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.