Articles About Finance And Refinancing

What Your Mortgage Lender Is Not Telling You About Accelerated Mortgages

For years, mainstream banks and financial advisors have been recommending that you pay extra cash into your mortgage account in order to cut down the huge interest amount and reduce the period over which you pay back the loan.

For example, if you borrow $200,000 over 30 years at a rate of 5%, your monthly repayments would be around $1074. Over 30 years, you would actually pay $1074 x 360 (months), which is $386,640. That's a of $186,640 in interest!

Now if you could find an extra $246 a month, and pay $1320 a month into your mortgage account, you would cut 10 years off the repayment period - the loan would be fully paid in only 20 years instead of 30 years. Moreover, your total payments would be $316,664 -saving you $69,756! Looks like BIG savings for you right? Not so fast though...keep reading.

You see, the flaw in this technique is that it ignores the time value of money.

The banks, mortgage lenders and other financial types know that money is worth less now than it was when they were younger. Take that $1074 mortgage repayment for instance, in 30 years time, when the last payment is due, it would only be worth $437 in today's money (based on current inflation growth).

A dollar now is always better than a dollar in a year's time or in 10 years from now.

How does the time value of money affect our example?

You cannot simply subtract the mortgage interest amount for a 20 year mortgage from the interest on a 30 year mortgage. What you need to do is calculate the Present Value of each mortgage.

The Present Value of a 30 year mortgage with repayments of $1074 at a 5% interest rate is $200,066.

The Present Value of a 20 year mortgage with repayments of $1320 at a 5% interest rate is $200,066.

Thus, the two repayment plans are exactly equal over time.

Much of this $69,756 'saving' on the interest rate is really no more than the result of you paying the extra $246 a month. That $246 a month for 20 years totals $59,040.

What if you took that $246 a month and invested it in, for example, mutual funds?

If you could get a return of 10% each year, after 20 years you would have $186,804. With inflation at 3%, that would be worth $102,597 in today's money.

So why would the banks recommend that you pay off your mortgage quickly? Surely the longer the income stream lasts, the better right? - wrong.

Banks love being able to prove that their recommendations will 'save you money'. But in reality, and as I stated earlier, the banks have a very good understanding of the time value of money. They know the true value of that extra $246 a month that you're giving them now, and not in the future. And the shorter the time you take to repay the mortgage, the lower their risk, and the sooner their money comes back to them to be loaned out again.

There are some arguments for paying your mortgage back quickly - for one thing, the quicker you pay, the quicker your equity grows. But you should understand that every dollar you give the bank now is a dollar that you can't invest.

Giving your money to the bank to avoid paying 5% interest means that you can't use that money to earn 10% or 12% or 15% interest somewhere else.

If you're currently following an accelerated payment plan, you may want to have a family and/or financial advisor pow-wow. This meeting should focus on whether or not those extra mortgage dollars can be invested to earn a more positive cash-flow for you instead of your bank.

This article by C Raymond Merrick takes a closer look at the accelerated mortgage plans that actually benefits the banks, mortgage lenders, and home loan companies more than the consumer. For more articles and information about hidden mortgage resources, secrets, strategies and tips, visit Mortgage HotLinkZ http://mortgage.hotlinkz.net

Copyright ©2005 KnowledgeTree. All rights reserved.

You have permission to reprint this article as long as this complete resource box, including copyright information, and this statement are published with the article.

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

MORE ARTICLES:

Know The Interest Rates When Financing A Loan
It has become quite common for people to finance an auto loan when purchasing an automobile these days. When it comes to buying an automobile, not many people could actually afford to pay the car with cash upfront. Because of this, some would rather choose to take out loans for a huge array of high priced essentials. Similarly, there are other loans that fall into the same category including home mortgage loans and school/college loans. Finding the best lending company or institution is something that need to be done and it is not often easy. There are many factors that need to be considered when borrowing a loan and one of the most important factors is the finance rates on the interest of the loan.

High Interest Rates Mean Mortgage Refinancing According to GuideToLenders.com
Professional master of business administration (MBA) role models such as Kathy Giusti and Rich Fairbank provide mentorship and advice online through education sites like MBA-Business-Schools.com. Future and current MBA students can prosper from the wisdom of successful business professionals and boost their careers through invaluable learning tools and resources.

Student Loan Financial Group Announces Interest Rates on Variable-rate Loans Increasing July 1st
Student can take advantage of the lower rate if they apply before June 30th.

A Low Interest Debt Consolidation Loan When Your Credit Card Interest Is Too High
You just didn't realize you were digging a hole for yourself. You were paying bills and buying ordinary things. Can you even remember when you did anything truly luxurious? Yet, your credit card spending still got away from you and if someone asked you, you doubt you could explain it. In fact, it would be hard to explain anything with the current level of fog in your brain; you wonder, should you ask a doctor for anti-depressants? Somehow, everything is harder; it feels as of you are walking through invisible treacle and there is no-one to rescue you. There is an answer and you don't need a rescuer. What you do need is a low interest debt consolidation loan.

Importance Of Interest Rate On Refinance Loans
The interest rate is an issue that should never be bypassed when it comes to refinance home loans. Its importance is crucial as it will determine whether you benefit from refinancing or not. Though other loan terms like loan length, loan amount, and other less important clauses should also be considered, the interest rate should be your main concern.

How to Find Lower Interest Rates on Bankruptcy Car Loans
Sadly, bankruptcy has become more common in recent years. Finding loans has gotten easier over the years as well. The loans are easily available but it is the interest rates attached to them that most people try to avoid. It doesnt make sense to get approved for a loan but not be able to make the monthly payments because the interest rates cause it to be so high. Educating yourself is the best defense in not being taken advantage of. Make sure you do the research and be patient when looking.

Auto Loans Low Interest Bad Credit: Car Loan without Credit Problem
Owning a car is apart from necessity enhances your status in the society as well. Driven by the urge due to either of the two reasons, you may wish to own a swanky car but are restrained by financial constraints. Going for loans is a good option but if you are a bad credit holder than a fear psychosis of exorbitant rates or being discriminated may check your advances for the quest of normal loans. This myth is now unshackling as bad creditors like you can approach for bad credit auto loans available at low interest rate. These loans are especially fabricated for people having CCJ?s, arrears, any default payment or due payments. Some facts and figure The lender is more interested in your current repaying capacity rather than seeing the ...

Secured Loans: High Amount at Low Interest Rates
People avail secured loans for various reasons. Secured loans are loans that need collateral to be pledged. The collateral can be your house, property or any high value possession. There are various advantages of a secured loan which are discussed below:

A secured bad credit home mortgage loan comes with reduced interest rates
A secured bad credit home mortgage loan comes with reduced interest rates

Refinancing Mortgage Loan - Get The Lowest Interest Rate You Can When Refinancing
Refinancing can be a very simple process. You fill out a few applications, take the best offer and you're done.

Types of Mortgage Loans with the Lowest Interest Rate
When you're shopping and comparing for a mortgage loan there can be a lot of discrepancies between what lenders offer. Some may offer lower rates with strings attached, others can offer the same terms but with a much higher rate. Shopping around, comparing and negotiating are key skills in getting the type of mortgage loan with the lowest interest rate.

Refinancing Mortgage: Low Payment And Low Interest Rates
Those seeking a financial alternatives are often caught thinking that low payment refer to low interest rates. They should be aware that low interest rates vastly differ from low payment. With this in mind, they can veer away from dubious loan agents who will rush them to a new mortgage with high interest rates and add-on fees.

Low Rate Home Equity Loans - Refinancing For A Shorter Term And Better Rate
Looking for a better rate is a common reason people choose to refinance their home equity loan. But did you know that shortening your loan term can save you more money than reducing rates? Combine the two and you will save yourself thousands in interest costs and trim years off your payment schedule.

Credit Heaven Announces their Rate Busters Program to Slash Interest Rates for High Interest Loans and Credit Cards
The Rate Busters program is designed to achieve affordable and sustainable payments for borrowers by negotiating lower interest rates or periods of no interest on existing credit card, auto loans and mortgages. This in turn will maximize consumers' ability to reduce monthly payments, reduce debt, maintain or improve consumers' credit as well as reduce creditor's bad debt.