Front End Loaded Interest

Boring, right? Well maybe, but this is something you should understand; over the course of a 30 year mortgage, whether it's fixed or adjustable you will pay more than the amount of the original note in interest payments. It's interesting that we spend so much time talking about interest rates, 5%, 6%, 6.12%, how often it adjusts, according to what index and all of that stuff, but we rarely talk about two things: 1) What the actual interest rate we're paying is, and 2) How can we make money - or interest - on our mortgage instead of paying interest.

Banks, by law, can collect a disproportionate amount of the total interest owed on a loan at the beginning of the loan period than they do later. So, the majority of interest is actually collected by the bank or lender in the first 7 years of the loan. The average American only holds a mortgage for 4.5 years (not 30) and so the question is really, not what the interest rate is, but how can I minimize the amount I pay to the lender during the time I hold this particular mortgage. Can you say Adjustable Rate Mortgage, or Interest Only loan? The only question you should ask is the same question a bank asks, "What shall I do with the money?" If you pay the bank less and choose to invest that money at a rate of return greater than or equal to the mortgage rate you come out ahead, why, because it's deductible. If, like the bank, you are able to invest at a higher rate than it cost you to get the money, they Shazam! you have a nice profit. Can you see why I think that rates are overrated?

Back to front end loaded interest. Read the Asher Report and see the details, but the numbers are more like 50 and 75% interest not 6.12%. Don't be mad at the banks, just educate yourself to do what they do, and never use a loan that gives it all back to the bank as fast as you can. More later.

What is Wealth?

Wow, there are a lot of differing views related to this definition, like: When I have more stinking money than I could ever spend, when I don't hold my breath every time I swipe my plastic with a line of people behind me, being able to do anything I want to do. These are all workable definitions of wealth, but my favorite is: Having more passive income than I have monthly expenses. The keys here are; knowing what your expenses actually are, passive income means just that you don't have to be working to create the income because it's passive. So it's an annuity, it's an amount of money that you see as profit coming automatically from an investment into your wealth account.

I think it's really interesting to watch people come to this point in their investing lives, 1) they inventory all of their resources, 2) they id all of the barriers they are facing to get to a point of wealth, 3) they maximize their resources, and finally their passive income exceeds their expenses and 4) they wake up the next morning after this realization and ask: What do I want to do with my life?

How would you answer that question?

Sub Prime Solution

Don't sign that document! The solution to the sub prime meltdown, is simple really. But, you have to be able to answer the question, why do people do stupid things. Is it greed, lack of information, scarcity of someone to watch you carefully and then at the appropriate moment whack a bumpy stick across your knuckles while yelling, "what are you thinking, you can't afford that mortgage payment, you don't have a job!" For months now I've been listening to all the experts in the field of mortgages and finance, CNN, major networks, MSNBC, FOXnews and the rest and I've yet to hear someone say, if people do stupid things, it's not the government's responsibility to bail them out. Does that mean we don't expect that from government, or that we don't complain when they don't do it, no - why do you think we have such big deficits. People are babies, and if you can't figure out if you can actually afford something, then just say this (my mother says it all the time) "When in doubt, don't" She also says a lot of other stuff that's completely irrelevant and quite insipid, but on this one, she's dead-on the money.

So next time you think about complaining remember all the things your parents and 1st grade teachers told you, "actions have consequences" and "if everyone else jumped of the .... would you do that too?" and "Don't do the crime if you can't do the time" (sorry that was Baretta).

There's a reason why more people aren't wealthy - and apparently it's a good one.

First Shot

I'm almost speechless when it comes to talking about a topic as big as wealth, it's so colored by the senseless and atavistic pursuit that it engenders - that it needs to be broken down a bit so that we have something to talk about. First, I'm mostly interested in how an individual creates it, and my commentary will always be from the perspective of the little guy, the people. Second, the creation of wealth is certainly possible, and it's not unreasonable to consider, the hardest part is just filtering out the garbage that is already in the wind. Third, my assumption is that 90 percent of what I read in print and on line is a lie, and by lie I mean that someone is trying to misguide you for their own benefit regarless of the potential harm to you.

Corruption is not the fault of major corporations, or governments, or sinister cabals of the already wealthy seeking the destruction of all that is holy and pure in the world, it's the fault of people, individuals who have traded their brains, or would trad almost anything for the acquisition of wealth. As we talk about wealth let's be clear that blame is the enemy of accountability and the primary diversionary tool of deceivers. So, let's stand up and be accountable for what we say, what we do, and who we do it to. Because, as Saul Alinsky stated in his writings, "if the ends don't justify the means, what does?" Therefore, my goal is to be candid, honest, and faithful to my blog, afterall I am the Wealthmonger!