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I guess the mortgage industry is the biggest lie. We
pay them several thousand dollars to loan us some money, and
they triple the cost of the money over thirty years.
Let me ask you a question? How much is the interest on
your home? You might tell me 7.5%. Well what would you think
if I proved to you that you really paid about 89% interest
that first year?
This principle about blew me away
when I first learned it. OK, get your amortization schedule
out. In this loan of $95,000 on a thirty year schedule, you
will pay $7095 interest in the first year, and only $875.00 on
the principal. Around 89% which you can calculate by division.
Monthly payment $664.25 times 12 payments for the
year, equals $7971.00 house payments for the year, and if you
divide $7095 by $7971 you will get 89%.
You have to
pay on this loan for 20 years and 10 months before you pay
more principle than you do interest. That means twenty years
into the process, you are still paying 50% for that loan.
Think of it this way. That first year, you paid them
$7095 to use their $875.00. If that doesn't make you want to
pay your home off quickly, I do not know what will motivate
you to do that.
And to complicate the problem, we
usually move every 5-7 years and start the process all over
again. Most folks reach their retirement age, with a house and
a mortgage.
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OK let's look at the credit card lie. Most of
the companies entice you with a teaser rate to get you
started. Then they add in their fee structures and if
you are late, the charge is usually $25.00 or more. They
encourage small paybacks, and if you make them a large
payment, they will send you a bill with nothing due.
They do not want you to pay it off every month.
If you make the minimum payment on an 18% card, it will
take you over 20 years to pay it back, and you will have
paid 3-4 times as much back in interest and fees.
Financing a car is another lie. We are sold a
5-7 year loan package. Don't do it. Never finance a car
for over three years. Never take out credit life
insurance on any loans. They usually fold the cost into
the loan, so you are paying interest on the insurance.
You would probably be better to protect your
family with term life insurance that will produce enough
money to pay off your home loan and other debts.
Do not take out extended warranties on anything
you buy. Most folks never use them.
Another lie
is that your home mortgage is a great tax writeoff.
Think of it this way. If you are in the 28% tax bracket,
you are paying a dollars worth of mortgage insurance and
getting 28 cents back. Pay off the home, and keep the 72
cents for yourself.
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