Mortgage Reduction Secret Weapon: Your Down Payment Part 1 of 3

Part 1: A Primer on Wealth Creation and How it Works Mortgages.
Personal finance literature is filled with tips to help you to pay off the mortgage faster than the standard 30-year amortization period.
Most of these tips depend on the bi-saver program sponsored bank or snowflakes and snow ball debt reduction plan aimed to help home owners in his own home sooner and save thousands of dollars in interest payments.
Each mortgage reduction strategy pales in comparison with the methods available to every homeowner with a down payment.
Does this method? Strategic use of advances.
Before I outline this strategy, it is important to review some key principles in terms of home ownership, the creation of wealth and money management.
Principle 1: As iconoclastic as it seems, a house is not an investment.
According to Wikipedia, the investment is active transfer of resources from being consumed today in order to create benefits in the future, the use of assets to obtain revenue or profit.
At this moment millions of homeowners have learned that they would both gain and gain on sale of their home.
However, what happened today on housing prices is not far outside the usual, what happened during the last decade in terms of housing appreciation.
Robert Schiller, an economics professor at Yale, has been mapped in house prices since 1890.
Indeed, the average annual investment from 1950-2000 is less than one half of 1% per year after adjusting for inflation.
This means that $ 100 dollars invested at home in 1950 was valued at $ 104 in dollars adjusted for inflation in 1997.
Housing prices have not fallen further to reach historic norms.
At best, the house is a form of forced labor savings plan in which the interests of the home deduction and intangible benefits of home ownership increases for homeowners.
How much of the economic benefits? A quick trip to Hugh? S calculator gives the following illustration on mortgage $ 125,000 with no money down.
During the life of the loan, the homeowner will pay $ 166,869.
14 in interest payments.
At best he will enjoy the tax burden that has been cut by $ 55,623 during the term of the loan because mortgage interest deduction.
Leaving approximately $ 111,000 that will go to the bank as an advantage for them.
These homeowners would pay about $ 236,000 to $ 125,000 home that appreciates in perhaps 1% per year in inflation-adjusted dollars.
The figure of $ 236,000 not including 30 years worth of property taxes, insurance, maintenance and repairs.
A house is not an asset, it is a roof over people’s heads.
Blogs, Rich Slowly, provides an excellent comparison between the cost of renting versus the cost to own homes in the Seattle area.
Principle 2: To create wealth, each unit of money should do more than one job.
On the surface of a house will appear to do that.
A home provides a roof over your head and equity that can be utilized for future use.
But is it really? Who determines whether and when the homeowner can tap the equity? Bank no.
When are people most likely to require equity? When the bank doesn? T want him to have it: when the economy is difficult, during the period of job loss or downsizing, when income has been cut.
Even the boom times of the homeowner? The ratio of revenue-to-debt will determine whether he can tap the equity in his house, how much he can hit and how much interest rates.
Recent crisis in NJNA (job, no assets), Alt-A and no doc loans will ensure that home equity would be difficult to press for all people.
A house, then, not one thing: providing more than one roof? head.
Principle 3: To minimize the opportunity cost of people who are trying to create wealth, must maintain liquidity levels.
This means access to ready cash for emergencies or to take advantage of investment opportunities in short and long term.
Home ownership presents an opportunity cost inherent in equity, which arise through the principle and interest payments were trapped and not available and the cost of taxes, insurance, maintenance and repair costs and the money was not available for investment.
For $ 145,000 dollars a modest house in my area, taxes, insurance, maintenance and repairs is approximately $ 3,500 dollars per year.
That is money that is not saved, not invested to provide future benefits for homeowners.
Does home insurance protect? Yes it is not.
Are repairs and maintenance to protect the home? Yes they do, but these are sunk costs and expenses shall not, in all likelihood, will be realized when the house was sold.
This cost is the cost of something which aims to preserve respect for the glacially slow rate.
Principle 4: Wealth is not automatic.
Although the number of books sold in words? Automatic? and? wealth? and? Automatic? and? millionaire? title, wealth does not come automatically.
Now the savings plan can and should be automated but the individual decisions that create wealth by its nature can not.
You can automate your market share investment, but you can not automate the stock market so that you become rich.
You can automate your savings, so you have something to invest, but you can not automate its economy so that the results remain to be fixed and savings rates which means you earn interest.
You can automate the payment of debt, but the payments that will come with huge costs and strong for the debtor in the form of debt service costs and these will be collected in the form of a beneficial holder of a lien.
Therefore allows financial institutions, particularly banks, access to your account for the purpose of debt reduction is not certain propositions of the best and most likely will benefit banks by allowing them to collect fees really looking for someone to create wealth for themselves will do better to avoid.
Finally, the creation of wealth requires more than preparing casseroles mass, re-use tin foil, to deny their own Starbucks or a coke.
Wealth creation requires contemplation about what really means to have wealth in all its many incarnations.
It requires vision, choice and active participation.
While Ron Popiel can encourage you to set and forget it, do it with your personal finances will cause you to stagnate in your quest for wealth.
Principle 5: Understand what a mortgage is and what it does.
According to Wikipedia:? A mortgage come from? from the old French? dead pledge? apparently meaning that the pledge ends (died), either when the obligation is fulfilled or the property is taken through foreclosure.
In many countries it is normal for home purchases financed with a mortgage.
Some individuals have sufficient savings or funds to allow the liquid to purchase the property directly.
? A mortgage, then, is a debt instrument, debt seriously.
There are four principles to understand about the mortgage: 1) Mortgages are front-loaded.
That means that most of the payments made during the first half of the loans are used to satisfy the interests of the majority while payments made later in the term loans are used to meet the principal.
In other words, the first payment of the loan term benefits, especially to go to banks and investors, the last payment term loans mainly went to benefit homeowners and building equity.
2) With a fixed-rate loan, the principle and interest payments are fixed.
The proportion of each payment into interest depends on the unpaid principle balance at the end of each month.
This last statement is true whether the interest rate fixed or adjustable.
3) Extra principle payments have the greatest force before they are made in the loan term.
4) Mortgages payments are made one month in arrears.
If you close on a loan in January, your first payment not due until March 1.
In the first year of your loan, you’ll make 11 payments.
Although you will make payments within 12 the second year, you’ll always be one payment arrears.
One of the best explanation I’ve found about how mortgages work and the advantages and disadvantages of different payment options can be found in the book Harj Gill?: Your Own Home Years Sooner! Understanding mortgage principle number 2 and 4 is important to understand why mortgage reduction plan, so let? S combine them again: 1) Key Principles: The proportion of each payment into interest depends on the unpaid principal at the end of each month.
2) Key principles: Mortgage payments are made one month in arrears.
Part 2 of this series include the Property Principles and the truth about the bank-sponsored prepaid plans.