As the expression goes “all
good things come to an end.” I have been authoring a
real estate column in various publications consistently
for over 25 years. A few years ago I promised my wife
that I would slow down and I now take off four mornings
a week. To further decrease my workload, I have decided
that this is my last column.
I always try my best to give you something with each
column that can save time, make life simpler, or save
you money. For my last article I will again, remind you
how to save A LOT of money. Most of my readers have a
mortgage on either a house or units. Over the years I
have told you two words that will beat your lender,
i.e.: PAY MORE. Interest is charged monthly on your
remaining balance, every extra dollar that you can
afford to pay either monthly or with a tax refund will
further reduce your balance and stop future interest on
the amount prepaid. I will not go into detail and make
this farewell too cumbersome but I will give you a few
examples.
Example 1:
The payment on a $200,000, 6%, 30-year loan is
$1,199.10. If you merely increase the payment to
$1,399.10 the loan will payoff in approximately 21 years
instead of 30 years and save you approximately
$79,100.00 in interest. If you increase the payment to
$1,499.10 the loan will payoff in approximately 18 1/2
years instead of 30 years and save you approximately
$100,375.00
Example 2:
Using the same loan above, lets “pay down” $6,000 (IRS
refund or lottery winnings) after one year. This loan
would now pay off in approximately 27.8 years without a
savings of approximately $31,175.00 interest.
I have told you in the past that bi-weekly mortgage is
nothing but a slight of hand trick that forces you to
PAY MORE. As I have told you in past columns, there are
26, 2-week periods in a year, i.e.: 13 monthly payments.
I don’t care whether you |
pay $5.00 extra each month or $1,000 twice a year:
whatever you can comfortably afford; do it. Have
someone do the numbers for you and you’ll be amazed
at how many thousands, tens of thousands, or
hundreds of thousands of dollars this advice will
save you.
Yes, I know that there are accountants and
finance majors out there among you who will give me
a hard time for advising people to pay down a loan
with deductible interest. That’s true – the offset
is that most people love the warm fuzzy feeling that
they get from saving the many thousand of dollars of
interest referenced above. The line that I have used
with my personal accountant over the years is, “Bud,
I have wonderful news, I lost a lot of money: or
Bud, I have terrible news, I made a lot of money.”
In case if you didn’t get the joke, accountants only
think about the tax aspects of a given situation.
Warm fuzzy feelings don’t matter to most CPA’s.
As I say my “goodbyes” I want to remind you of the
good freebees on our website (www.viploan.com). For
those of you who have used my Handy Dandy Factor
Table (payment calculator) over the years, a
complete version is at the top of the page. If you
need to print out an amortization schedule or
perform complex mortgage calculations, both of those
are also available on the top of the page. While I’m
giving away stuff, the best deal is a workbook
entitled “Basic Mechanics of Real Estate Finance.” I
used to sell that for $29.95 in conjunction with a
class that I taught; that is also free. In closing,
I am always available to answer reader’s questions;
you may continue to contact me at P.O. Box 26,
Montrose, California 91021-0026.
Farwell and Happy New Year.
Peter Rosenthal
VIP Trust Deed Company |