By PETER ROSENTHAL, President
V.I.P. Trust Deed Company
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 with 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.
Farewell and Happy New Year.
Peter Rosenthal
VIP Trust Deed Company