How NOT to pay so much interest to the banks
In the last post, we got a glimpse into how much money a mortgage
holder can save by using a mortgage reduction strategy.
If a mortgage reduction program saves us so much money,
why doesn’t everyone do it?
Good question.
The reasons are varied and many. People feel:
1) They lose control of their payments.
2) It’s restrictive and puts them on a restrictive budget.
3) They just don’t understand it.
The truth is, it’s no more restrictive than a conventional mortgage.
If a $1,000 mortgage payment is due on the 1st of the month,
then you must send $1,000 on the 1st of the month.
Otherwise it’s late (and may be subject to late fees).
And if you don’t send the entire $1,000 (let’s say you send $600),
they hold the money until the balance (the remaining $400) is sent.
Only then they will apply the $1,000 payment.
You don’t control when or how much your payments are going to be.
It’s written in your mortgage loan agreement contract and whatever
the terms that are in your contract, that’s what it is. You don’t control it!
The major reason that people don’t get on a mortgage reduction program
is simply that they don’t understand it. It’s not voodoo, it’s not a scam.
It’s just Math.
On a bi-weekly mortgage reduction program, a $1,000 a month mortgage
payment will be reduced by 7 years for a savings of $84,000.
As good as the bi-weekly program is, in Australia they came up with an
even better program.
People could put additional money into their mortgages (which would be applied
to their principle). Instead of saving 7 years off their mortgage payments,
they could now shave 10, 12, 15 years off their payments - maybe even more.
They did this by reducing the interest payments on their loan. HOW?
Listen closely, Here’s the secret…
You go down to the bank, open up an equity line of credit, and pay off
your first mortgage… That’s all there is to it… Now Go Do It!
The problem is we won’t.
Remember, most Americans have heard of the bi-weekly program
yet fewer than 20% actually do it. Let’s face it, we’re Americans.
Most of us have 5 credit cards - Three of them are maxed out
and the other two are well on their way.
Land of the Free, Home of the Broke!
That’s just what we all do. However, there is a way out of the 30 year
mortgage trap. I just told you “The Secret” - open up an equity
line of credit and pay down on your mortgage.
This is called LEVERAGE. Use the bank’s money to pay down your mortgage.
Here’s the problem… How much money are you moving,
where you going to move it to, and how are you going to pay it back?
If you’re not careful, if you have a mortgage over here and an equity line of credit
over there - this is what is going to happen… 8, 9, 10 years from now,
you are going to see $250,000 on your Home Equity Line Of Credit (HELOC)
and start thinking to yourself …
“I thought all I had to do was take money from my equity line of credit
and pay down on my mortgage?” What Happened?
The answer is - There is a discipline missing.
You have to have a checks and balance system, so that you don’t get into more debt.
Let’s assume you buy your “dream home” and that you have a $200,000 mortgage.
Your payment is $1,199 per month at 6% interest (this is no escrow, no insurance,
no taxes), just your principle and interest (P and I).
Here’s what happens. Basically, you’re going to have a 30 year mortgage.
ALL mortgages are based on a 30 year amortization schedule (with the exception
of 15 year mortgages). You may have a 3/1, or 5/1, or 7/1 Adjustable-Rate Mortgage,
Interest Only, Negative Amortization or whatever you want to call it these days.
They are all based on a 30 year amortization schedule.
You will now have the privilege of paying $1,199/mo for 30 years for a total of
$431,677. That’s $231,677 in interest payments. Doesn’t that make you feel good!
(I know it makes you feel something, but good is probably not the word).
And if you have a half million dollar home you will pay more than a half million dollars
in interest payments. And if you have a million dollar home, you will pay over a
million dollars in interest (in addition to the million dollar principle).
That’s no secret, we all know that. It’s all relative.
You do know that money is relative, Right?
The more money you have, the more relatives you have. 
Let me tell you a secret…
By using a proper mortgage reduction strategy, you will learn -
How NOT to pay so much interest back to the banks.
Some people say “That’s unbelievable” or “That’s too good to be true”.
They are wrong!
What’s unbelievable is that you and me over the last 50 years have said
“That’s OK. I can afford the payments”. Because we live by the Golden Rule…
He who has the Gold… Rules!
Who’s got the gold? The lender.
You want the house, the lender’s got the money.
So who’s rules do you have to play by? … The lenders.
You sign the note, you have to play by the lenders rules.
We’ve been conditioned to believe that’s just the way it is.
Let me tell you something… that ain’t the way it is
and it ain’t the way that it has to be.
Unless that’s the way you want it to be.
TAGS:
Adjustable Rate Mortgage, bi weekly, conventional mortgage, equity line of credit, escrow, HELOC, home equity, Interest Only, LEVERAGE, Mortgage Reduction, Negative Amortization, The Secret
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