Saving $48,277 On Your Home
The Dynamic Wealth Report
January 19, 2010
Many of you know I just bought a new house. I promise… no more stories
about bad painters, crazy electrical problems, or our neighborly snake,
Oliver (though he is doing quite well, thank you).
I can’t believe the incredible volume of mail a new home buyer receives.
I get everything from moving company advertisements (I don’t get this
one… I just moved) to adverts for painters, plumbers, and pool repair. It’s a non-stop flow of offers to repair or upgrade my house.
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I was flipping through all this mail when I found something really
scary…
It's a scam trying to steal my money. It arrives in a very official
looking envelope. It makes big promises, but in the end, you get taken
every time.
The offer sounds great. I opened the envelope because I was curious.
Save $48,277 Or MORE On Your Mortgage! Who wouldn’t want to do this?
Best of all, I noticed the offer was from my mortgage company.
I took a closer look. For a one time set up fee of $300 and a monthly
recurring fee, they’ll help me save over $48,277 on my mortgage. What a
deal!
The mortgage company was offering a unique way to save money on a
mortgage. It’s a little math trick they use to make the deal sound
really attractive.
Here’s how it works.
Instead of paying your mortgage once a month, you pay it every two weeks. I know it sounds simple… and it is. It doesn’t sound like much of a
commitment… but there’s a catch. If you pay your mortgage once a month,
you make 12 payments a year.
If you pay your mortgage twice a month, its 24 payments… simple, right?
But remember, you’re not paying twice a month… you’re paying every two
weeks.
It’s a small but important difference. Everyone knows there’s 52 weeks
in the year. 52 weeks divided by a payment every two weeks is 26
payments. So by paying the mortgage every two weeks instead of once a
month, you end up making the equivalent of an extra payment every year.
With a big enough loan and with enough time, the extra payments can
really make a difference.
Let’s take a $200,000 mortgage and assume it’s at a 6% interest rate and
fixed for 30 years… now I’m making a few assumptions here, but you’ll
see the power of this strategy in a minute.
Your monthly payment would be around $1,199 (not including insurance or
taxes). Over the life of the loan (30 years), you’ll pay interest
charges of $231,676.
If you make a mortgage payment every two weeks, the payment would be $599. Because you’re making an extra payment, the principal balance drops
quickly. So, over the life of the loan you’ll only pay $183,400 in
interest charges.
It’s a savings of $48,277.
It sounds like a great deal… but it’s a scam.
Anyone can make early payments on their mortgage. I do it all the time.
Just send in a second check and note it’s a payment for additional principal.
The scam is the fees for setting-up the program. The scam is the
additional monthly fees they want to charge you. Why would you pay a fee
to send an extra check to your mortgage company?
It doesn’t make sense. They want to charge you $300 to set up the
program and a monthly fee on top of that? You’d be better off adding the
fees to you monthly mortgage payment and sending it in yourself.
The savings are real. Don’t get me wrong. Making early payments on a
mortgage can save you thousands… but there’s no need to pay someone a
fee to do this. If you see a scam like this, do what I do… toss it in
the shredder.
Oh! One other thing… If you want to save money on your mortgage, you
don’t need to make it complicated. Just add an extra $100 a month to
your monthly payment for the first 10 years… you’ll save yourself over
$38,949 in interest.
Normally I’m focused on US IPOs, however, one bit of news just couldn’t
be passed up. Infinite Computer Solutions was launching an IPO in India
for $45 million. Here’s the shocking bit… the deal was oversubscribed by
45 times! That means they had demand for 45 shares for every 1 share
they were selling. This shows the international markets are alive and
well!
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