You read the title correctly and you're not in a deep sleep having a nightmare. I am sorry that you had to find this out from some stranger but this is a Truth. I am in the mortgage business and when I discovered this I almost fell of my chair. For example if you have a 200,000.00 for a thirty year term at 6% and pay it to full maturity the effective interest rate will be 161%. Now do you understand why 95% of all Americans will never own their own home and if you are reading this, odds are you are one of them! It blows my mind to think that Americans will make mortgage payments for 20, 30, and 40 and 50 years and still will never achieve home ownership, why!
What I discovered is there are two factors why we will never own our home. The first is a banking instrument called amortization and the second is to continually refinance your current Mortgage. Let's first take a look amortization and explain the origins of it and how it works. After the great depression the president of the United States, FDR realized the government needed something to stimulate the economy what they decided to do is to focus on new home construction. His advisors discovered that home construction was a viable way to jump start the economy. The benefits of new home construction are that it creates jobs and affects numerous sectors of the economy.
One of the obstacles in their plan was how to finance homeowners. Before the great depression homeowners would put down 80% and finance 20%. After the depression potential buyers didn't have the resources to make large down payment. What they proposed was to increase the term of the loan, great idea but now the lenders were taking on greater risk with longer term loans. Whenever the banks liability or risk increases the lending institute will then pass it on to the consumer in the form of compound interest or cost. To solve that problem and reduce the risk to the lender they created the bank instrument called amortization. A definition of amortization in its simplest form, the bulk of the interest on the mortgage will to be paid in the first 7 to 10years of the loan.
On a 200,000.00 mortgage for a thirty year term at 6% interest it is not until the 21st year of the loan does principal overtake interest? Let me give you an example for the above scenario. On this loan the payment would be approximately $1,199.00 per month, in your first month $1,000.00 would go to interest and $199.00 would be applied to principal. Don't take my word for it look at your Truth and Lending Statement and you will see that you'll pay two and a half times for your home. Albert Einstein said "Compound interest is the 8th wonder of the world. He who understands it earns it! He who doesn't pays it!" He could have said it about Relativity, Physic's or Electricity but he did not. He understood the power of compound interest and so do the banks.
Here is an example of compound interest. If you would open a savings account at 3% and would deposit $ 1,000.00 and leave it there for 48 years or a working lifetime you would have a return of $ 4,000.00. The banks will take the same $ 1,000.00 and will get 18% on there money and at the end of 48 years will accumulate a return of $ 4,096,000.00. No you don't need glasses you read it correctly. This is why there is a bank on every corner and more banks than churches.
The second component is refinancing your existing mortgage. Every time you refinance, you're resetting the amortization schedule which puts the bulk of interest in the first 7 to 10 years. The national average says Americans will refinance their home every 3 to 5yrs. Mr. Einstein also made another profound statement "the definition of insanity is doing the same thing over again and expecting different results". We have been taught to refinance our homes every time we are able to save a percentage point or more. That's what the lenders and mortgage companies want you to believe. Presently there are few options available to homeowners to reduce mortgage debt, one is a bi-weekly and the other is adding extra money to your current mortgage. Both will eliminate a few years off your debt but most individuals are not disciplined enough to do so and that includes myself.
By now you are probably asking yourself how I can stop the insanity. Now there is an award winning product revolutionizing the way we pay our mortgage. It is reducing mortgage debt by one third the time. A similar concept is being used throughout Europe, Australia and New Zealand and is reducing mortgages by fifty percent. Are they smarter than we are, no but they have found a solution. You need stop this cycle and let me show you how to become debt free through mortgage cancellation. My passion is to see you financially free.
For more information contact me at jmridings@paidinfull.org or go to http://www.paidinfull.org and watch the 10 min video overview. It will change your financial future. I want to help you please call me at 708-983-3431 for a free copy of 101 Ways to Stop the Money Leak.
A successful restaurateur in Chicago, One day I woke up and all that I had labored for was taken away. Starting over at 49 is a journal of my journey back to the place of achieving my goals for my life. Also to help Americans achieve financial freedom.
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