Mortgage Killer Accelerator

Strategy 17 of 107

Family gifts straight to principal

Most predictableFrom an asset you already own

What it is

Parents or grandparents give money each year, each giver to each receiver, up to the IRS annual exclusion, with no gift-tax return needed below it.

Steps

  1. Parents or grandparents give money each year, each giver to each receiver, up to the IRS annual exclusion, with no gift-tax return needed below it.
  2. Married givers can each give, and they can give to the child and the child's spouse.
  3. Pay each gift straight to principal and keep paying the old monthly amount.

Repeat: Every calendar year.

Measure: Gifts applied to principal each year (enter the yearly total in the calculator).

Try it in the calculator Enter its amount in "Yearly amount to principal". Add a payoff goal of 5 years to see what is still needed.

Risks

  • A gift is gone for the giver; it cannot be asked back.
  • Gifts above the exclusion need a gift-tax return.

Who it fits

Newlyweds, Married couples, College students, Single, No high school diploma, No college degree, Average household

Needs

Family willing and able to help

How predictable

Most predictable: once in place, the payoff date is arithmetic

A worked example (hypothetical, not guaranteed)

Picture a hypothetical household (newlyweds). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.

They follow the steps: parents or grandparents give money each year, each giver to each receiver, up to the IRS annual exclusion, with no gift-tax return needed below it.

Suppose it brings $6,000 once a year on principal. The loan would be paid off in 17 years 11 months instead of 30 years, saving about $173,949 in interest. To finish in five years, they would still need about $3,488 a month more from other strategies. That is why the five-year sequences stack several at once.

The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.

Sequences that use it

  • Most predictable stack (no markets, no tenants): Every step is fixed arithmetic once it is in place. This is the closest thing to a sure payoff date: still not guaranteed, because income, rates offered and family gifts can change.
  • First-time buyer stack: Set it up at purchase: the credit certificate and a bought-down rate must happen at closing; then yearly gifts and dropping mortgage insurance at 80%.
  • Family bank cycle: Annual gifts to principal, a recorded family note at the IRS rate for a lump sum, then a recast. The equity relay is left out of this cycle on purpose because it moves the debt rather than lowering it.
  • Five-year sprint: family help: A large gift under the giver's lifetime exemption, then yearly gifts and shared costs. Fair treatment of siblings in writing.

Sources and more information

Where to get help

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