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Offline Matthew

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Mortgage interest will destroy you
« on: July 31, 2021, 02:12:43 AM »
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  • You DO want to avoid paying interest at all costs. If you need the space, buy the space -- even with a mortgage. But if you're single for 1, 5, 10, or 20 years -- why not just save your money (in a form that allows preservation of wealth, countering the forces of constant dollar devaluation -- I'm talking about silver and gold) and take on the debt WHEN you need it? I think it's better to buy a tiny home and save up your money, than A) rent or B) pay unnecessary interest when you don't really need to. What are you going to do with a whole house, when you're single? You're paying hundreds, maybe over a thousand, in interest every month for that wasted, extra space. Why?

    In other words, you're still building equity (wealth) if you sock the money away. Only without paying hundreds of dollars/month interest! By the time you NEED the house, you'll have such a down payment, that you'll not be paying much interest. You do realize that interest is calculated every month, based on your outstanding balance. If you owe $80,000 on a house, you'll pay twice as much interest per month compared to if you only owed $40,000.

    Young people out there -- if you haven't done so, you need to look into this: During Year One of a 30-year mortgage, how much of a $1,000 house payment is taken off your actual loan, and how much goes to interest? The answer will open your eyes, believe me!

    https://financialmentor.com/calculator/mortgage-payment-calculator-amortization-schedule

    I typed in $120,000
    6% interest
    30 year term
    0 taxes, 0 insurance, 0 PMI
    $719.46 monthly payment

    After 180 of the 360 payments, the outstanding balance is: $85,258.95
    So only 29% of your loan is paid off, after making half of the payments!
    Those 180 payments cost you $129,502.80 by the way. Yes, that's more than you borrowed. Just another $129,502.80 to go, and you'll be paid off!
    See why you want to send in EXTRA PAYMENTS off the principal, as early and often as you can?

    Forget savings accounts, the stock market, and vacations. You need to be super frugal in your early years, and get that interest under control.

    Now combine that data with your typical Catholic family. Say you bought that house when you got married. At this "halfway point" you still owe 71% of your mortgage, or $85K of the original $120K. Your oldest child is 14. If bad teeth run in the family, it's already time to worry about braces. And your homeschool is getting a bit overpopulated for just one mom to handle, especially with taking care of babies, breastfeeding, etc. So you're probably going to want to fork out for online "live" classes for your older kids, especially your son(s) who are getting serious about high school and future college and careers.

    And after 15 years of marriage, you could have anywhere from 7 - 12 children. You might have outgrown that house already. If you sell your house and move, the cycle starts over again! Just when you were going to start really digging in to the PRINCIPAL of the 30-year mortgage, you start over with the small snowflake at the top of the mountain again. It will take another 15 years to build up momentum.

    See the evils of usury? No wonder the g0y|m never have anything -- any real wealth, land, property, resources -- or power.  Yes, I said power. Power is a good thing sometimes. Power is the opposite of "my hands are tied" or having no options. You need the power to let your wife stay home, to homeschool your children, to resist the State when it becomes tyrannical, to do charity for others, etc.
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    Offline Matthew

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    Re: Mortgage interest will destroy you
    « Reply #1 on: July 31, 2021, 02:14:25 AM »
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  • There are two kinds of people in the world.

    Those who understand compound interest, and those who PAY compound interest.
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    Offline SimpleMan

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    Re: Mortgage interest will destroy you
    « Reply #2 on: July 31, 2021, 07:17:47 AM »
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  • Thank you for writing this, Matthew.  I worked in the financial services industry for over 30 years (MBA in finance) and I saw this kind of thing "up close and personal", and how so many people pay so much money for their homes.  You are basically renting and, unless it's more towards the end of the amortization cycle, not getting much in equity to show for it.  Through great frugality and cooperation between the generations (in both directions), my son and I own one home free and clear, just keep up taxes, insurance, and maintenance (and pray you don't need a new roof or HVAC system at the same time!), and my mother owns another one, same circumstances, no mortgage.  I have taught him, don't ever let anyone get these homes away from you --- there is no shortage of women in this world who would do precisely that, don't lose everything your grandparents and I ever worked for.  Just yesterday we drove by a bank whose chief loan officer, I know her, is legendary for saddling everyone who comes through the door with a HELOC (home equity line of credit).  That is an excellent way to lose your home and end up out on the street. 

    Several years ago, when I was visiting Poland, I had to go to the local bank, and they had signs up in the lobby advertising HELOCs.  I thought, that's right, people, you've gotten out from under communism, and now here come the usurers, they'd have no problem with taking away everything you have.  I went to Media Markt (their version of Best Buy) and they were offering store credit cards --- Poles didn't have that kind of money just lying around, to buy home theater equipment, stereos, and so on --- get people addicted to consumerism, things they never had before, and get them up to their ears in debt.  At least under communism, nobody had anything, but nobody owed anything either.  Entertainment was your friends and family around the dinner table, whatever ham, sausage, cheese, bread, butter, pickles, salad, sweets, and of course vodka, you could get your hands on, good conversation, everybody got to talk, no interrupting, in other words, people valuing each other for what they were, not what they had.

    You get the idea.  Treat debt as the serpent that it is.  I just had to go out and buy a new Camry, kind of an emergency (though I didn't let the dealers know that), couldn't just pull money out of... whatever... and had to take on $26K in debt.  I would have rather had a root canal!  Over the next few months, now that my dear father (who hated debt just as much as I did, he'd plead with me "let me loan you money, no interest, don't pay interest on credit cards", advice I have followed, he even loaned my wife money to buy a car, again, no interest) has left us, when the dust settles, I'm going to find a way to refinance the car at a lower interest rate, or even pay it off entirely.  I teach my son to avoid interest --- I have taught him in business math class that interest is "rent on money", and that people who have mortgages --- and this is an over-simplification to teach the concept --- are paying three times what their house is worth over 30 years, IOW, for a $200K house, you end up paying $600K.  Again, if you can avoid it, do avoid it.  I have taught him that Americans typically buy the most expensive house they can afford --- that's the American thing, live large, live the high life, have fun! --- and then make huge payments on it.  Guess who makes money off of that!  I've seen too many people get laid off, they are escorted out of the office crying, sobbing, and one of the things they're sobbing about, they can't make that huge house payment anymore, they live paycheck to paycheck, no paycheck anymore, total financial ruin.  No thank you.

    Offline SimpleMan

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    Re: Mortgage interest will destroy you
    « Reply #3 on: July 31, 2021, 08:36:04 AM »
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  • More thoughts "on the flip side" ---

    Yes, people with mortgages pay massive interest.  That's bad.  However... keep in mind, too, that if you own any kind of government-run, mortgage-backed securities (Fannie Mae, Freddie Mac, Ginnie Mae, and so on), you, too, benefit from this.  Money is eventually going back to those investors, it's not all just getting funneled into the pockets of Swedish bankers, and those "investors" could be your retired neighbors down the street, maybe even your own parents.  I own Treasury bills, not MBS, and they don't pay jack anymore.  It is basically having one's money under the mattress.  But it's a conduit for investment, not, as I alluded to, a way for the Swedes to get richer and the poor to get poorer.  It's more complicated that that... but, still, don't use debt as a lifestyle accessory.  Too many do. 

    Case in point: my son's guardian ad litem --- you know, that interloper that the courts force upon you in divorce cases (that said, sometimes it's necessary) --- charming, cute (think Jennifer Love Hewitt), let my son down, she was so intoxicated with that hallowed concept of "all mothers love their children to the moon and back, and therefore, can do no wrong", that she couldn't see two feet in front of her face, and see his mother's massive welter of problems, she took no sides and stood up in the court and said "no problems either way" (if she'd been able or willing to see the truth, I might have gotten full custody, doesn't matter, I got primary with decision-making authority, almost as good) --- later lost not one, but two, of her marriages (she's on consort #3 now), and, as it turned out, she and Husband #1 had borrowed the entire value of their house on a HELOC (God only knows how they spent that money!), lost the house, AND had a judgment against them to pay back what they had borrowed!  One hurts for their children.  Don't ask me how they got in that kind of fix, but they did, I saw the foreclosure papers, it's public record available on the county website. 

    I would say that karma is a female dog, only thing is, I don't believe in karma.

    Keep debt as far away from you, as humanly possible.

    Offline Pax Vobis

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    Re: Mortgage interest will destroy you
    « Reply #4 on: July 31, 2021, 09:38:39 AM »
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  • Years ago, at a catholic conference, I heard E Michael Jones give a history lesson about Germany in the 1800s and interest.  He showed how such banking practices were introduced and then, not a few decades later, the German leaders (I don’t think the country was unified then) were broke.  He finished the lecture by saying, “No one, not even the strongest empire, can defeat compound interest.”  These financial troubles led to WWI.


    Offline Last Tradhican

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    Re: Mortgage interest will destroy you
    « Reply #5 on: July 31, 2021, 10:30:21 AM »
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  • The best method to build up wealth is the entrepreneurial Mexican immigrant method. Remember, the Mexican is illiterate in English, they likely have at best a 6th grade education, they come here without a penny. Yet in like 10 years they own a restaurant, a business, or make a good salary as employees. How is that possible? The answer is that they do not spend any money on pleasures till they have a business or the income and even then they do not waste any money. It is usually their children who will spend the money when Dad dies. The Mexicans start out living 2-5 families in one rented house and all get together and buy a truck which they  share till they have enough money to buy their own. They save save and save and sacrifice for the future. That is how it is done.

    Mortgages on homes were always good investments because inflation paid the mortgage, people basically lived for free or actually made money. The key to borrowing money is that you do not borrow to buy items that depreciate. THAT is where people lose all of their wealth, financing their luxurious lives. Buying a small house in a good, safe neighborhood is a wise move. HOWEVER, it has to be an inflation paid mortgage. All excess money should ONLY be put into the business that produces more money than paying off the mortgage early. In other words do not use the money that could be applied to paying down the mortgage, to waste it on depreciating luxuries.
    The Vatican II church - Assisting Souls to Hell Since 1962

    For there shall arise false Christs and false prophets, and shall show great signs and wonders, insomuch as to deceive (if possible) even the elect. Mat 24:24

    Offline Last Tradhican

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    Re: Mortgage interest will destroy you
    « Reply #6 on: July 31, 2021, 10:48:24 AM »
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  • Buying a small house in a good, safe neighborhood is a wise move. HOWEVER, it has to be an inflation paid mortgage.
    Remember, the alternative to a mortgage payment is a rental payment, to rent a place to live. It is always to rent, that a mortgage is compared to. So, even if a mortgage does not make money or break even due to inflation or the neighborhood becoming more valuable, even if some money is lost, how did it compare to renting? Example: I once had a house where I ended up losing about $300 a month, but had I rented the same home it would have cost me $1500 per month.

    The Bottom line is that you do not use a loan for luxuries, you only borrow money for appreciating investments.
    The Vatican II church - Assisting Souls to Hell Since 1962

    For there shall arise false Christs and false prophets, and shall show great signs and wonders, insomuch as to deceive (if possible) even the elect. Mat 24:24

    Offline TKGS

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    Re: Mortgage interest will destroy you
    « Reply #7 on: July 31, 2021, 10:57:59 AM »
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  • It is amazing how quickly just paying $200.00 a month of extra principle on a mortgage loan can save you. When mortgage rates had a huge drop years ago, we refinanced and lowered the monthly payments by a substantial amount.  But we continued to pay what we already had budgeted and the principle reduced very quickly.  We would have had the mortgage paid off in just 20 years instead of 30 had we kept to that schedule.

    (We actually paid the mortage off in just 10 years because we received an unexpected inheritance.)

    When we first started looking for a house, I kept hearing these "financial experts" say that we should always keep a mortgage loan because the interest is tax deductible.  I could never understand that logic.  The interest might be deductible to reduce federal taxes by a small percentage of the amount we paid in interest, but the interest we were paying was real money.  The savings by paying off the loan faster far exceeds the amount saved in taxes.  This was when I first began to think...maybe these "financial experts" really aren't looking after our interests.


    Offline remy

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    Re: Mortgage interest will destroy you
    « Reply #8 on: July 31, 2021, 12:22:02 PM »
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  • Yes, I said power. Power is a good thing sometimes. Power is the opposite of "my hands are tied" or having no options. You need the power to let your wife stay home, to homeschool your children, to resist the State when it becomes tyrannical, to do charity for others, etc.
    True. You can have power but still be meek as Our Lord calls us to be.
    Meek doesn't mean weak. Meek is having strength and the ability to destroy but still not imposing yourself over others when it's not justified. You only take such action when it's for the glory of God and it's justified (self-defense and defending family, weak victims, Church, community, country).

    Offline Mark 79

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    Re: Mortgage interest will destroy you
    « Reply #9 on: July 31, 2021, 12:29:58 PM »
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  • You can also rent a home until you save 100% of your new home price, but then you have thrown away every single penny of that  rent.

    Offline Matthew

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    Re: Mortgage interest will destroy you
    « Reply #10 on: July 31, 2021, 02:34:35 PM »
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  • You can also rent a home until you save 100% of your new home price, but then you have thrown away every single penny of that  rent.
    Yes, that's why "renting until you can pay cash for a house" is stupid. It takes not paying interest too far.  After all, who cares if you're wasting money on rent instead of interest? It's still money down the toilet.

    So you need to be smarter about it.

    1. Most rental houses cost more than getting a mortgage on a house just like it.
    2. Even when you're paying $50 to principal and $700 to interest, that's still $50 more wealth you're building compared to renting!

    But that $50 goes up slightly every month. And before long it's in the triple-digits. Then you're actually investing in your OWN wealth, your own future, rather than a landlord's.
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    Offline confederate catholic

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    Re: Mortgage interest will destroy you
    « Reply #11 on: July 31, 2021, 02:57:19 PM »
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  • Yup extra payments pay off. We are going to be done with our 30 yr mortgage this Jan after 13 yrs.
    You also don't need a gigantic house. Get land of you can. Buy a place where you can add land over time if you can
    قامت مريم، ترتيل وفاء جحا و سلام جحا

    Offline Miseremini

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    Re: Mortgage interest will destroy you
    « Reply #12 on: July 31, 2021, 06:01:15 PM »
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  • What are you going to do with a whole house, when you're single? You're paying hundreds, maybe over a thousand, in interest every month for that wasted, extra space. Why?
    Depending on where you live, if you can afford a family sized home, buy it and take in a couple college or university students and let them pay off your house until such time as you get married.  Then you'll have a decent sized home and not be paying lawyers fees, land transfer tax etc and the increased price of a different house.
    You'll be living with the students so damage shouldn't be a concern.
    Mortgage interest is a fact of life but there are ways around it.
    "Let God arise, and let His enemies be scattered: and them that hate Him flee from before His Holy Face"  Psalm 67:2[/b]


    Offline Limoges

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    Re: Mortgage interest will destroy you
    « Reply #13 on: July 31, 2021, 06:32:43 PM »
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  • Yes, that's why "renting until you can pay cash for a house" is stupid. It takes not paying interest too far.  After all, who cares if you're wasting money on rent instead of interest? It's still money down the toilet.

    So you need to be smarter about it.

    1. Most rental houses cost more than getting a mortgage on a house just like it.
    2. Even when you're paying $50 to principal and $700 to interest, that's still $50 more wealth you're building compared to renting!

    But that $50 goes up slightly every month. And before long it's in the triple-digits. Then you're actually investing in your OWN wealth, your own future, rather than a landlord's.
    Another good way, especially if you're young and you land your first decent job, is to live with your parents or another relative for the first 6-12 months of working, and save as much money as possible (after paying whatever room & board costs that should be lower than rent elsewhere). Use that saved money to buy a half acre in the country, and buy a clean used or a small new mobile home and put it on your land. Try to save enough to pay for most, if not all, of the land and mobile home, without taking out a loan or minimizing the loan. You can proceed to live rent free on your own property, and save as much money as possible for buying more property and a better house in the future (or, if you're happy, just keep living there and keep saving your money). Mobile homes have an unfair stigma. If the person owns it, it's a lot better than being a rent slave, and it's a lot better than living in an apartment as the rent you're paying effects no equity for yourself, rather it enriches your landlord. More peace and sovereignty living on your own land than living in an apartment.

    Offline SimpleMan

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    Re: Mortgage interest will destroy you
    « Reply #14 on: July 31, 2021, 09:30:07 PM »
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  • Speaking as a former degreed professional in the financial industry, a veteran of 30-odd years in various capacities (mortgage, systems, training, and so on), I have to say there is so much good information here, from various correspondents, that this is a page definitely worth bookmarking.  Just some random thoughts, based on various posts in this thread:

    Yes, principal payments (and I'm sorry, but the spelling here is principal) made over and above the amount of the mortgage payment, can make quite a difference.  I always told my clients, the more extra principal ("curtailment") you can pay every month, the more consistent you can be with it, and the earlier you get started, the better.  It does not necessarily have to be every month.  Put your tax refund towards principal curtailment every year.  There are any numbers of tools online, that can show you the advantage of it.  Even if you pay $20 extra per month, that's $20 more equity in your home than you would otherwise have.

    Mortgage finance and investment looks something like this:  the major governmental investors (FNMA, FHLMC, GNMA), as well as many private ones (most mega-banks do this as well), provide money, "priming the pump", if you will, to allow lenders to lend.  The mortgage is made, and when borrowers make their payments, both principal and interest (most of the latter, anyway, more on that in a moment) goes to the investor.  The investor --- who is only a conduit for funds distribution --- then disburses it to the mortgage-backed securities holders, who can be other banks, investment houses, or even individuals.  The mortgage servicer (the entity that processes the payment, ensures that taxes and insurance are paid, collects from delinquent borrowers, and so on) takes a small percentage of the interest --- think of the "vig" (vigorish) in gambling --- and keeps it, paying salaries for the bank employees, other corporate expenses of doing business, and keeping the rest as profit.  Let's say you pay 5 percent interest.  The investor receives, in most cases, 4.75 percent --- that is the return on investment for the security holders --- and the servicer keeps .25 percent.  It adds up.  A good servicing operation can be the "cash cow" for the entire firm.  So it is not quite as sinister as it might seem at first blush.  To make a long story short, entities that have invested in mortgages get a return every month, including the principal as it amortizes down.

    I had never thought of "inflation-based" mortgages, i.e., as long as your rate is lower than the rate of inflation, you're actually "making" money, so to speak.  Good concept.

    Yes, until you've paid some serious principal --- and that can take a while --- you're basically renting your house.  However, you have something to show for it, a little equity in your home is better than none, and towards the end, you're paying almost all in principal, "amortization" being literally "killing" of the loan (think of the French root mort --- "dead").  If you rent without owning, at end of 30 years, you have, drum roll please... 360 cancelled checks.  Nothing more.

    Traditionally, lenders made mortgages based upon the "28/36" rule --- your mortgage payment should be no more than 28 percent of your total gross income, and all of your debts combined, including that mortgage, should be no more than 36 percent.  Then, in the early 2000s, the various investors decided that borrowers could sustain more debt than that.  Bad mistake.  A lot of people got easy credit for houses they couldn't afford, and presto, many people lost their homes. 

    If you have to take out a mortgage, find something affordable, less than what you can afford, make your payments, pay as much extra principal as you can, and get the whole mess over with as soon as you can.


     

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