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How Does Mortgage Interest Deduction Work [It Ain't What You Think] - YouTube
Channel: Smartest Wealth Systems
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- The mortgage interest tax deduction.
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It's one of the biggest
financial scams around.
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You're seduced into thinking
you're saving money,
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but you're not.
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Not sure about what I'm talking about?
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Keep watching and you'll see exactly
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how the mortgage interest
deduction really works
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and if you'd like to know
if you've been scammed
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in other areas of your money,
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then you're going to want
to subscribe to our channel
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and click the bell, so you'll be notified
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when we publish new videos.
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We're not Smartest Wealth
Systems for nothing.
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(upbeat music)
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Hi, I'm best-selling personal
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finance author, Tony Manganiello.
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Since 1995, my business
partner, John Cummuta and I
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have taught over three million people
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how to use their current income
to accumulate real wealth
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and in all that time, one
thing surfaces regularly.
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It's the mortgage interest
tax deduction question.
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In this video, you're going to discover
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how the mortgage interest
deduction really works
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because you know, it isn't
what you think it is.
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There are three mortgage
interest tax deduction facts
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you need to know.
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The first mortgage
interest tax deduction fact
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is that it's becoming obsolete.
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In recent years, new tax laws have focused
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on simplifying the tax filing process
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and one new wrinkle intended to make
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that tax filing process more streamlined
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is called the standard deduction.
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When it comes to the mortgage
interest tax deduction,
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what you do is, you add that to a list
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of other itemized deductions
you may be claiming.
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Other deductions in addition
to the mortgage interest
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that you might add to the
itemized list would be things like
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medical expenses, charitable giving,
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student loan interest and other stuff.
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Whatever that total is, can be deducted
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from your gross income thus
lowering your tax liability.
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However, the standard deduction
was created to provide,
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what in many cases, is a larger
amount that can be deducted.
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For example, if you're
married, filing jointly
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and you're both under the age of 65,
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your standard deduction is $24000.
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That's a pretty big number.
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If that same family is in their third year
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of a 30-year mortgage on a
loan of $200000 at 5% interest,
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they would have a total of $9623.33
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in mortgage interest to write off.
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Compared to the standard
deduction of $24000,
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it's not a difficult decision
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as to which deduction you would choose.
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Now unless this family had over $14000
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in other deductions that were allowed
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on their itemized list of deductions,
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they'd obviously choose
the standard deduction.
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Since the standard
deduction is going to be
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greater in most cases,
the mortgage interest
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tax deduction provides
no tax benefit at all
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because they can claim
the standard deduction
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even if they don't pay mortgage interest.
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The second mortgage
interest tax deduction fact
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is that the math just doesn't add up.
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There are many ways in
which you can determine
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just how much of an impact the mortgage
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interest tax deduction will provide you
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if you're choosing itemized deductions
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over the standard deduction.
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Now let's take an extreme
example to prove my point
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that the math just simply doesn't add up.
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Let's say that you jump
through all the hoops
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and your itemized list of
deductions is really long
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and it turns out that the
mortgage interest tax deduction
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can bring your tax liability down by 30%.
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Now I'm using this 30%
as an overestimation
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to prove a point here.
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What this means is that you're paying $1
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in mortgage interest to
save you 30 cents in taxes.
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Did you catch that?
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You pay or lose a dollar in
interest to save 30 cents.
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Now listen, if you'd like to
trade a dollar for 30 cents,
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I have tons of quarters and
nickels just waiting for you.
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Do you see how the math just
doesn't add up in your favor?
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When it comes to the mortgage
interest tax deduction,
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you're seduced into believing that
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you're saving money on your taxes,
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but that savings is actually costing you
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much more than you save.
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Now, did you know that
the standard deduction
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was rendering the mortgage
interest tax deduction obsolete
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or have you ever realized
that your mortgage
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interest tax deduction
was actually costing you
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more money than it's saving you?
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Let me know in the comments.
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The third mortgage
interest tax deduction fact
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is your mortgage payment
doesn't have to be
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a permanent or lifetime bill.
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In today's consumer culture,
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people seem to be mortgage hopping
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more than they're job hopping
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and mortgage lenders are
constantly bombarding you
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with ads that tell you
that they can save you
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hundreds of dollars a
month on your mortgage
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and if you take them up on
their offer, guess what happens.
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While you may be saving
a few bucks every month,
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you've pressed the reset
button on your mortgage.
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Now, here's what I mean.
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Take a peek at this table
of mortgage interest.
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This table is a breakdown of how much
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of your monthly payments
are applied towards interest
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on a 30-year mortgage throughout
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the first seven years of that mortgage
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and we're looking at mortgage rates
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ranging from three up to 6%.
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Let's say you borrowed
$200000 to buy your house
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and you got a 30-year
mortgage at 5% to buy it.
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Your principal and interest payments
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would be about $1073.64 a month.
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In the first seven years or 84 months,
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you'd make principal and interest payments
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totaling $90185.76.
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Just guess how much of that small fortune
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was applied towards interest
on your 5% mortgage.
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I hope you're sitting down.
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$66079.10.
(glass shattering)
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That's over 73% of all
of your monthly payments.
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Now when it comes to your
mortgage interest tax deduction,
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this would have meant that you
would be deducting $66079.10
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from your taxes over the past seven years
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and this is if you had
more itemized deductions
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than the standard tax deductions
would have allowed you
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but I digress.
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If, and I do mean if, you
were in a 30% tax bracket,
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that would mean you would
have saved 30 cents in taxes
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for every dollar in
mortgage interest you paid
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or a total tax savings of $19823.73.
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Now the flip side of this is
if you didn't have a mortgage
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and we've been teaching
people how to pay off
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all of their debt for
nearly three decades.
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So, not having a mortgage,
it's totally possible.
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So, if you didn't have a mortgage
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and over the past seven years,
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you didn't write off $66079.10
in mortgage interest,
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you would have had to pay
that 30 cents in taxes
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for every dollar of income.
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This would mean you would
have kept $46255.37.
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So which would you rather have?
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$19823.73
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or $46255.37?
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Now I hear you, I really do.
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You're thinking, but Tony,
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if I have to choose between
rent or mortgage payments,
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at least I get some tax relief
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from the mortgage payments right?
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No, well first, that's only
if your itemized deductions
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are greater than your standard deduction
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because if your standard
deduction is greater,
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you're not going to claim your mortgage
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interest deduction are you?
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And in most cases your standard deduction
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will exceed your itemized
list of deductions
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and as a result, the mortgage
interest you're paying
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provides you no tax benefits at all,
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because remember, you get
the standard deduction
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whether or not you have a mortgage
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and yes, I do realize,
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you just can't write a check
for 200 grand to buy a house.
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So that makes the mortgage necessary,
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but that doesn't necessarily
make it permanent.
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The only thing that makes
your mortgage permanent
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is mortgage hopping
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and instead of thinking about how much
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you could save if you
refinance your mortgage,
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you need to be thinking about
what your life would be like
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without a mortgage payment
or any debt payments at all.
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But using the mortgage
interest tax deduction
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to justify having a mortgage,
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well, that's exactly what
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your mortgage broker wants you to think.
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To break free from this insane cycle
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the payment mentality
has you imprisoned in,
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you need to get your hands on a copy of
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"The Banker's Secret To
Permanent Family Wealth"
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by my business partner, John Cummuta.
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"The Banker's Secret" will
walk you through not just
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how to pay off all of your
debts including your mortgage,
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it will also show you how you can use
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the same money that you're
paying all your debts off with
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to build yourself a
stockpile of tax-free cash.
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For more info on "The Banker's
Secret", click the link below
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and while you're clicking that
link, click the like button
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and let me know if you liked this video
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and please subscribe to our channel,
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so you can continue to learn
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how you can be smart with your money.
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Quick question for you,
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did the math in this video help you?
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I would love to know because
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when it comes to you accumulating wealth,
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it's all about the math.
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So drop me a comment and let me know
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if the math in this video helped you gain
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a deeper understanding
about how your money works
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and if you have any other
questions about money topics
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and would like me to break
down the math on those topics,
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let me know cause I read
the comments every week
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and I'm always looking
for ways to help you
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become as smart with
your money as you can be
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because let's face it,
it's up to you to make sure
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the financial decisions you make
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will benefit you as much as possible
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and if by any chance you're still thinking
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that a mortgage is a good idea because
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you've been conditioned to
believe mortgage is good debt,
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then you're going to want to check out
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our Money MythBusters videos
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because the good debt myth
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isn't the only money myth
costing you a fortune.
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Thanks for watching and
I'll see you next time.
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(upbeat music)
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