Are you using the equity from your home to purchase everyday things? This is a
dangerous trend growing more popular every month as millions of Americans tap into
the value of their home to fund a lifestyle.
How many times have you heard the saying “Your home is the best investment you’ll
ever make”? How many times have you also heard that your home will be the most
valuable asset you will ever own?
Both of these are as true, if not truer, today than at any time in the past. Unfortunately,
spend happy Americans are looking at their home as just another type of ATM, and
they are visiting it way to often. These homeowners are using money borrowed against
their house to finance expensive vacations, new vehicles, even daily visits to the corner
coffee shop.
Our parents wouldn’t think of buying furniture with money borrowed against their home.
So why is this form of borrowing becoming so popular? Three events have converged
to create this dangerous trend.
1. Cheap interest. The past two or three years have seen interest rates unheard of
since the 1950’s. These low rates encourage people to think they have basically free
money to spend however they want to.
2. Real estate value increases. The Office of Federal Housing Enterprise Oversight
(OFHEO) reports that their data shows market value of the average home increased
nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw
the value of homes double in less than 5 years. This increase in value is perceived by
some people as being a bonus – they didn’t have to work for the money, so it doesn’t
cost them anything. They are right about it not costing them anything, except they
forgot that when they borrow money it has to be paid back. That is when the true cost
of the debt appears!
The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in
outstanding mortgage debt was in new mortgage originations. This doesn’t mean home
equity loans are necessarily bad ideas. Using equity in your home to remodel and make
additions can result in solid returns. Even debt consolidation can be a good choice,
provided you have solved the problem that caused the debt in the first place.
3. Ease of borrowing. Twenty years ago, lenders wouldn’t think of giving you a loan,
even against your home, if it would cause your equity to become less than 20%. Some
insisted in a percentage closer to 50% equity. Those days are long over.
Today you can go online and find a lender willing to give you a loan equal to 125% the
value of your house! If you have a credit of repayment, hold a job, and are still
breathing you can probably find a lender willing to let you borrow against your home
equity.
The risk created by the convergence of these three factors is the loss of your safety
net. As people buy homes at the top end of their range and base mortgages on two
incomes something has to give.
This “something” has been their savings. Putting aside part of each paycheck has
become the low priority in the pile of demands barraging a family’s income.
Data released by the Employee Benefit Research Institute reports nearly 45% of all
workers hold assets of less than $25,000 (excluding their home). Barely 67% of today’s
workers are currently saving money in a 401(k) or some investment program, according
to a Thrivent Financial Survey. Does any of this sound familiar to you? The looming
debt of mortgage, college, and credit card can seem overwhelming. How can you tip
your financial life back into favoring a secure future for yourself and family? Here are
five steps to escape the home equity debt trap.
1. Keep track of expenses. Keep a spending record of everything you spend for one
month. The next month, do it again, and the next month too, until you see areas of
spending you can cut back and use that money to fund your lifestyle goals, i.e.
vacation, college, or a new lawn mower.
2. Create realistic debt reduction goals. List all of your debts with interest rates,
outstanding balances and minimum payments. Create a plan to pay down the debt,
preferably pay the same set amount each month no matter what the minimums are.
Anything extra you pay should go to the smallest debt first. When a credit card is paid
off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will
help keep you motivated.
3. Preserve your home equity. Having home equity untapped in your house can provide
a level of reassurance. Making wise uses of this equity will help you to not exhaust it.
When you do tap into your home equity, make sure it is not used to pay for daily living.
4. Pay as little debt interest as possible. Consolidation of debts into low, or no interest
loans i.e. credit cards, is acceptable as long as you refrain from incurring new debt and
you are paying down the debts you do have each month.
5. Start saving regularly. A fund of money for emergencies will help avoid debt when life
throws you a problem. If you consider saving a “non-optional” bill each month, you will
develop the find habit of saving. The result is a growing asset base.
The end result of taking these five steps? A minimal-debt life spent living in an
affordable home of your own.
Roger Sorensen is America’s Financial Guide. Learn more at his website
http://www.Slave2Work.com – ask and receive answers to your personal finance
questions, read his writings, or join the newsletter Money Basics. “How-To Be Debt
Free!” is now for sale, read about it today at http://www.Slave2Work.com/debtfree.htm
http://www.homesolutionssandiego.com/homeequity.html
Friday, May 25, 2007
Fixing Houses for Resale:
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
http://www.homesolutionssandiego.com/fixinghouses.html
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
Real estate investors specializing in fixers make higher profits when they have a detailed work plan
and know how to get around the future resale appraisal issues.
Before you begin your fixer makeover, taking a few extra steps helps you make more money, avoid
future appraisal pitfalls, and have more fun.
1) Planning for Profits
Visualize your final home presentation for sale. Write out a description of the future home you
imagine for your sales flyer. Name your home something other than just the street name; calling
your fixer "Edna Street" doesn't inspire like "Sugar Plum Cabin." Your overall design plan helps you
when shopping for building materials with choosing design details that go together for a harmonious
whole house theme.
2) Take Photographs for Your Future Appraiser
You may have taken photographs during the escrow process, showing the seller’s possessions in
the home. If your property was occupied during escrow, it will be worthwhile to take "before"
photographs again, both for your own satisfaction and to show appraisers when they ask why you
expect to sell the house for so much more than your original purchase price.
Detailed photographs substantiate the original condition of the property, compared to the final
result. Avoid possible complications by showing the appraiser all the improvements that you made
to the property, in order to get the full amount you deserve in your upgraded appraisal. This is a
crucial step, because the appraiser must give you credit for your work and expenses, and not use
your purchase price as the basis for the updated home’s true market value.
3) Hold a Doghouse Open House Party
We like to invite friends and family for a preview open house before we begin major work on the
house. We ask them to bring any unwanted household fixtures or supplies and to offer any fix-up
ideas, wild or practical, that may occur to them during their visit. We jot those ideas into a
"transformation journal," and refer to them when we need fresh inspiration.
Here’s an example of our invitation:
Your presence is requested at Jeanette and Brian’s Doghouse Open House. Come view our latest
project and understand why we'll be busy for the next month.
Please bring cuttings from your garden and any unwanted paint. Any household or building material
hand-me-downs will also be greatly appreciated!
Sunday afternoon, noon to four.
Another reason for a preview party is that the amount of work a doghouse may need sometimes
seems overwhelming, and a fun event like an open house helps to overshadow the crushing weight
of the work we have waiting for us.
Taking these first three steps helps you ultimately make more money, avoid appraisal problems,
and have fun fixing houses for profit.
(c) Copyright 2005 Jeanette J. Fisher. All rights reserved.
Professor Jeanette Fisher, author of "Doghouse to Dollhouse for Dollars: Using Design Psychology
to Increase Real Estate Profits" and other books teaches Real Estate Investing and Design
Psychology.
For more articles, tips, reports, and newsletters see
http://www.doghousetodollhousefordollars.com/pages/5/index.htm
http://www.homesolutionssandiego.com/fixinghouses.html
Becoming a Second Home Buyer May Be Easier Than You Think
Many people have the desire to own a second home, and yet feel this may be out of their reach. Fact is, it could be easier than you think. Second homes aren't only for the rich. For many, they have become mainstream. Whether they're used for vacations or for rental income more than 9 million dwellings in this country are second or third homes, accounting for about 6% of residential sales. 3/4 are considered vacation homes and the rest are investment properties or undeveloped land, according to a 2002 survey by the National
Association of Realtors.
Where Do You Find the Money for a Down? You don't have to have a pile of cash on hand to buy that second house. You can use the equity in your primary residence to help pay for a second (or third) home. Prior to moving forward be sure you explain to your lender what you're doing. You will also want to consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you have in your current home. You want to be armed with information on what the benefits of pulling out equity in your existing home vs.borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of borrowing. That's why communication is so important. The lender needs to know which house will be your primary residence and which will be secondary. In most cases, you will find that the interest rate on an owner-occupied home will be about 3/8 of a percentage point lower than for a non-owner occupied house. This reason alone gives you more motivation to get as large of a loan as possible on your primary residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance Many borrowers resist this line of reasoning because they want to build equity in the home they live in. Although it seems instinctually like the smart thing to do equity is equity. It doesn't matter which house it's in. If you have a lot of equity in your primary residence and you want to buy a vacation home, it might make sense to refinance the mortgage on the primary home for more than the current loan balance. This is called a 'cash out refi'. How it works is you borrow more than the current balance, pay off the current loan and get the remainder in cash. You can use the cash extracted from your primary homes equity to make a down payment on your second home, or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
Debbie Dahmen is a member of the Distinctive Properties team, a unique personalized real estate agency serving the south end of the Salt Lake valley including Draper, Riverton and Sandy. Family owned and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled their 60 years of experience to offer their clients flexibility and individualized attention. All three women have achieved the coveted designation of Certified Real Estate Specialists, a designation held by only 3% of real estate agents. Offering services including buying, selling, and relocation, Distinctive Properties offers relocation services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
Association of Realtors.
Where Do You Find the Money for a Down? You don't have to have a pile of cash on hand to buy that second house. You can use the equity in your primary residence to help pay for a second (or third) home. Prior to moving forward be sure you explain to your lender what you're doing. You will also want to consult with a tax advisor. This will assure as smooth a process as
possible.
There are so many variables, a primary one being how much equity you have in your current home. You want to be armed with information on what the benefits of pulling out equity in your existing home vs.borrowing is. It always comes down to the cheapest cost of borrowing.
It's not always easy to identify the least expensive cost of borrowing. That's why communication is so important. The lender needs to know which house will be your primary residence and which will be secondary. In most cases, you will find that the interest rate on an owner-occupied home will be about 3/8 of a percentage point lower than for a non-owner occupied house. This reason alone gives you more motivation to get as large of a loan as possible on your primary residence because it's the cheapest cost of borrowed money.
Understanding Your Resistance Many borrowers resist this line of reasoning because they want to build equity in the home they live in. Although it seems instinctually like the smart thing to do equity is equity. It doesn't matter which house it's in. If you have a lot of equity in your primary residence and you want to buy a vacation home, it might make sense to refinance the mortgage on the primary home for more than the current loan balance. This is called a 'cash out refi'. How it works is you borrow more than the current balance, pay off the current loan and get the remainder in cash. You can use the cash extracted from your primary homes equity to make a down payment on your second home, or even to buy it outright.
As you determine your long-term financial and home buying goals,
consider all your options. You will be glad you did.
Debbie Dahmen is a member of the Distinctive Properties team, a unique personalized real estate agency serving the south end of the Salt Lake valley including Draper, Riverton and Sandy. Family owned and operated, Darlene Dipo, Debbie Dahmen and DeAnna Dipo pooled their 60 years of experience to offer their clients flexibility and individualized attention. All three women have achieved the coveted designation of Certified Real Estate Specialists, a designation held by only 3% of real estate agents. Offering services including buying, selling, and relocation, Distinctive Properties offers relocation services throughout the United States. Visit
www.distinctivepropertiesSLC.com for further information.
Save Thousands on Your Mortgage
Interest on the average home mortgage will cost the homeowner nearly TWO TIMES the cost of the home.
If you were to purchase a $150,000 home with a $120,000 mortgage (80%), and you paid an interest rate of 9% for 30 years, you will have paid over $227,500 just in interest (inaddition to the original $120,000). That's nearly two times the cost of the home!
A credit card debt of $7000 (now the average) at 18% being paid at the rate of $20 principal plus interest each month will take over 29 YEARS to pay off, almost as long as a home mortgage. Interest charged on this credit card debt will top $18,400, more than 2.6 TIMES the original debt!
If you work for a living, you know that when you are not working, you are not getting paid. But interest never gets sick, never takes a vacation and never sleeps. It is working against you 24 hours a day, seven days a week, each and every day of the year.
So what can you do?
You may not be able to pay off your debts or mortgage now. You may not have enough equity in your home for a loan. You may not be able to afford the refinancing costs or home equity loan costs. You may not be able to lower your credit card interest rates.
But you can make additional or extra payments.
So how does making an extra payment help lower your interest charges? Is it going to make next month's bill smaller? You can't scrape together too much for an extra payment so how is just $10 going to help when you owe tens of
thousands?
The secret is in making early and consistent extra payments.For example, on the home mortgage shown above, if you pay an additional $100 each month you will save over $82,000 in interest payments. Not only that, but you will also have your home paid off nine years and two months earlier. You
knock nearly 10 years off your mortgage just by paying an extra $100 a month.
How does that work?
Well, that $100 extra you pay the first month would have cost you about $270 in interest to borrow for 30 years.Since you have paid it already, you can reduce your last mortgage payment by $270. The next month's extra payment
will reduce your last mortgage payment by $268. Each monthas you pay that extra $100, your final mortgage payment will be reduced until you won't need to make a final payment, then the second to last payment, then third to last and so forth. Soon you will have shaved years and thousands of
dollars in interest charges off your mortgage.
That's great, but maybe you can't spare $100 each month. How about $50, $25, or even $10? An additional payment of $50 each month will save you five years and seven months and about $52,000 dollars. $25 each month will cut your time by three years and three months saving you about $30,000. Just
$10 a month will reduce your time by one year and three months and save you over $13,500.
Every little bit helps. Some months you may only be able to add $10 to your payment; some months you may be able to add $200. And this applies to interest on credit card payments or any other kind of debt repayment. Paying down as much of the principal (or amount you owe) each month will help
reduce the interest you are charged and the length of time it takes to pay off the debt.
So why don't the credit card companies charge you more of the principal each month?
How would you like to be making 18% on an investment? Wouldn't you want this investment to last as long as possible? Of course! So do the credit card companies. They are happy for you to pay off your balance, but even
more excited for you to keep paying them that 18% interest.
There are some other interest tips and tricks.
- One trick your mortgage company may have played on you is to include a prepayment penalty in your mortgage. If you try to pay off your mortgage early they may actually charge you for doing so. Or they may only apply part of your payment to the principal and take the rest as a "service
charge."
- Make sure when you make an additional payment that you send a check separate from your monthly mortgage payment with instructions that the amount is to be applied toward the principal of your loan. Otherwise they may just apply it towards next month's payment and still charge you the
interest.
- Generally you will not have this problem with credit card companies. But watch out for late payments or going over your credit limit. They may then use these "rule infractions" as cause to raise your rate to over 25%!
- If you are looking to refinance your mortgage, look for a mortgage that lets you pay on a bi-weekly basis. Since many people receive a bi-weekly paycheck this also makes it easier to budget your money. If you are paying every two weeks you will make an additional monthly payment each year
(26 bi-weekly payments vs. 12 monthly payments). Also, because you are paying the principal down every two weeks rather than every month your interest charges will be reduced.
You CAN take control of your interest charges. Make those extra monthly payments. The feeling of being debt-free will far outweigh the temporary pleasure of that burger, movie or new DVD-player.
David Berky is president of Simple Joe, Inc. which sells the Simple Joe's
Debt Eraser. Debt Eraser can help anyone get out of debt by creating
a
Rapid Debt Reduction Plan. For more info, visit:
http://www.simplejoe.com/debteraser/index.htm
http://www.homesolutionssandiego.com/savethousands.html
If you were to purchase a $150,000 home with a $120,000 mortgage (80%), and you paid an interest rate of 9% for 30 years, you will have paid over $227,500 just in interest (inaddition to the original $120,000). That's nearly two times the cost of the home!
A credit card debt of $7000 (now the average) at 18% being paid at the rate of $20 principal plus interest each month will take over 29 YEARS to pay off, almost as long as a home mortgage. Interest charged on this credit card debt will top $18,400, more than 2.6 TIMES the original debt!
If you work for a living, you know that when you are not working, you are not getting paid. But interest never gets sick, never takes a vacation and never sleeps. It is working against you 24 hours a day, seven days a week, each and every day of the year.
So what can you do?
You may not be able to pay off your debts or mortgage now. You may not have enough equity in your home for a loan. You may not be able to afford the refinancing costs or home equity loan costs. You may not be able to lower your credit card interest rates.
But you can make additional or extra payments.
So how does making an extra payment help lower your interest charges? Is it going to make next month's bill smaller? You can't scrape together too much for an extra payment so how is just $10 going to help when you owe tens of
thousands?
The secret is in making early and consistent extra payments.For example, on the home mortgage shown above, if you pay an additional $100 each month you will save over $82,000 in interest payments. Not only that, but you will also have your home paid off nine years and two months earlier. You
knock nearly 10 years off your mortgage just by paying an extra $100 a month.
How does that work?
Well, that $100 extra you pay the first month would have cost you about $270 in interest to borrow for 30 years.Since you have paid it already, you can reduce your last mortgage payment by $270. The next month's extra payment
will reduce your last mortgage payment by $268. Each monthas you pay that extra $100, your final mortgage payment will be reduced until you won't need to make a final payment, then the second to last payment, then third to last and so forth. Soon you will have shaved years and thousands of
dollars in interest charges off your mortgage.
That's great, but maybe you can't spare $100 each month. How about $50, $25, or even $10? An additional payment of $50 each month will save you five years and seven months and about $52,000 dollars. $25 each month will cut your time by three years and three months saving you about $30,000. Just
$10 a month will reduce your time by one year and three months and save you over $13,500.
Every little bit helps. Some months you may only be able to add $10 to your payment; some months you may be able to add $200. And this applies to interest on credit card payments or any other kind of debt repayment. Paying down as much of the principal (or amount you owe) each month will help
reduce the interest you are charged and the length of time it takes to pay off the debt.
So why don't the credit card companies charge you more of the principal each month?
How would you like to be making 18% on an investment? Wouldn't you want this investment to last as long as possible? Of course! So do the credit card companies. They are happy for you to pay off your balance, but even
more excited for you to keep paying them that 18% interest.
There are some other interest tips and tricks.
- One trick your mortgage company may have played on you is to include a prepayment penalty in your mortgage. If you try to pay off your mortgage early they may actually charge you for doing so. Or they may only apply part of your payment to the principal and take the rest as a "service
charge."
- Make sure when you make an additional payment that you send a check separate from your monthly mortgage payment with instructions that the amount is to be applied toward the principal of your loan. Otherwise they may just apply it towards next month's payment and still charge you the
interest.
- Generally you will not have this problem with credit card companies. But watch out for late payments or going over your credit limit. They may then use these "rule infractions" as cause to raise your rate to over 25%!
- If you are looking to refinance your mortgage, look for a mortgage that lets you pay on a bi-weekly basis. Since many people receive a bi-weekly paycheck this also makes it easier to budget your money. If you are paying every two weeks you will make an additional monthly payment each year
(26 bi-weekly payments vs. 12 monthly payments). Also, because you are paying the principal down every two weeks rather than every month your interest charges will be reduced.
You CAN take control of your interest charges. Make those extra monthly payments. The feeling of being debt-free will far outweigh the temporary pleasure of that burger, movie or new DVD-player.
David Berky is president of Simple Joe, Inc. which sells the Simple Joe's
Debt Eraser. Debt Eraser can help anyone get out of debt by creating
a
Rapid Debt Reduction Plan. For more info, visit:
http://www.simplejoe.com/debteraser/index.htm
http://www.homesolutionssandiego.com/savethousands.html
Subscribe to:
Posts (Atom)