The mortgage buster strategy is a debt-reduction method that splits a home loan into two parts: a large portion paid at the minimum rate and a smaller, separate portion targeted with aggressive, accelerated repayments (often via a revolving credit or offset account) to pay off the mortgage years sooner. It focuses on behavioral change by making smaller, manageable debts feel more achievable to pay down quickly.
Instead of funnelling an extra $500 or $1,000 per week into paying off your mortgage, there's another way to manage your finances. The Mortgage Buster strategy involves holding an investment property that could cost as little as $200 per week out of pocket after factoring in rental income from tenants.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
To pay off a 30-year mortgage in 10 years, you must aggressively pay down the principal with strategies like increasing monthly payments significantly, making bi-weekly payments (effectively one extra payment yearly), applying lump sums from bonuses/refunds, and potentially refinancing to a shorter-term loan, all while ensuring extra funds go directly to the principal to save thousands in interest.
The cons of paying off your mortgage early:
Mortgage interest rates are historically low right now, so your expected ROR (rate of return) in other investments is much higher than what you're paying to borrow money from the bank.
The main downsides of prepaying are tying up cash that could earn more elsewhere (like investments), potential prepayment penalties from lenders, reduced liquidity for emergencies, and missing out on the time value of money, especially if your loan interest rate is low; it also means losing potential tax deductions and can complicate financial aid.
You should always prioritize paying extra toward your mortgage principal over putting extra money into your escrow account, as principal payments reduce your loan balance, save you significant interest, build equity faster, and shorten your loan term, while escrow just holds funds for taxes and insurance which you'll pay anyway. The only exception is if your escrow account has a shortage due to rising taxes or insurance; in that case, you must cover the shortage, but once current, focus extra funds on the principal.
A household should allocate no more than 28% of their gross income to housing expenses. Total debt payments, including housing, should not exceed 36% of gross income under the 28/36 rule. Lenders often use the 28/36 rule to evaluate creditworthiness and loan approval.
Dave Ramsey strongly discourages mortgage protection insurance (MPI), calling it a "rip-off," and instead recommends getting a level term life insurance policy for 10-12 times your annual income to cover the mortgage and support your family if you die unexpectedly, as MPI is more expensive and pays the lender directly, not your family. He views MPI as a gimmicky product that makes you think you need it, but a simple term life policy provides better, more comprehensive financial protection for your loved ones.
Red flag: Lack of transparency
There are different ways advisors earn money, but another red flag is "if there is a lack of transparency around fees," Brahim said. "It's important to understand the form of compensation and the total cost," Brahim said.
Making additional mortgage payments
“Paying off your mortgage early seems impossible but it is completely doable and people do it all the time, but how can you do it and why would you want to put in the extra effort? Paying off your mortgage early will rev up your wealth building.”
The most significant benefit of paying off a loan early is that you're saving more money by no longer paying interest on your loan (this calculator can help show you that amount!).
You generally need a credit score of at least 620 to qualify for a conventional mortgage, though every lender is different. FHA loans, which are backed by the federal government, may be an option for individuals with credit scores as low as 500.
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
Tax considerations: You may be able to deduct home mortgage interest from your taxes. 2 However, if you pay off your mortgage, you won't be able to utilize this deduction, which could increase your taxable income. To learn more about the tax implications consider speaking with a tax advisor.