretty cool concept if you budget it correctly and keep up with it religiously.
Like Dave said, the math doesn't change. HOWEVER, if you get paid every two weeks then this smooths out your expenses a bit. Rather than a huge chunk of one paycheck going toward your mortgage, a bit would come from each check.
So I've been making large payments once a year when I'm comfortable..and it changes Look into you your payment calculator when you are on your mortgage account and just place random payments (monthly or yearly )and the amount that you think you are conforortable and that's going to help you have an idea where you stand without draining your savings Because the first 10 years Lets say you have a mortgage of 1500 $ a month only about 400$ goes towars your principal the rest goes towards interest...
@TSM Thats criminal? Thats just math. How would you suggest they make you pay your interest? At random times for random amounts that don't relate to how much you still owe?
@TSM so you mean just getting to borrow money for free? You really don't seem to have any clue of what you are talking about or how mortgages/financing works. "It's not fair that I can't just have whatever I want."
@@tateg.7530 in many cases buying a house in the current economic tide is so much less than renting so for the privilege of having a better place to live and better budget you are paying for the people who have put together loans for you and took the risk for you to have a better life
Completely depleting savings and investments to pay off a mortgage early is stupid. I’ve seen many a client who paid cash for their house with this mindset, even though they maybe “debt free,” something big happens within a few years and they take out a cash out refinance. Send extra principal each month but don’t be stupid and blow all your cash just to be “debt free.”
The other element that is also worth looking at with any loan is also examining the savings on the total cost of the loan (the principal + all of the interest) if you are financially able to make more than just the required payment each month? (The question you need to ask however is how the lender is applies the extra money: it needs to go towards the principal and not to the next payment's balance). A good friend of mine did this, she had no other debt other than the house mortgage (the standard 30 year fixed interest), and they wanted the security of having a home to live in that was fully paid off. Their financial situation was also such that they could afford to make double payments on their house the majority of the time, and ended paying their home off in 15 years instead of 30.
When you make those extra payments, MAKE SURE that they are marked "principal payment". Write this in the memo and on the back of the check. Many mortgage servicers will always apply the payment to the interest. That way, you still owe them the same interest next month. Or mark the amount on the 'extra principal' box on the payment coupon.
I don't know why people don't get this... Making additional principal payments effectively reduces the interest rate and reduces the # of payments you have to make.
I've been saying the same thing about personal finance in general for years. Not to sound like a conspiracy theorist but the education system is run by a few giant corporations, the less financially educated people are the better since we live in a debt-based economic system (thats true). People need to be in debt for the economy to prosper, issue is anyone in debt doesn't prosper lol
They taught me this in highschool. Graduated in 07 when NYC was supposed to be one of the dumbest high school states. If you know how to do percentage and simple math, this shouldn't be hard at all.
Because kids don’t pay attention to anything else, why would they pay attention to this? It’s the parents job to teach this not the teachers. Besides that, if you really want to learn it, we live in the Information Age. You have all of this good information that you need in your pocket
Dave Ramsey Sir, I am from India and I listen to your show regularly.I can tell you sir everything thing discussed on your show is so valuable especially the nuances of money be it debt etc
I was looking at my loan activity while listening to this. And tracking how my loans intrest was slowly chunking down each month. I think Im going to start adding a hundred or so each month to principle.
A lot of people don’t know about or talk about mortgage recasting. People please look into this. It sounds like what she would had liked to happen. Just did a recast myself!! Paid 50k towards a rental property I own.
Yes! We recast our mortgage about 10 years ago, made a large lump sum payment of 50K as well toward our loan (received an inheritance from my mom). The loan is then re-amortized which results in lower monthly payment. But we continued paying extra principal every month.. I realize that not everyone can make a lump sum payment of that amount, but most banks will recast a loan with 5K minimum. Loan recasts are not advertised, you have to ask your lender.
I follow you a lot to comprehend finance. Your lesson should be taught in school. My mortgage was 5% 12 years ago. Today it is 2.3% but I kept the payment at 5% the extras go to the principal.
I learned this in church when I was in my 20’s. Our church had a huge burden of a loan to pay off due to financing a new building and then half the congregation left to start a new church. Those who were left holding the bag decided to make extra principle payments. We’d also have a big ingathering when a balloon payment was due. Paid off a 1 million dollar loan in about 10 years. But that was a TOUGH 10 years. Anyway I applied the same concept to paying off my first home. It was a 15 year loan with an adjustable rate. Paid it off in 3 years, turned it into a rent house then moved into a much larger home with a 30 year fixed rate of 6.5% . I refinanced at year 3 to 3.5% (saving approx. 100k in interest). In December that home will be paid off. That’s 15 years early for those of you keeping score. 😃. The downside? When you make extra principle payments you don’t have much money for anything else. I’m 53 years old and just bought my first lamp. 🤣
Really need to do something with education system ,not only in US, even same in my country...should teach this before we are finish high school/colleage.
Question. What he says at 5:15..is that right? “Much more of your payment goes toward principal after 15 yrs of a 30 yr mortgage than the 28th yr of a 30 yr mortgage.” Just wanna make sure I did not misunderstand. Toward the end of your payments, it should be going more to the principal correct?
Before I understood amortization I thought the process was unfair was strategically balancing the interest payments it their favor. But it's really just paying the interest on the entire balance you owe that year, divided by the next 12 months. So if you have a 100k loan and a 5% interest rate, you owe $5000 in interest that year, so your first month is $416.67 interest, regardless of how much principal you pay that month. If you don't pay any principal, you will owe $416.67 in interest every month forever. Paying down the principal is what is spaced out over 15 years or 30 years etc in a mortgage. The interest rate is the same, but the interest amount lowers every month, because 5% interest on $99,750 is $4987,75 over a year. Divided by 12 months that is $415.65.
Or just look at the the monthly mortgage statement. All the info is right there. They do the calculation for you. They also can send you an amortization balance sheet if you didn't receive it at closure.
In South Africa, mortgages (or bonds as we call them) are calculated daily. So for us there is a real benefit to paying off extra sooner. The monthly payment stays the same, but you will be paying off more capital that month. Also, it is clearly shown on our statements that you paid X and you had Y in interest and subtracting the two numbers will give you the capital paid off.
So what he’s saying is 1)Interest is calculated monthly 2)the payments stay the same but if you pay more on the balance then the overall interest goes down.
1224 the more you pay the less interest you have to pay Meaning if you have a 30 year mortgage and pay it off in 15 years you won’t pay as much interest. As if you took the full 30 years to pay it
The Amish have the right idea. Whoever needs a house that year, the community gathers and builds a house for that family. Some have electricity. For plumbing, hire a friend and learn from them !
“This is the stuff they should teach in high school”. Absolutely, I was fortunate enough to take a personal finance class. We learned this exact thing. It should be part of common curriculum everywhere.
Yep. Your senior year should have a class on life and money.
It was a graduation requirement when I was in high school. How many people paid attention and took it seriously is another question.
Then the rich would never get richer if everyone learned tbis
@@AnJBoxing I have no problem with the rich getting richer. A rising tide raises all boats!
@MrsThollo I totally agree with you. These things are thought in school, but nobody listens!!!
I was about twelve years old and a real estate agent explained this to my mom, not sure if she used it, but I did. Paid off my mortgage early, have not had a mortgage for 30 years, enable me to invest in my future, life is good. The farmer is not going to tell the cows where the fence is weak.
Hey there so I pay half on the 1st & other half on 15th.. does that help me & I pay $100 extra
I still confused. Am I susposed to send 2 different payments. 1 to the principal and 1 to the interest. Or do I just send bigger monthly payments when paying my mortgage?
Mortgage rates are currently at an all time high since 2000(23 years) and based on statistics on inflation, we might see that number skyrocket further, a 30-year fixed rate was only 5% this time last year, so do I just keep waiting for a housing crash before buying or redirect my focus to the equity market
The stock market is no different, to maintain profit you need to have some in-depth knowledge on the market. I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
In my opinion, it was much easier investing back in the 80s but it’s a lot trickier now, those making consistent profit in these times are professionals reason I’ve been using an advisor for the past 5 years to consistently build my portfolio in preparations for retirement.
My partner’s been considering going the same route, could you share more info please on the advisor that guides you
She’s Sonya Lee Mitchell, and do your own research. She has portfolio management down to a science
Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
Dave is the only finance guy who explains things straight forward.
Rates were 3% in 2018???
Because it makes sense.
@@SteveWillSpendIt Rates were 2.3% and up in that timeframe. 30 year mortgage.
2020 i got a 2.75.@@SteveWillSpendIt
The "tables" that shows the "columns" that show how much of your payment is going towards principle and interest is called an "amortization schedule" 👍 Hopefully I just helped out a few of you guys 😎
Thank you !
@@Isna2006 No problem
Thank you
When I did a refi in 2014, I created an Excel spreadsheet that showed exactly how much principal and interest I was paying month by month, as well as the remaining balance. I paid off the 10 year loan in 5 1/2 years.
You could have looked that up online.
It's usually on the lenders website however congratulations! Amazing!
Excel is better. I have it display how many months I save and you can put in extra payments of different amounts for every month. The calculators online are gross simplifications. A whole, variable accelerated-pay amortization schedule with descriptive stats and stats comparing to a normal amortization schedule is very powerful.
@@CountJeffula Agreed!
I am probably about to get a townhouse, which is insanely nerve racking, but once I get into my townhouse I am immediately going to print out a spreadsheet of my balance and mortgage and I am going to put it right on the fridge so I see that EVERY DAY and I am going to make sure to try and pay as little interest as I possibly can!!!!!
Those bankers are going to make as little money off me as I can help!
Ok Mr. Ramsey...I've become this crazy Gazelle on steroids. I've been attacking my mortgage since May 2018 all thanks to you and listening to your shows. I have skimmed off 5 years worth of payments so far. I must say this is def not easy but pretty rewarding once you see big chunk come off after a certain point. I def live like no one else. Not many understand what I am doing and the same people often times say I am crazy. They speak to me as if there is nothing else to do after a mortgage is paid as I am often asked... "So, you get your mortgage paid and then what?" I say.. then I live like no one else does :) If my amortization numbers hold true with the numbers I believe I can apply to mortgage each month.. I'll be doing my debt free scream in 6 years. maybe 5! Who knows maybe I'll surprise myself and be done earlier. I'm hungry and determined to be free from financial slavery. Amen!
Conce Si I hate to burst your bubble, but paying your mortgage down is a very amateur and actually risky finacial strategy.
@@thorman1089 why is it an amateur strategy?
Chase Cochran you should be leveraging OPM(other people money) to gain even great returns on you money by creating cash flow for other investments. Putting all your extra cash into equity ties your money up and the only return on it you get is appreciation. If someone doesn’t have the desire or mental capacity to invest, I would suggest a whole life insurance policy that allows you to still access the cash value of your policy or investments/emergencies.
It’s risky as it ties your money up in a non liquid place and if someone loses their job, with half of their mortgage paid off, they will still lose the house if they can’t make the monthly payments. Smarter to keep cash, invest it in something with greater returns. Until the house is fully paid off, it’s returns are small.
JustA false. I suggest more education for you on this topic if you truly think I’m tolling
Jake Shanklin
Anyone who promotes whole life insurance and advises against paying off a mortgage early on DAVE RAMSEY'S YT channel is most certainly a troll, and not a particularly bright one.
Point is, you can pay off your mortgage in 30 years... or if you pay the principal down each month, you can pay off the same mortgage in 25 years... or 20 years... or 15... or 10... or 5 years, depending on how much you prepay. You can save literally hundreds of thousands of dollars in interest, by making early prepays on the principal. Just make SURE the bank is applying the prepayments to the principal, NOT to the interest.
Nils from Alaska what’s the best way to ASSURE that it goes towards principle?
Also gives you some leeway in case you run into h financial troubles. My next truck payment isn't actually due till something like august so if I have something come up and can't make a payment this month it won't hurt me beyond having to pay a little extra interest next time.
olstar18 this does not apply to mortgages. You could owe only 2 years left on a 30 year loan and they can and will foreclose on you. No matter how much extra is paid.
@@jcrawford1471 Depends how you pay. If by check with bank coupon or online there should be a box identified as extra principle. If there is none on the coupon write it in and on your check. If online and there is no box to enter then you need to contact your motgage company and ask. There also should be boxes for extra escrow payment etc.. if you are doing auto payment, need to look at your statements to check if the principle amount is going down with the normal and extra principle payment. If not call call call call. Its illegal to apply extra payment to interest.
It depends on the interest rate and how much gap there is between inflation and the interest you pay. The 500 USD or whatever you pay do not have the same purchasing power in 20 or in 25 years from now.
O my gosh. Who has learned more random knowledge from Uncle Dave rather than high school and university?!
Just have more desire to learn from your phone than school
This is taught in algebra class...back in middle school.
Yes, this taught in middle and high school but the kids don’t pay attention.
Im not blaming the schools when i was 17yrs old im not pay attention to this even if i did i wouldn't remember
Less random and more useful.
This vato is awesome! I have been paying $250-300 monthly, but after coming across this guy I’m determined to make at least $1000.00 to the principal. I just need to make an upgrade to my house, and after I’m done, I might be making $2000.00 monthly payments to principal. God willing.
God bless Dave Ramsey, he changed my life for the best, all you have to do is listen to his teaching, believe in your self and work hard to build a better future.
Dave, I have an MBA, and some of the ways you explain things is so clear and straightforward that I wish you had been my professor for all of my finance classes. I would've gotten so much more from them with your clarity and breaking it down approach!
My finance and accounting professor had no clue or East to explain like this guy
Paid off mortgage in 16yrs.Yippy!
Awesome 😎 congratulations 🍾🎊🎈🎉!
If anything, it's likely to get worse. Affordable housing will soon become unaffordable. Therefore, I advise taking action now because today's prices will seem like bargains tomorrow. Until the Fed takes more decisive action, I expect we will see hysteria due to rampant inflation. You can't just halfway rip the band-aid off.
I suggest you offset your real estate and get into stocks, A recession as bad it can be, provides good buying opportunities in the markets if you’re careful and it can also create volatility giving great short time buy and sell opportunities too. This is not financial advise but get buying, cash isn’t king at all in this time!
Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes. If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
Do you mind sharing info on the adviser who assisted you?
Melissa Elise Robinson is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
Wow, her track record looks really good from what I found online.i just searched her name and messaged her and I also scheduled a call with her
Dave's face when she said she has a weird personality and might get a little crazy is priceless.
Was thinking the same thing! LOL
Very well said. I started paying $100 extra a month on my mortgage to pay more towards principal
That is great! Me too.
Even $100 at the very beginning of a loan adds up. Towards the end it’s more meaningless. But at the beginning it helps a lot
@@Gio-ue8ps when you say beginning, how many years is considered beginning?
@@personalemail2167 first 10 years I would say is beginning. Even paying $100 a month helps a lot
@@personalemail2167 Depends how long your loan term is for.
This really makes it clear the power behind making extra principle payments on your mortgage. Not only does it bring your principal down, but increases the power of future payments in bringing your principal down.
I don't see anyone saying this woman is crazy; sometimes really intelligent people have these personalities. But she's getting better information than I had when I bought my first house, because I would be lying if I claimed I understood this at the time.
I wish he would answer all questions like he answered this one. Very respectfully and very calmly.
What should be said is that the first few years are nearly 100% interest. This is when you should increase your payment amount that goes directly to principal as it will radically lower the number of total payments. But in the final 5-10 years of a mortgage, it’s almost 100% principal so the need to pay more is less important.
True!
I loved this call! That lightbulb was wonderful for her and it is like a dad explaining it to a daughter :)
One step further, because more of your payment goes towards the principal than the previous payment did, you will pay off your mortgage much quicker than if you weren't making extra payments. It's implied, but I think it's good to outright state it. She was hoping her monthly payment would decrease, it doesn't. The trade-off is you pay off the mortgage sooner, however.
I always look at paying extra principal as taking months off the back end of the loan. Pay an extra $1000 now might take 6 months off the end...
ChicagoTRS if you put it in stock market you could do better plus it keeps u liquid. Once u put it towards house it's not that liquid
Like the other guy said, you could make more with that 1000 in the market but Dave wouldn't tell you that because it goes against his plan which is great for the majority of people.
WCGwkf
Well since Dave actually tells people to be investing 15% of their income in step 4, and paying extra on the mortgage doesn't come until step 6 I don't think he would tell them not to (assuming ur debt free and have ur emergency fund fully funded). The $1000 would just be part of the 15% invested
But he probably wouldn't advise to put it in stocks
@@patandbrandi then coronavirus hit
@@WCGwkf then coronavirus hit
I work in the mortgage industry. If you have a online account with your bank/mortgage company there is sometimes an option called an amortization schedule.. It breaks down how much you pay per month toward principal and interest for the life of the loan. So let's say you want to put a 1,000 extra payment into a 30 year mortgage, it will self calculate down the amount of payments due, example 360 to 355 payments left.
Also make the extra principal payment 1 or 2 days before the due day, it will be better!!!!
@@fanycortes4390check on which date of the month interest is calculated pay before that
The fact that the vast majority of people who have home loans don’t understand this concept is scary
Dude. I’m 34 and work in a real estate office and this is literally the first time I’ve ever understood this!!!
Thanks Dave! I never got this until this video!!!
You’ve been bad at your job then lol
Two years in, paid off a third of mine. Should be done in five.
👏🏽👏🏽👏🏽👏🏽👏🏽
@Paid to Deliver Food true, but everyone's situation is different. I'll never pay off my mortgage bc I'm selling and downsizing. My equity is climbing faster than I can pay it off.
Wonderful! Keep it up!
Hey, checking in - have you nearly paid it off?
One thing that I haven’t seen mentioned is that some mortgage companies will do anything possible to not apply the extra money to principle alone, but rather call the money “curtailment”. If one mix the extra money with your monthly payment then some will categorize as curtailment instead of principle.
Make sure the payment is against the principal. I think I used to send two checks, one for the payment and the other was marked "principal only". There might have been a special payment slip for principal payments. Many years ago. We did Dave Ramsey before we ever heard of Dave Ramsey. Good show.
What about the interest you just left it the way it is? By only paying the morgage (principle, interest, insurance & taxes)? And just making a principle payment only?
What day of the month to pay principal? ,the day on, before or after loan payment?
Its a shame that everyone who buys a home with a 30 year mortgage only pays one payment a month. You can pay off a loan 8 years early just by splitting your payments in half each month or by paying extra principal each month...so many ways to getting the mortgage paid off early but we aren't taught this at any time.
a lot of lenders will add an admin fee to your payments to set up a bi-monthly payment schedule.
Ive never been so motivated to pay off my mortgage than I am right now haha
My mortgage company lowered my mortgage payment when I started paying more on the principal. I didn't fall for it. I'm going to get that sucker paid off as soon as possible!!! 😁
That’s interesting I was told pay $300 and will lower it, but you shouldn’t do this. Keep doing what your doing pay the same amount.
Yeah, they want all of their interest.
@@theresemeggitt8455 of course, they want every dime they can get from you
The same thing happened to my car payment when I started paying extra on the principal!! And they didn't want me to pay til Aug when I paid double in june 🤦♀️ wish I would have started this sooner!
@@rachelellen4934 WOW!!😮Interesting.....
On the surface it seems like a dumb question but schools need to do a better job teaching this to people. I wish I learned this in school. (Graduated in 2015)
Simple and compound interest was probably taught in high school.
Most teachers don't understand this stuff. That is why they don't teach it.
We were fortunate to have a money s.m.a.r.t class my senior year (2015) bit it was an elective class. part of that course was completeing daves online classes. Still checking in with dave every once in a while but their are better advisors to follow once you climb out of debt
Wrong. Your parents should teach you this.
Fantastic information all around. Even for those who have a fairly good knowledge base it’s great to hear it broken down into simplistic language.
I’m that nerd that has an amortization spreadsheet that I can see how my extra principle payments impact the bottom line. I’m a visual type of person and love to see those lines of red print at the bottom of the spreadsheet (months shaved off of my mortgage) because of payments I made now... then figuring out how much I’m saving on interest I’ll never pay.
Me too.
I am about to buy a townhouse for $130k, I put $28k down, so a loan of $106k @ 6.375%.
So I looked at a calculator if I pay NOTHING extra to my mortgage I will pay $132,068.75 in interest 😱😱 (over 30 years) bringing my total to, $238,068.75......
If I make $500 of extra payment towards my principal each month, then I only pay $39,405.57 of interest.
If I make a one time payment of $20,000 (which I plan on doing), and an extra $1k a month then my interest goes down to $14,982.48 which is MUCH more reasonable.
They need to teach this in high school
5:51 - The chart he is talking about here is an Amortization Schedule.
Knowledge and discipline are so sweet and rewarding. I am starting to enjoy the benefits of Mr. Ramsey's advice, and the best part of his info...... It is free.
Love Dave Ramsey. My one thought on splitting payments into weekly or biweekly is the idea that youd be making an extra payment a year. Bi weekly is 26 payments which works as the same as making 13 monthly payments.
So by switching from paying 1x a month vs. 2x (or every 14 days) is good right? Or what Dave says it doesn’t make a difference???
@@nancampbell3647 What Dave said was partially correct. The interest is still only calculated once a month on the balance at the time of payment. By making bi-weekly payments and keeping up with how those payments are being applied, eventually, you’ll have made a 13th payment for the year, which in turn reduces your principal by whatever your monthly payment is. To see it on paper, I would recommend checking out Pennies not Perfection channel. She has no less than 4 videos explaining this exact thing, as this is what she does with her own mortgage loan and how refinancing from a 30 year to a 15 year note is saving her even more in interest and more is being applied to principal. Pretty cool concept if you budget it correctly and keep up with it religiously.
Like Dave said, the math doesn't change. HOWEVER, if you get paid every two weeks then this smooths out your expenses a bit. Rather than a huge chunk of one paycheck going toward your mortgage, a bit would come from each check.
a extra payment a year isn’t enough to see a lot of change
I make a principal payment every month. What ever I can afford. Wow it sure makes a difference.
Dave is just a great teacher!
So I've been making large payments once a year when I'm comfortable..and it changes
Look into you your payment calculator when you are on your mortgage account and just place random payments (monthly or yearly )and the amount that you think you are conforortable and that's going to help you have an idea where you stand without draining your savings
Because the first 10 years
Lets say you have a mortgage of 1500 $ a month only about 400$ goes towars your principal the rest goes towards interest...
Making one extra payment a year (12months/13 full payments) will cut a 30 year mortgage to 24 years.
@TSM Thats criminal? Thats just math. How would you suggest they make you pay your interest? At random times for random amounts that don't relate to how much you still owe?
@TSM so you mean just getting to borrow money for free? You really don't seem to have any clue of what you are talking about or how mortgages/financing works. "It's not fair that I can't just have whatever I want."
@@tateg.7530 in many cases buying a house in the current economic tide is so much less than renting so for the privilege of having a better place to live and better budget you are paying for the people who have put together loans for you and took the risk for you to have a better life
I’m glad people ask these questions because a lot of people don’t know. It just takes that one person to ask so that a lot of people can learn.
Debt free and I’ve decided I’m going to pay my mortgage off in 10yrs instead of 30. Huge thanks to the Ramsey team for making me see the way.
Not debt free if you’ve got a mortgage.
Completely depleting savings and investments to pay off a mortgage early is stupid. I’ve seen many a client who paid cash for their house with this mindset, even though they maybe “debt free,” something big happens within a few years and they take out a cash out refinance. Send extra principal each month but don’t be stupid and blow all your cash just to be “debt free.”
Good debt is good…don’t rush to be mortgage free because you’re still be paying property tax every month
This was a great video and explanation.
Best description on this topic I have ever heard. Glad I watched.
This is a great clip, I’ve shared with family many times. Very basic, but so informative.
The other element that is also worth looking at with any loan is also examining the savings on the total cost of the loan (the principal + all of the interest) if you are financially able to make more than just the required payment each month?
(The question you need to ask however is how the lender is applies the extra money: it needs to go towards the principal and not to the next payment's balance).
A good friend of mine did this, she had no other debt other than the house mortgage (the standard 30 year fixed interest), and they wanted the security of having a home to live in that was fully paid off. Their financial situation was also such that they could afford to make double payments on their house the majority of the time, and ended paying their home off in 15 years instead of 30.
When you make those extra payments, MAKE SURE that they are marked "principal payment". Write this in the memo and on the back of the check. Many mortgage servicers will always apply the payment to the interest. That way, you still owe them the same interest next month. Or mark the amount on the 'extra principal' box on the payment coupon.
@@ricoludovici2825 yes. And if you pay extra on principal, make sure that it shows that on next statement.
I’m 41 and this just helped me so much. Thanks papa Dave for making this so simple. Sounds like a “mortgage snowball”!
He's your daddy.
Suhhck daddy off
Find a loan amortization spreadsheet, how to make it, and youll see how it works and how you build equity as the loan matures
Every month, I add some extra money into the ‘Additional Principal’ line of my mortgage payment. It’s better for me this way than trying to refinance.
What is your free liquid cash available???
I don't know why people don't get this... Making additional principal payments effectively reduces the interest rate and reduces the # of payments you have to make.
5:50 is the best way to understand it.
This is such an important lesson for people to understand!!!
One of the best questions asked. I've always wondered how this really work
take your monthly payment..divide it by 12 and send that extra along with your normal monthly payment..you will pay off 5-7 years early...
This video is incredibly inspiring. Why didn't anyone ever tell us this. I'm going to pay off my house EARLY!
Now i live by that equation. Best use of math ever! Thank you!!
I would love $1,000 for just being amazing! Haha - thanks Dave for all the help to learn the financial lessons that we all were never taught!
Thank you Dave this is one of the best topics you’ve educated us on
Really glad I watched this. He has a way of explaining things. Dumbing it down if you will. 🤑👍
Why didn't they teach us these things in high school?
The same reason their getting pregnant. They know, but don't care.....at the time
I've been saying the same thing about personal finance in general for years. Not to sound like a conspiracy theorist but the education system is run by a few giant corporations, the less financially educated people are the better since we live in a debt-based economic system (thats true). People need to be in debt for the economy to prosper, issue is anyone in debt doesn't prosper lol
They taught me this in highschool. Graduated in 07 when NYC was supposed to be one of the dumbest high school states. If you know how to do percentage and simple math, this shouldn't be hard at all.
Because kids don’t pay attention to anything else, why would they pay attention to this? It’s the parents job to teach this not the teachers. Besides that, if you really want to learn it, we live in the Information Age. You have all of this good information that you need in your pocket
Because public education is a joke...
Thank you sir i learned alot from your videos and on A.M radio
This is a great question! I didn’t know about the daily interest rate not being a thing.
We will be paying off our house next month & this is the time I have really understood how interest on our mortgage really works.
I love that moment “..oooooohh!! Okay!”
Very helpful!!!!
Brilliant explanation Dave.
So lucid
Dave Ramsey Sir,
I am from India and I listen to your show regularly.I can tell you sir everything thing discussed on your show is so valuable especially the nuances of money be it debt etc
AMAZING, now I get this!
I was looking at my loan activity while listening to this. And tracking how my loans intrest was slowly chunking down each month. I think Im going to start adding a hundred or so each month to principle.
A lot of people don’t know about or talk about mortgage recasting. People please look into this. It sounds like what she would had liked to happen. Just did a recast myself!! Paid 50k towards a rental property I own.
Yes! We recast our mortgage about 10 years ago, made a large lump sum payment of 50K as well toward our loan (received an inheritance from my mom). The loan is then re-amortized which results in lower monthly payment. But we continued paying extra principal every month.. I realize that not everyone can make a lump sum payment of that amount, but most banks will recast a loan with 5K minimum. Loan recasts are not advertised, you have to ask your lender.
I just did it my self too 🎉
If you had made extra payment to the principal depends on. The bank you can do recast w/out making a big extra payment
I did this with a car loan - paid $100 more per month than the payment and ended up paying the car off 12 months early.
I follow you a lot to comprehend finance. Your lesson should be taught in school. My mortgage was 5% 12 years ago. Today it is 2.3% but I kept the payment at 5% the extras go to the principal.
I learned this in church when I was in my 20’s. Our church had a huge burden of a loan to pay off due to financing a new building and then half the congregation left to start a new church. Those who were left holding the bag decided to make extra principle payments. We’d also have a big ingathering when a balloon payment was due. Paid off a 1 million dollar loan in about 10 years. But that was a TOUGH 10 years.
Anyway I applied the same concept to paying off my first home. It was a 15 year loan with an adjustable rate. Paid it off in 3 years, turned it into a rent house then moved into a much larger home with a 30 year fixed rate of 6.5% . I refinanced at year 3 to 3.5% (saving approx. 100k in interest). In December that home will be paid off. That’s 15 years early for those of you keeping score. 😃. The downside? When you make extra principle payments you don’t have much money for anything else. I’m 53 years old and just bought my first lamp. 🤣
This is something that has confused me for so long. Great explanation.
His explanation so clear and simple now i understand how principle works in mortgage payments.
I mean principal
I’m a 44 yr old with a masters degree and just learned how this works. Have owned 3 homes.
Really need to do something with education system ,not only in US, even same in my country...should teach this before we are finish high school/colleage.
Wow! I learned from a Financial class in church. One sheet of paper showed me how you pay off 2 houses for one - if you don't get out.... quickly.
You are joking right you must be joking you couldn’t possibly have a masters degree and not know this basic financial information you must be joking
I could believe a bachelor's. A master's? You're kidding
@@francisluglio6611 good thing it does not matter what you believe.
same technique im applying so good to know this
I hope my mortgage will be paid off in 18 months. I am sick and tired of payments.
How's it going so far?
It's been a long time since I gained a unique information about money other than the general wealth videos.
No one should sign the mortage paperwork until this is explained
Very valuable call. I learned a lot
Worth saving and listening to over and over again. for me.
God bless you and the team! You all helped us massively!!!
Good question! Glad she asked. ❤
They did teach me how compound interest works in high school.
Most dont...
@@TopShot501st yes they do. All math curriculum has this lesson. You just never paid attention.
Exactly, people are just math simpletons. Compound interest is taught in 9th grade mathematics.
Question. What he says at 5:15..is that right? “Much more of your payment goes toward principal after 15 yrs of a 30 yr mortgage than the 28th yr of a 30 yr mortgage.” Just wanna make sure I did not misunderstand. Toward the end of your payments, it should be going more to the principal correct?
Incredibly helpful video
Thanks
Great question asked and answered by The Great Financial adviser. 🙏👍.
Every body can used amortization schedule to understand how much goes in to the principal and interest every month.
Before I understood amortization I thought the process was unfair was strategically balancing the interest payments it their favor. But it's really just paying the interest on the entire balance you owe that year, divided by the next 12 months. So if you have a 100k loan and a 5% interest rate, you owe $5000 in interest that year, so your first month is $416.67 interest, regardless of how much principal you pay that month. If you don't pay any principal, you will owe $416.67 in interest every month forever. Paying down the principal is what is spaced out over 15 years or 30 years etc in a mortgage. The interest rate is the same, but the interest amount lowers every month, because 5% interest on $99,750 is $4987,75 over a year. Divided by 12 months that is $415.65.
Easy, straight to the point!!! Thank you!! Thank you!!!
Or just look at the the monthly mortgage statement. All the info is right there. They do the calculation for you. They also can send you an amortization balance sheet if you didn't receive it at closure.
Short answer, payment stays the same, amount owed goes down.
In South Africa, mortgages (or bonds as we call them) are calculated daily. So for us there is a real benefit to paying off extra sooner. The monthly payment stays the same, but you will be paying off more capital that month. Also, it is clearly shown on our statements that you paid X and you had Y in interest and subtracting the two numbers will give you the capital paid off.
That sounds like a ripoff
So what he’s saying is
1)Interest is calculated monthly
2)the payments stay the same but if you pay more on the balance then the overall interest goes down.
Huh
1224 the more you pay the less interest you have to pay
Meaning if you have a 30 year mortgage and pay it off in 15 years you won’t pay as much interest. As if you took the full 30 years to pay it
@@stayswervin554 huh
1224 your trolling 100%
@@stayswervin554 no hablo engles wey
Omg thank u sooooo much I just became a subscriber and I’m a new home owner
🎉congratulations on your new home
The Amish have the right idea.
Whoever needs a house that year, the community gathers and builds a house for that family. Some have electricity.
For plumbing, hire a friend and learn from them !
Socialism might work in their small community but it is never the solution for the country.
@@WCGwkf they dont have a socialist community they have a capitalist one, most of them are millionaires from land ownership and selling horses etc
Yeah, let's try that in Manhattan.
But they do wear funny hats and have scraggly beards....the men too