Author Topic: PILL method or paying off mortgage faster  (Read 28736 times)

purple monkey

  • Bristles
  • ***
  • Posts: 323
PILL method or paying off mortgage faster
« on: November 11, 2015, 04:30:30 PM »
Has anyone tried this or done the same concept on their own?

TIA

seemsright

  • Stubble
  • **
  • Posts: 227
Re: PILL method or paying off mortgage faster
« Reply #1 on: November 11, 2015, 05:06:35 PM »
I just did a quick google on what this is a quick skim of it just seems like it is way too much work to try to figure it out. And it is a marketing ploy to get you to buy a program or a book.

You do not need any of that.

Just send extra money to your mortgage. It really is that simple. We started with sending in $25 extra a month then it was $100, then we refinanced to get rid of PMI, then we sent the $100+ what we spent in PMI every month. At the end of the loan we were sending double payments. It was get a raise send it straight to 401K and the mortgage.

We just paid it off a few months ago.

Hey It's Me

  • Pencil Stache
  • ****
  • Posts: 715
    • Moe's Journal
Re: PILL method or paying off mortgage faster
« Reply #2 on: November 11, 2015, 05:11:23 PM »
Googled it and the first few links all looked like garbage. What seemsright said: just pay extra into your mortgage payments each month and you'll pay it off faster. It's not all that complicated.

Eric

  • Magnum Stache
  • ******
  • Posts: 4061
  • Location: On my bike
Re: PILL method or paying off mortgage faster
« Reply #3 on: November 11, 2015, 05:42:26 PM »
I vote for paying off the mortgage faster.  Seems to be a better path than taking a bunch of pills.

dess1313

  • Bristles
  • ***
  • Posts: 441
  • Location: Manitoba Canada
Re: PILL method or paying off mortgage faster
« Reply #4 on: November 11, 2015, 05:53:33 PM »
just make extra prepayments or increase your payment

Excel is your friend in this.  If you need help with a spreadsheet let me know i don't mind helping

There's no magic silver bullet.  more principle paid means less interest charged

You can also set aside extra money monthly and make a single or double payment yearly if you don't want to increase your payment drastically and worry about being house poor.  That way if you hit a tough couple months you don't have to make those extra phantom payments.  I would set aside an extra $100 this way and doesn't take long to make a difference. 

purple monkey

  • Bristles
  • ***
  • Posts: 323
Re: PILL method or paying off mortgage faster
« Reply #5 on: November 11, 2015, 06:47:40 PM »
Thank you all. I already do what you have suggested.
I am asking about the method and if anyone has tried it.
Seems like this is one area that mmm folks have not tried.
How about those from Europe?
I know it is a way on using your money to pay down mortgage first and then use money to pay bills.
Any help out there?

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4983
  • Age: 34
  • Location: Seattle, WA
    • My blog
Re: PILL method or paying off mortgage faster
« Reply #6 on: November 11, 2015, 06:51:33 PM »
When I do a Google search for this method, most of the links look like they're trying to sell me something. That's a big red flag.

Why don't you tell us what specifically you would do differently if you followed this method, and we can tell you what we think about whether or not that's a good idea.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: PILL method or paying off mortgage faster
« Reply #7 on: November 11, 2015, 07:01:03 PM »
People wouldn't be selling this if it weren't a scam. 

I'm pretty sure this is the hoax thing where your mortgage and bank account are merged and your entire paycheck is direct deposited into you mortgage then you basically take what's essentially a heloc when you take money out.

mr_orange

  • Walrus Stache
  • *******
  • Posts: 5612
  • Age: 40
  • Location: Round Rock, TX
Re: PILL method or paying off mortgage faster
« Reply #8 on: November 11, 2015, 07:04:32 PM »
This topic is covered very well on The Mortgage Professor's site.  This article:

http://www.mtgprofessor.com/A%20-%20Early%20Payoff/Are%20Some%20Prepayment%20Methods%20Better.htm

is worth reading. 

CliffsNotes....there is no magic bullet.  Just prepay the mortgage at whatever frequency (generally monthly) that your mortgage payments are scheduled and you can discard all of the tricks and schemes to separate you from your money. 

Playing with Fire UK

  • Magnum Stache
  • ******
  • Posts: 2603
Re: PILL method or paying off mortgage faster
« Reply #9 on: November 12, 2015, 05:11:02 AM »
European here: the PILL method is also bullshit on this side of the Atlantic; particularly the recommendation of taking out HIGHER interest credit card loans to pay principal off the mortgage. Spending $3000 for worse-than-useless software is also very bad maths over here.

Paying higher interest debt first, spending less and then getting the right balance of investing and managing low interest debt (for the individual) is good sense and good maths.

There is a thing in the UK [offset mortgage], where you can pay into and out of your mortgage like a bank account. This is nothing to do with PILL or pills, but is (I think) similar to a HELOC-only mortgage. There can also be some tactical refinancing when you pass a loan to value threshold, or sort out credit:income ratios (not magic and not PILL).

matchewed

  • Magnum Stache
  • ******
  • Posts: 4334
  • Location: CT
Re: PILL method or paying off mortgage faster
« Reply #10 on: November 12, 2015, 06:07:55 AM »
I vote for paying off the mortgage faster.  Seems to be a better path than taking a bunch of pills.

But the pills make having the mortgage feel better.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: PILL method or paying off mortgage faster
« Reply #11 on: November 12, 2015, 06:11:38 AM »
i love the premise of the whole thing.

"you think you're getting a mortgage at 3% but on a 200k house, you'll pay 103k over 30 years, does that sound like 3% to you" 

Just getting people to buy dumb crap that don't understand math.  its sad really.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: PILL method or paying off mortgage faster
« Reply #12 on: November 12, 2015, 06:13:58 AM »
Is this what you get when you click on one of those "Banks HATE him!" ads?

ash7962

  • Bristles
  • ***
  • Posts: 258
  • Age: 30
  • Location: Chicago
Re: PILL method or paying off mortgage faster
« Reply #13 on: November 12, 2015, 07:30:21 AM »
Is this what you get when you click on one of those "Banks HATE him!" ads?

I laughed out loud at work at that.  Thanks haha.

Jack

  • Magnum Stache
  • ******
  • Posts: 4734
  • Location: Atlanta, GA
Re: PILL method or paying off mortgage faster
« Reply #14 on: November 12, 2015, 08:26:00 AM »
Is this what you get when you click on one of those "Banks HATE him!" ads?

Yet another reason to aggressively block all ads.

dogboyslim

  • Bristles
  • ***
  • Posts: 432
Re: PILL method or paying off mortgage faster
« Reply #15 on: February 15, 2016, 08:38:53 AM »
I know this is a bit of an old thread, but I'm positing here because I had to talk a friend out of this.  In short, PILL (Principal Isolation Leverage Liquidity) is a characterization of interest payments designed to make you think that borrowing at a higher rate is good for you, while encouraging you to live your life out of a loan rather than an accumulation of savings.  IMO, PILL = RUNAWAY AS FAST AS YOU CAN!

It is based upon total interest paid, but it fails to take things all the way through, so it appears to be a "savings."

Using made up rounded numbers.
If the first payment only covers $100 P, and $900 interest, than if you pay $1200 of additional principal at payment 1, then it is the equivalent of 12 payments.  This moves you to the 13th payment, and you avoid ~$10,800 of interest.  The method suggests you borrow the $1200 and use it to pay the mortgage to avoid the $10,800 of interest that you pay on this $1,200 over the year.  That statement is the snake oil.  They then say that even at 10% interest, that $1200 only cost you $120 a year instead of $10,800.

Here's where the program fails IMO.  the ~$10,800 of interest isn't on the $1,200, its on the $200,000.  The impact of the $1,200 does advance you through the amortization schedule, but you are still paying the interest on the $198,800 and will still pay close to $10,800 of interest over this time period.  The reduction of the amount that you would have paid with the standard payment and the actual amount you paid in interest payments over the period is the real comparison to the $120, and since mortgages are 3-6%, that's going to be in the $36-$72, so let's call it $60.

I had to use an Excel spreadsheet with each month of the amortization worked out to show my friend that this ends up costing them more money, and that instead, if they take the difference between the 120 and the ~60 and use that, then they actually pay less over the lifetime of the loan.

They go on to suggest that you run your life out of a HELOC rather than having savings, using the logic that the HELOC is average daily balance vs. end of month average for the loan calc, and the net return of your savings will be higher than the nothing that other accounts pay.  They do not mention that this works ONLY if you have a positive cash flow and that you have a secure income stream through the life of the loan.  All this approach is really doing is aggressively paying all your savings into extra principle and putting you into a HUGE financial trap if anything happens to your income stream.

So if people ask how to pay off their mortgage faster, the answer is: Make additional interest payments with each payment.  All of the methods that promote faster mortgage payoff are essentially the same thing: Make additional principal payments.  Most of them just attach a fee to the mechanism of doing this.  With PILL its a software package they want to sell you (Mint can do similar for free), Banks often want to charge a "set-up" fee for the bi-weekly payment option etc.  All any of them really do, is provide systematic means of paying extra principal.  This can be done for no additional cost, just by writing a larger check.

« Last Edit: February 15, 2016, 08:40:25 AM by dogboyslim »