It’s the Principle Of the Thing

Deborah Venable

03/16/09

So, the liberal Democrats thought it would be a good idea if more people owned their own homes even if they couldn’t afford it. Some lending institutions bought into the idea as more and more government money, (tax dollars), was used to guarantee risky loans. It was like driving a stake in the heart of the American Dream – even though the original American Dream was not a monster to be destroyed by such an exaggerated method.

To a society that had been trained to think that making payments was the same as true ownership of property, the credit industry had only one way to go – up!

After all, the majority of folks had already accepted that everyone who was anyone should also “own” a new car every year or so, so signing up for a lifetime of payments to put a roof over our heads was not an outlandish concept to embrace. The whole idea of debt was accepted as normal in a good economy or bad. The government got on board and decided that it was fine to run in the red no matter where the credit came from, and before we knew what was happening, America had been sold to the highest debt bidders.

Eventually, though, as my wise dad always said, if you dance, you have to pay the fiddler. Well, we have danced our way into the biggest boondoggle of debt ever imagined, and freedom has flown the coop. That was the price and we are finding it awfully hard to pay.

Having been down both paths of debt or no debt, (except for my share of the National Debt of course), I can tell you that no debt is by far the most preferable circumstance. There is no substitute for the feeling of debtless freedom.

I will drive an old car into the ground to keep from making car payments and will do anything to pay off housing debt as quickly as possible. I do not see the financial or economic wisdom in “using OPM, (Other People’s Money), to realize the American Dream” but I know that I am in the minority. People are judged more commonly by their credit scores than by their intelligence quotients.

Here’s some advice from an old woman who has seen quite a lot in a very full lifetime. If you must buy a house or piece of property with a mortgage, or if you are already in the mode of paying a mortgage on your home, request a full amortization schedule from your mortgage lender today. They must supply you with this request, but they will seldom offer it unless you make the request.

The amortization schedule will come in the form of several printed sheets, depending on how long you have to pay on your property. The amortization schedule breaks down each payment over the total period of the loan by the combined monthly amount and the parts that make up that total. In some cases, you will only be looking at two figures on these monthly lines – the interest and the principle amounts. If your mortgage payment includes PITI, (Principle, Interest, Tax, and Insurance) then you will have four figures.

Let me just interject here that you are much better off if your mortgage does not have the tax and insurance rolled into it, but you will have to make these payments each and every year for as long as you own the property. Taxes and insurance are usually due on a yearly basis, so you must be careful to save enough to pay them. I say you are better off to do this for a couple of reasons. One, you can shop around for the best rates on insurance at any time you wish if this payment isn’t rolled into your original mortgage, and two, you are reminded each year just how much you pay in property tax instead of being oblivious to this figure via a combined payment.

Now, the most important figures on this amortization schedule are the principle and interest amounts. Study these carefully. You may already know the rate of interest you are being charged on your mortgage. Lenders advertise their “competitive” rates for all to see. But do you realize exactly how much interest you are paying each time you make a mortgage payment. More importantly, do you realize how much of the principle you whittle down each month? The amortization schedule tells you this in black and white.

The first line on the first sheet represents your first payment due, (after you receive this amortization schedule) and the last line on the last sheet represents the last payment you will make if you follow the one payment each month plan. Take a look at the breakdown of principle and interest on these payment lines. If you would like to shorten the length of time you will be making mortgage payments, or if you are unhappy with the slow growth of equity, (the part of the property you actually own), consider an action you can take that may astound you when you think about it.

First, let me make this abundantly clear – you MUST make the usual mortgage payment each and every month, on time, even if you decide to follow the plan I am about to outline for you. If you do not, you can lose your property and all the equity you have in it.

You can make additional “principle” payments along with your total monthly mortgage payment any time you wish. The calculations are all done for you, and you need only add the extra principle amount(s) to the regular payment amount. Each time you make one extra principle payment you are subtracting one more month from your mortgage. You are also saving the amount of interest you would have to pay on the back end of your mortgage. You will notice that the best time to do this is while your principle payments are a mere fraction of the interest payments at the front end of your mortgage. Consider this – if you make just one extra principle payment each and every time you make a monthly mortgage payment, your mortgage will be paid off in half the time. Instead of thirty years, it will be paid off in fifteen. For two extra principle payments every month, you would own it in ten years. If you have a tight month or so and cannot afford the extra payments, you are not required to pay the additional amount every month.

It is very easy to keep track of this incredible savings plan. I call it the “line” method. Every time you make a regular payment, draw a line through the next payment line on your amortization schedule. If you make additional principle payments, draw a line through the following payment lines. This allows you to keep track of the next amount you have to pay in extra principle and keeps you straight and on track to knowing exactly how many payments you have left. The more multiple principle payments you can make in the beginning, the more interest you will save in the end.

If your mortgage rate changes, (meaning you have a variable rate) or the mortgage is sold to another lender, make a request for a new amortization schedule so that you can stay on top of your real progress. If your taxes and insurance are rolled into your mortgage, simply ignore those itemized amounts, but be aware that these charges will no longer be “financed” for you when your property is paid off and you will have to make those yearly payments, albeit without finance charges.

If you are a responsible person with a regular savings plan of some sort, I invite you to look at the interest rate you are being paid on your savings and see how it compares to the interest you are being charged on your mortgage. You may well find that some juggling of available funds might just be in order for you. Please let me know if you find this information useful.

So the benevolent liberal Democrats thought it would be a good idea if more people “owned” their own homes, huh? No they did not! They thought it would be a good idea if more people owned more debt than they could ever afford. This is proof! Everyone who buys property with a mortgage or loan owns more DEBT than they do property. Owning debt is NOT the American Dream – that is the monster that needs the stake in the heart!

Reams have been written lately about the credit rating of America. Hillary Clinton has been kept pretty busy telling the Chinese and everybody else that will listen that America is a good credit risk – that American debt is a good investment. How many future generations do you think have been placed on the altar of immediate gratification for the present ones? Do you really want a government that continues deficit spending in the trillions of dollars while it admonishes the income producers of this country to tighten their belts and give even more of their wealth away so that America’s economy can survive and prosper? If you believe this, then you must have gotten your economics knowledge and/or education out of a Crackerjack box!

Bottom line – YOU own the debt of America – and so do I. Maybe it’s time we demand an amortization schedule from the government and start making extra principle payments on America before it is too late! Do we know the meaning of principle yet?

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