Mortgage & Refinancing Information

Luxury Real Estate Information

Rancho Palos Verdes, California Homes
Palos Verdes, California Homes
South Bay, California Homes
Luxury Mexican Beachfront Homes

Featured Properties

Oceanfront Estate Near Trump National

Related Information

Loan Information
Real Estate Information
Mortgage Refinance Information

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

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.

This RSS feed URL is deprecated, please update. New URLs can be found in the footers at

The home equity loan interest deduction is dead. What does it mean ...
Fewer people might take out home equity loans as a result.

and more »


Mortgage refinance applications surge 9 percent as rates fall back
Total mortgage applications rose 4.7 percent last week, driven by applications to refinance.

and more »

4 ways to get the best mortgage refinance rate
If you can shave at least one-half of 1 percentage point off your current mortgage rate, it can be worth your while to trade in your existing home loan for a new one. Here are some tips for getting the very best refinance rate. 1. Polish up your credit ...

and more »

Credit Union Times

West Is Best for Credit Union Growth
Credit Union Times
A tight labor market. Employers are having increasing difficulty finding workers, which will be a limiting factor for the economy. A sellers' housing market. The supply of homes in most markets are reaching historic lows and could tighten further as ...

Prospect Financial Group, Inc. Donates to Wells Fargo's Holiday ...
The Daily Telescope
San Diego, CA, December 29, 2017 -- Prospect Financial Group, Inc., a leader in the mortgage refinance industry, was happy to donate this holiday season to Wells Fargo's holiday Food Bank program.Wells Fargo is working with United Way Worldwide to help ...

and more »

Cruel Ways Big Banks Are Ripping Off Their Customers
Cruel Ways Big Banks Are Ripping Off Their Customers. Banks, especially bigger ones, often play the role of villain to frustrated customers. The thing is, those customers don't even know the half of it. ByBrian O'Connell. Jan 10, 2018 4:33 PM EST. Mike ...


Labor, Housing, Immigration, and Gun Laws to Take Effect Jan. 1
Fee to fund affordable housing: California homeowners will pay a new $75 fee on each document of a real estate transaction, such as a mortgage refinance or the redemption of a foreclosed home. The total fee is capped at $225 and does not include home ...

Fidelity 1st Funding Offers Refinance for a Relatively Low Interest ...
Digital Journal
Digital Journal is a digital media news network with thousands of Digital Journalists in 200 countries around the world. Join us!

and more »

Jim Flynn: Disclosure, rescission used to help protect consumers
Colorado Springs Gazette
When legislative bodies (usually in election years) act to protect consumers from the perils of the marketplace, two of the tools they regularly use are disclosure and rescission. The idea behind disclosure is that, given enough information, people are ...


Fannie Mae: Lenders expect lower profit margins in 2018
In fact, more lenders reported a decline in mortgage refinance demand over the previous three months, marking the fourth consecutive quarterly drop. “More lenders reported a pullback in refinance demand from the prior quarter than those who saw an ...

and more »

Google News

home | site map