How to save $276,157.80

People know that I don’t like and/or recommend 40 year amortizations, but they can’t seem to remember why. It is very simple. The 40 year amortization doesn’t pay your loan off very fast! So what do you have? You have a loan that has a somewhat lower monthly payment but it doesn’t really meet anyone’s needs in the long run. Well, it must be okay, because almost everyone’s taking 40 years amortizations, right? I’m afraid not; a 40 year amortization, unfortunately, is one of the worst investment decisions anyone could make; the only one it really benefits is the lender!

Some people take the 40 year amortizations because they offer the lowest payment, or because that’s the only one their broker or lender presented or recommended to them. Others do so because they don’t have the time to figure out what the heck they are trying to do with their financing or finances. There are
others out there who were told that their debt service ratio was to high for a shorter term, and this is the only way they would be able to qualify for a mortgage. And yes, for some, unfortunately, this may truly be the case, but not always. Sometimes a more creative look at their finances may be able to solve a
debt service ratio challenge and allow these folks to take a shorter amortization period!

Now you may be asking, just how much more does a 40 year amortization cost in the long run versus say one for 15, 20, 25, 30 or 35 years. Almost enough to pay off the national debt! Well, almost! What does this mean in the long run? Well, simply put, you’d better be prepared to put your life-long dreams on hold,
indefinitely! How can that be true? Well, let me show you with the following chart:

Let’s start with a $250,000 Loan at 6.0% with a 40 year amortization. For the purposes of this example, I’m going to assume that the term of the loan is the same as the amortization, and that rates stay the same all the way through to the end.

	40 Years	35 years	30 Years	25 Years
Principal	$250,000.00	$250,000.00	$250,000.00	$250,000.00
Interest	$404,105.60	$345,514.63	$285,341.60	$229,856.00
Payment	$1362.72	$1413.13	$1487.06	$1599.52
Total Payments	$654,105.60	$593,514.60	$535,341.60	$479,856.00
You Save		$60,591.00	$118,764.00	$174,249.60

How’s that for savings? If you could afford to pay an extra $236.80 per month, you would cut 15 years off your mortgage and save a whopping $174,249.60! Are you ready to take the savings a step further? Let’s see what happens if we drop the amortization even lower on that mortgage.

	25 Years	20 years	15 Years
Principal	$250,000.00	$250,000.00	$250,000.00
Interest	$229,856.00	$177,312.80	$127,947.80
Payment	$1599.52	$1780.47	$2099.71
Total Payments	$479,856.00	$427,312.80	$377,947.80
You Save		$52,543.20	$101,908.20

Amazing isn’t it? Now you may not be able to pay an extra $500.19 per month (25 year amortization payment versus 15 year amortization payment) but if you could, you would cut a further 10 years off your mortgage and save an additional $101,908.20. Now just for fun, let’s add up all of these savings, in other words let’s take a look at how much money we would save taking a 15 year amortization versus a 40 year one. You better sit down for this one, drum roll please, $276,157.80! That’s a whopping $276,157.80 in after tax dollars, as you need to earn a lot more than this just to keep this much!

So what does all of this mean? Simply put, structure your mortgage the right way and you can save lots of money, which I’m sure you can think of better uses for than making the bank wealthier, right? Of course, I know that not everyone may be able to qualify for or afford the higher monthly payments in our 15 year model, but I’m here to tell you that not everyone has to do the 40 year one either! I’m sure you’ve all heard the expression, “there’s more then one way to skin the cat”. Well, it’s no different when it comes to mortgages. With the expertise and assistance of someone who is both innovative and has an excellent understanding of numbers, the impossible becomes readily possible. That’s where I come in. I feel that it’s my personal responsibility to my clients to design a mortgage for them, a mortgage that will increase their prosperity, not deplete it! So if you’re ready to start saving money, apply or contact me today and take the next step to financial freedom!