George Kamel - The Hidden Truth About Mortgage Costs (It's Not Good)

Starting point is 00:00:05 Can I just come out and say it? Mortgages are a scam. Kind of. Because if you realized how much your house is actually costing, you blow a breaker. And today, we're going to cover the insane math of mortgage costs and how you can skip the scam and save hundreds of thousands on your home. But let's start with how a mortgage works. Now, obviously, in a perfect world, we could all pay cash for a house, and it would be as simple as trading your lemonade stand money for Blaine's Charisard.

Starting point is 00:00:29 But in the real world, where I live, homes cost a pretty penny. And most people don't have hundreds of thousands of pretty pennies lying around. That's where banks come in. Your business formal pals with the bank offer to lend you money to buy a house, and in turn, you pay the bank back what you borrowed, plus an extra bit called interest. Think of it as a thank you for borrowing their money. A little tax. Well, thank you tax. So you guys agree to an interest rate and a time frame you'll pay the loan back in, usually 15 or 30 years, and that determines what your monthly mortgage payment is. As long as it's a fixed rate mortgage, which is the only type I ever recommend, that will be the same amount you pay every month for the life of the loan. What a lot of people don't realize is that most of their payment for the first few years

Starting point is 00:01:08 is mostly interest. It's not actually knocking down the principal at all. And here's why. The interest is based on the full loan amount. So while the balance is high, the interest will stay high. But as you pay down the loan, more of your payment will go to principal and less to interest. This is called amortization. And the bank's not just doing this out of the kindness of their heart.

Starting point is 00:01:27 They're getting a pretty sweet deal here. Because thanks to interest, banks bring in an estimated $640 billion annually from residential mortgages alone. And that's allowed the banks to do a lot of great philanthropic things that benefit the world, like buying the naming rights for skyscrapers, major stadiums, and arenas. So, that's how mortgages work. And when they're pulling in nearly three-quarters of a trillion dollars while you're paying interest out the wazoo, I think it's safe to say, that feels like a scam. Yes, it's exactly what it is. But wouldn't it be great if you could keep more of your money instead of helping a bank slap their name on yet another

Starting point is 00:01:59 big functionalist postmodern skyscraper? Well, turns out there are mortgage options that help you keep more of your money and like I said, save potentially hundreds of thousands of dollars in interest. But even still, people are choosing the route that cost them more and makes banks rich. So let's crunch the number so you can see the difference for yourself and just how much you can save on your mortgage. Let's say you get a $300,000 mortgage, which is pretty in line with the average U.S. mortgage of $330,000. And let's start by looking at the mortgage most people get, the conventional 30-year fixed-rate mortgage, and we'll assume an interest rate of 7%. I'm going to punch all this into the mortgage payoff calculator at ramesysolutions.com.

Starting point is 00:02:35 I'll drop a link in the description so you can check it out for yourself. So our loan amount is $300,000. Data first payment, let's say it was the first of the year. Loan length, 30 years, interest rate 7%. You can see here it's going to give me the principal and interest $1,995. And $91. But how much interest are we paying over those 30 years? Let's find out.

Starting point is 00:02:59 Oh boy. So you can see here, it says new total interest, $418,000. And here's why you're paying a metric but ton of interest. For this $300,000 mortgage, you'd have a payment of about $2,000 a month. And remember amortization where you pay more interest up front? Well, that means that in the first year, out of that $2,000 monthly payment, less than $250 went to actually paying down the house, went to the principal. The other 1750 is all interest, baby, making the lenders more rich.

Starting point is 00:03:29 That's almost 90% of your payment that's building the bank's wealth instead of your wealth. In fact, it would take you 20 years before you even have a thousand bucks of that payment going toward the principal balance. That's insane. I mean, think about this. $420,000 in interest. That's a whole other house. The original loan amount was only $300,000.

Starting point is 00:03:47 So you're paying over double in interest. And I don't know about you. But if I'm paying for two CrunchRap Supremes, I expect to get two CrunchRap Supremes. Or is it crunch Raps Supreme, like AirPods Pro? Either way, paying more on interest than the original amount of the loan is assonine. Yeah, I just went full Shapiro. Not scared. I make racks off compound interest, y'all live with your parents.

Starting point is 00:04:07 All right, so surely there's a better option than that 30-year mortgage disaster, right? Well, enter the 15-year mortgage. It's like the 30-year cooler, more fiscally responsible cousin. And we're going to use the same example here. $300,000 mortgage, 7% interest rate, but this time with a 15-year term. And bonus side note for you, I'm being. generous here because the 15-year loan almost always comes with a lower interest rate than the 30, which would save you even more money. But for apples to apples, we'll keep it all honey-crisp, okay?

Starting point is 00:04:32 All right. So I'm going to go back, edit the original loan to 15 years, and you'll notice my payment goes up to about $2,700. But let's see how much interest I end up paying. Doodoo-do-do-do-do. $18,000. That's pretty wild. Remember, the 30-year had $418 grand in interest. That's over $230,000 in savings compared to the 30 year. Imagine what you could do with $230,000. You could buy two cyber trucks to look doubly stupid. And this seems like a no-brainer on paper, right? Well, here's where the rubber meets the road.

Starting point is 00:05:10 Because the time you have to pay back the loan is shorter, your monthly payment goes from $2,000 to $2,700, a $700 increase. And this is where most people go, No, thanks, George. I'll take the cheaper option. But just zoom out a little bit here. With a 15-year mortgage, it won't take two decades of mortgage payments to start seeing real progress on that principle. In fact, in the very first year, a thousand bucks of your payment goes to principal.

Starting point is 00:05:32 And if you remember from our last example, it took 20 years to get to that point. That's like a wealth time machine. Sign me up. Are you telling me that you built a time machine? Out of a Dolion? Think of it this way. You're paying a little more now, but you're saving a lot more later. So knowing all that, why do people still choose a 30-year? Or here's what they tell me as they call into the Ramsey Show.

Starting point is 00:05:53 Well, George, I like having that wiggle room with a 30-year with a little smaller payment. Or, I can't afford the payment on a 15-year. Well, listen, the truth is that affording a 15-year mortgage takes time and discipline. And if you're fiddling around with consumer debt like $700 on a car loan, credit cards, you still have student loans sitting around, then yeah, it's going to be impossible to afford a 15-year mortgage. But if you focus, get that debt out of your life, all of a sudden you have more room in your budget.

Starting point is 00:06:17 And you may need to look at a less expensive house, or wait a little bit longer to save up a bigger down payment in order to afford a 15-year mortgage. But wouldn't that be worth saving hundreds of thousands of dollars? Uh, duh. Well, in just a second, I'm going to show you what an extra payment or two could do to save you even more interest and a whole lot of time.

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Starting point is 00:07:10 and you'll get 20% off any of their plans. Or click the link in the description below. Also, we got to talk about something else here. I can't believe you. Yeah, you, the one behind the screen. you're still overpaying for your phone plan. Because with Tello, another sponsor of today's video, you can get the same great coverage as the big guys

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Starting point is 00:07:44 of the Unlimited Everything Plan by going to Tello.com slash George or just click the link in the description below. All right, let's keep saving you money on that mortgage. Let's say you've already made the brilliant decision to go with a 15-year mortgage. Chef's kiss. And let's say once a year,

Starting point is 00:07:59 you throw in the pot an extra mortgage payment of $2,700. Just that one little extra payment once a year that you could probably afford by canceling the Peloton subscription you haven't used since 2022. What does that do for you? First, you save about $25 grand in interest over the life of the loan. Second, you shave off a whole year and 10 months

Starting point is 00:08:16 from the payoff time. That means you'll own your home outright in just 13 years and one month, guaranteed. This isn't just an extra payment. Think about this. It's giving you time and money back in your pocket because of those interest savings to invest in your future. Okay, let's get even crazier. What if you could swing that extra payment every quarter? You throw in an extra payment of $2,700 every three months. That's four extra payments a year. And what's the payoff? Well, first, you save a whopping $72,000 in interest over the life of the loan. That's enough to see wicked over 250 times on Broadway. Second, you cut five years and four months off of your payoff time. That means you own your home outright in under 10 years. Now, if you started this plan at age 30, that means you'd be

Starting point is 00:08:57 mortgage-free by 40. And then, well, that's extra cash to invest, travel, or finally buy that backyard pizza oven you've been dreaming about. Just think of the dinner parties. So the bottom line here, you work too freaking hard to stay broke and give all of your money to banks for the next 30 years. And that's why I make videos like this. I want to see you win. I want to see you have that freedom and flexibility. And when you're not paying an extra 200 grand in interest, then you can put that money to use building up a retirement and enjoying life. And some of you out there might be going, well, I don't have a 7% mortgage. I have a 3% mortgage. Why would I ever pay that off? And to that, I say, get up off your assumptions. Okay? You're assuming there's a 100% guarantee that you're

Starting point is 00:09:34 going to make a big spread on this. The only guarantee here involves paying off your house early. That's a guaranteed return. And it's not just about the math or crushing your mortgage early because George said so. It's about creating a future where your money works for you. not the other way around. And that margin, the freedom, the peace of mind, there's no calculator for that. I can't show you that on paper, but I can tell you it feels amazing. And look, I get trash in the comment section all the time talking about how no one can afford a 15-year mortgage and how unreasonable it is. But to me, what's unreasonable is paying more an interest to the bank than the cost of my own house. Boom, mic drop. So if you're watching this and you have a 30-year

Starting point is 00:10:09 mortgage, you might be realizing you thought you were comforted by the low-payment teddy bear, but in reality, you're face-to-face with a grizzly bear and your hot girl walk, and all you have to defend yourself is your Lulus and a Stanley. Good luck. So if that's you, here's your next step. First, check out our mortgage payoff calculator. I will drop a link in the description below, and here's what I want you to do. See how much interest you'll save and how quickly you can pay off your mortgage by making extra payments.

Starting point is 00:10:31 It's quick, it's free, and it is eye-opening. And whether you're looking to buy or sell one day, soon, someday, or if you're just interested in how to get started and do this all the right way, be sure to check out the Ramsey real estate home base. On that page, you're going to find guides, tools, resources that will help you walk through, saving up a down payment, buying a house, selling a house, and even more. Plus, you can get info on investing and market trends or even connect with a real estate agent or mortgage pro that I trust.

Starting point is 00:10:57 I'm going to drop a link to that in the description as well so you can check it out. And if you're really fired up after watching this, why not make a goal of paying off your house in the next 10 years or less? And if you think it sounds crazy, I'm going to show you why you're crazy. Keep watching this next video to live. learn how to do that or click the link in the description below. And if you like learning how to save hundreds of thousands in this video, hit the like and subscribe button and share this with literally everyone. Thanks for watching. We'll see you next time.

George Kamel - The Hidden Truth About Mortgage Costs (It's Not Good)

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