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Lower Mortgage Payments Can Increase Wealth
By Ida Byrd-Hill
Creating and maintaining wealth is a very difficult task. Ask any millionaire!!! The delicate balance of living a dream lifestyle and holding expenses tight creates this difficulty. As a financial advisor, I have assisted people accumulate monies to live their dream life while discovering ways to reduce their necessary expenses. Everyone would agree mortgages are necessary expenses. Probably the biggest expense most of us have. Mortgages present the opportunity to secure income tax deductions while utilizing the house to live. What if you could reduce your mortgage interest rate to 3% and be required to pay interest only for 5 years? Would you refinance your current house? Purchase another? While refinancing a client's mortgage, I discovered such a mortgage. The client will save lots of money the next few years. Here is his scenario:
Client #1 $500,000 Loan Amount
Current
30 Year Fixed @ 6.00%=P&I $2,997.75/ month
5th year loan balance $456,989.77
Equity (assuming no appreciation) $43,010.23
Past
LIBOR ARM @ 3.00%=Interest only $1,250.00/ month
Applied additional $1747.75 / month to principal for 5 years
5th year loan balance $362,370.82
Equity (assuming no appreciation) $137,629.18
Creating and maintaining wealth is a very difficult task. Ask any millionaire!!! The delicate balance of living a dream lifestyle and holding expenses tight creates this difficulty. As a financial advisor, I have assisted people accumulate monies to live their dream life while discovering ways to reduce their necessary expenses. Everyone would agree mortgages are necessary expenses. Probably the biggest expense most of us have. Mortgages present the opportunity to secure income tax deductions while utilizing the house to live. What if you could reduce your mortgage interest rate to 3% and be required to pay interest only for 5 years? Would you refinance your current house? Purchase another? While refinancing a client's mortgage, I discovered such a mortgage. The client will save lots of money the next few years. Here is his scenario:
Client #1 $500,000 Loan Amount
Current
30 Year Fixed @ 6.00%=P&I $2,997.75/ month
5th year loan balance $456,989.77
Equity (assuming no appreciation) $43,010.23
Past
LIBOR ARM @ 3.00%=Interest only $1,250.00/ month
Applied additional $1747.75 / month to principal for 5 years
5th year loan balance $362,370.82
Equity (assuming no appreciation) $137,629.18
Client #2$1.2 Million Loan Amount
Current
5/25 ARM @4.25%=P&I $5,903.28/ month
5th year loan balance $1,064,681.48
Equity (assuming no appreciation)$ 135,318.35
Proposed
LIBOR ARM @3.00%=Interest Only $3,000/ month
Applied additional $2903.20 / month to principal for 5 years
5th year loan balance$ 971,261.81
Equity (assuming no appreciation)$ 228,738.19
You can see from these scenarios this mortgage can be a great tool to reduce your monthly mortgage payment or to shave down the loan balance thereby increasing your equity. This mortgage interest program is termed negative amortization. Rather than paying off the interest over the time period, you are paying of a small portion of the interest but not the required amount. Interest rates can go as low as 1.25%. If you want savings refinance your mortgage.
About the Author
Ida B. Byrd-Hill is the President of Uplift Inc.and http://www.livinginstyleonline.com. She was the President of The Harvard Group Wealth Management L.L.C. for 10 years. She has served as guest columnist for the Michigan Front Page for 2 years and a speaker for the Better Investing television show hosted by David Chilton, author of The Wealthy Barber.
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