How to Pay Off your Rental Property Mortgage Early

Posted on: September 15, 2009

Categories: Investors, Procedures, Profit, Reviews, Things To Consider

Author: buyfixandprofit

Put that Positive Cash Flow to Good Use

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You will have plenty of time to relax when you own several free and clear investment properties.

In the years leading up to the real estate debacle which began in May of 2007, many real estate gurus were touting that even if a property barely breaks even on a monthly cash flow basis, it’s still a good deal because of skyrocketing home values.  The option arm mortgages were also marketed on this same premise, that home values will never go down.  That game is over.  The easy money loan programs are gone and interest rates will most likely rise in the future.  This will keep prices in check and property values will appreciate very slowly over the next 5-7 years.  This makes cash flow king once again; speculation is dead. Fortunately for rehabbers and investors alike, positive cash flow has never been easier to obtain given the amount of cheap foreclosures hitting the market daily.

With that said, here is what you can do with that extra cash flow.

This graph illustrates the effect of increasing the monthly mortgage payment on reducing the length of the mortgage payoff term.  This example is based on an investor buying, fixing, renting, and refinancing a property for an end loan value of $80,000 at 7% interest with a 30 year term.

free mortgage acceleration program How to Pay Off your Rental Property Mortgage Early

Payoff Acceleration (years) vs. Additional Monthly Payments ($)

For a Loan Value of $80,000 @ 7% Interest on a 30-Year Term

Payoff your Loan in Half the Time

Just by paying an extra $100 per month, the loan payoff is accelerated by over ten years!  An extra $200 per month cuts the payoff time to less than half of the original term.  Notice that the acceleration of the loan payoff reduces sharply as the amount of the monthly payment increases above $200 per month in this example.  So in this case, if your monthly cash flow was $300 per month, it would make more sense to only contribute an additional $150 -$200 per month to the mortgage and put the remainder into a maintenance/repair account.  The acceleration of the payoff on similarly structured loans diminishes quickly after a certain point (additional funds) on ALL mortgages.

So instead of spending your extra $200 per month on fast food and other items you don’t need, apply that positive cash flow to your rental property mortgage and own that house free and clear in half the time.  Use the Quick Cash Flow Calculator to determine how fast you can pay off your rental property if you were to apply all of it’s positive cash flow to the mortgage.   Buy, fix, and rent out several properties like this and retire from your wonderful 9 to 5 job in half the time.

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