Replies to post #53420 on Phoenix Associates Land Syndicate (fka PBLSQ)

[Renavatio]

OT - Puntang

No, that's just it. Many foreign mortgages aren't front-end interest loaded like they are here in America. Americans let the banks screw them over and over because they don't understand how compound interest works and amortization schedules. The banks tell you to be focused on the interest rate because they would rather you not focus on interest paid. Well interest rates are cyclical for the most part. Over a five year period, there usually is a 1% point swing for more than 50% of the mortgages out there. So the bank tells you the "rule of thumb" is to refinance after a 1% drop in interest rate. Surprise, surprise...you pay almost pure interest (more than you would on an interest-only loan) in the first five years. The banks here get folks to basically just pay interest over and over. We smile and are happy because we see the "equity" growing in our home because of market appreciation and think nothing of it. This is the same thing the government does by giving us a "Tax Refund" after April 15...gets our eyes off the amount of tax we really pay and makes us think we are coming out ahead (see FairTax.org).

Do yourself a favor...take your current mortgage payment and multiply it by the number of months in the term...usually 360. Then subtract that number from the price you paid for your house. The difference is interest and it should scare the hell out of you. Hopefully it will help you be creative in finding ways to pay down your principle.

For example:

Purchase Price - $350,000
Interest Rate - 6.5% fixed
Term - 30 Years (360 payments)
Monthly Payment (P.I.) - $2,212.24
Total Amount of Payments - $796,405.71
Amount of Interest Paid - $446,405.71


Foreigners pay their houses off faster because they understand that an adjustable 7.5% open-end mortgage is better than a fixed, fully amortized 30-year 6% closed-end mortgage. Of course, the open-end mortgage is not better if you can't control your spending habits (see the USA's negative savings rate).

Okay, enough numbers. Football on the telly...