by skeeter1 15 Replies latest social current
Something has to be done. Perhaps it's nationalizing natural disaster insurance? Perhaps it's just waiting this storm out.
Skeeter
Let me kick this one out to you guys. How about nationalizing all insurance seeing as the insurance companies do not want to pay claims and raise rates all the time now. They are selling insurance they should pay their claims without the crap they are pulling. Like right with home insurance it's you use it, you lose it.
The term "Compound interest" on a mortgage loan confused me - I had never heard of that. Normally compound interest applies to interest earned (APY - Annual Percentage Yield) on a savings account.
I did a google search and came up with this very good explanation comparing a simple interest mortgage loan vs. a traditional mortgage loan. It is at www.mtgprofessor.com/A%20-%20Amortization/how_does_simple_interest_work.htm .
Looks like I have always had simple interest mortgage loans. I always made my payments early and when I came into extra money paid down the outstanding principal whenever possible so I have saved a lot on interest. With a simple interest loan if you make your payment on the due date or later over the life of the loan you will end up paying a lot more. If you can afford a higher payment, a 15 or 20 yr loan is much cheaper than a 30 yr loan.
The percentage rate, say 5%, is not 5% of the total loan, it is an "Annual Percentage Rate" of 5%. Look at your mortgage loan document. It should show the APR and the % in the blocks near the top of the form.
People that can't pay at least 20% down also get stuck paying Private Mortgage Insurance (PMI) for the first several years until the loan is paid down to about 80% of the original amount if it is a commercial loan. If I remember correctly, if you have a FHA loan you have to pay the PMI for the full term of the loan.
I don't understand the manner in which many people determine that which they can afford when it comes to a mortgage. Simply put, most people work backwards from a monthly payment to a 20 or 25 year mortgage at current rates and determine the house they should be buying. Banks are only too happy to amortize things over 25 years. And that's the problem... you will never start paying down principal until you've renewed 3 or 4 times and are into about year 13 or so. To me, you need to consider the entire purchase price of the home OVER THE LIFE of the amortization. In other words, when looking at what house you can afford, be aggressive in your initial payments. You might not be able to afford a large downpayment, but you can insist with the bank that the amortization period be scaled down to 11, 12, 14 years... whatever. Figure out what you can afford per month based on that - why pay the banks all sort of unnecessary interest? Consider some round numbers. Person A wants to buy a $300 000 house, but Person B is considering a $250 000 house. Person A goes to his bank and naively accepts whatever the bank offers: 10% down, 5 year term at 6% and amortized over 25 years. Person B goes to the same bank, pays the same 10% down, gets the same 6% term over 5 years but amortized over 12 years instead. Let's assume that there is certainty over the time and that 6% is a readily available rate when renewals come up. Person A would pay about $1725 per month (if they paid monthly) for their house. Person B will pay a fair bit more per month at about $2300. However, Person B will likely only have to renew his mortage twice (assuming every 5 years), while Person A will renew upwards of 5 to 7 times and will be subject to the uncertainty of the times. Person A got a nicer house upfront for a little more, but Person B has PAID OFF their mortgage in less than half the time by being aggressive. Here's the real catch: Person B paid a total of approximately $331 000 for their $250K house by the end. Person A? Their $300K house cost them a whopping $517 000 by the end! I know the numbers are rather simplistic, but what is difficult to ignore is that banks routinely slide those 20, 25 and 30 year terms in front of customers without them blinking. They are too tied up in worrying about a fraction on an interest rate or what colour the new drapes will be. So what if Person B takes on a aggressive mortgage like that and then runs into financial difficulty at some point where they can't afford a monthly payment as high as that? If you approach the mortgage holder they will ALWAYS let you rearrange the mortgage to extend the amortization period period. Why? Because it's easy money.
Oops I did it with Person B only putting 5% down... even better...
I used to own my house. When I moved to LA I sold it. Only way around your problem is to pay down smaller debts. Free up 30 bucks here, 10 bucks there and slowly start using that to pay PRINCIPLE ONLY. If your lender doesnt allow you to make principle only payments they are a scam in my book. Refi with someone who does.
Paying an extra C-note (or whatever) might not seem like much, but that is a mistake a lot of people make. As your principle starts dropping what you are compounding starts dropping. Go for it skeet.
in the 10 years I've owned my home I send extra principle.
sometimes it is as little as $34, others its as much as $134. by doing so consistantly I've cut 4 years off the mortgage.
Some people are talked into bi-monthly loans to shorten loan. but that "forces" you into making the extra principle. my way is volountary.
I go online every month and track the amortization change and it's refreshing.
those tv ads are very deceptive, and the refinance people are always trying to get you into debt. the alluring ads tell you that you can use the extra cash for the "vacation you always wanted" or some other non essential thingy!!!
