Critical Time
We are at a critical time and I think we will have a challenging time for the next couple years.
There is a famous expression in English: When the going gets tough, the tough get going – meaning when the situation becomes difficult, the strong will work harder to meet the challenge. In the current market even working hard will not be enough, unless we add researching, developing, innovating, and studying to our hardworking and dedication.
I would like to share this info with you from the book Money Master the Game, and I hope it can add value to your financial decisions.
How would you feel if you could save an extra $250,000, $500,000, or even $1 million, from your home? Sound impossible? No, I’m not talking about refinancing your mortgage at a lower rate, although that is one painless way to save hundreds or even thousands of dollars a month. THE BANKER’S SECRET You don’t have to wait for a market down-tick to save money on your mortgage. By the time you’re reading this, rates may be on their way back up anyway. You can still cut your mortgage payments in half, however, starting as soon as next month, without involving the bank or changing the terms of your loan. How? Let me ask you a simple question. Let’s say you’re applying for a home loan, which would you prefer? Option 1: 80% of your combined mortgage payments goes toward interest; or Option 2: a 30-year fixed rate mortgage at 6%. Go ahead and think about it for a moment. What do you think? Are you tempted by option 2? Does option 1 sound crazy? Did you follow the crowd and choose option 2? Or did you outsmart us all and choose option 1? The answer: it doesn’t matter. They’re identical. When you sign your name on the dotted line and take on that 30-year fixed-rate mortgage at 6%, fully 80% of your mortgage payments will go toward interest. Didn’t see that one coming, did you? How much does that interest expense wind up costing you over the course of your loan? Is it 30% more? 40% more? 50% more? Life should be so good. You want to know the banker’s secret? Your interest payments will tack on an additional 100% or more to your loan value. That half-million-dollar home you buy actually ends up costing you a million dollars after interest payments. If you buy a $1 million home? That costs over $2 million once interest payments are added in!
For most people, their mortgage is the single largest expense, and with the vast majority of your payment going toward interest, I bet you’re not surprised to learn that the average American, when you add in credit cards and auto loans, spends 34.5% of every take-home dollar on interest expense. And that’s just the average—many people spend more! So how can you cut down that enormous interest payment? How can you decrease the interest expense you rack up over time—and take that money and funnel it to your Freedom Fund? The answer is so simple it might surprise you. If you have a traditional fixed-rate mortgage, all you have to do is make early principal payments over the life of the loan. Prepay your next month’s principal, and you could pay off a 30-year mortgage in 15 years in many cases! Does that mean double your monthly payments? No, not even close! Here’s the key: Money Power Principle 3. Cut your mortgage payments in half! The next time you write your monthly mortgage check, write a second check for the principal-only portion of next month’s payment. It’s money you’ll have to pay anyway the following month, so why not take it out of your pocket a couple of weeks early and enjoy some serious savings down the road? Fully 80% to 90%, and in some cases even more, of your early payments will be interest expense anyway. And on average, most Americans either move or refinance within five to seven years (and then start the insanity all over again with a new home mortgage). “It’s a pity,” mortgage expert Marc Eisenson, author of The Banker’s Secret, told the New York Times. “There are millions of people out there who faithfully make their regular mortgage payments because they don’t understand . . . the benefits of pocket-change prepayments.” Let’s take a look at an example (in the table on page 252). The average American home is $270,000—but this strategy works whether your home costs $500,000 or $2 million. A 30-year loan on $270,000 at 6% requires an initial monthly payment of $1,618. With this technique, you would also write a second check for an extra $270— next month’s principal balance—a very small number, relatively speaking. That second check of $270 is money you’ll never pay interest on. To be clear, you’re not paying extra money; you’re simply prepaying next month’s principal a touch sooner. Hold yourself to this pay-it-forward strategy each month, and, again, you’ll be able to pay off a 30-year mortgage in just 15 years—cutting the total cost of your home by close to 50%. Why not prepay that $270, and cut the life of your mortgage in half? So if you have a million-dollar home, that’s a half million dollars back in your pocket! How much would that accelerate your journey to Financial Freedom?!
Good Luck