Paying Down A Mortgage (the Banker's Secret)

  A mortgage works by initially collecting a majority of the interest on the loan in its early years of existence. This type of loan is called an amortized loan.  Only years later does the mortgage substantially begin to pay off the principle.  In our $240,000, 30 year mortgage example, the first year will only pay off $3,541 of the principle while your interest payment will total $11,915. A mortgage calculator can show you how much interest and principle are applied over a 30 year period. (check out www.Bankrate.com and use their calculator - top of page)

One way to reduce a mortgage is to pay down additional amounts over the monthly loan amount.  For example, if you add an extra $50 a month on a 5%, $240,000 loan, the paymet would only increase from $1,288 to $13,338. However, you would cut 30 payments off the loan and save $21,211 in interest over the life of this 30 year mortgage!  Add another $50 for a total of $100 paid over and above the loan amount and you would save $38,446 in interest and have 60 fewer payments. 

Let's take a look what happens when we use the second most popular mortgage time frame - a 15 year mortgage. The results can be very impressive.  The first notable difference is that the time to pay of the mortgage itself is cut in half.  This results in 180 less monthly payments which provides a savings of $231,840.  Now with the chart below, see how much less you pay in interest.........

  Loan      Loan    Interest   Monthly      Total      Savings     Amt.     Period     Rate     Payment     Interest      $$$$

240,000   15 yr.     5%       $1,898     $101,623  $122,191
240,000   30 yr.     5%       $1,288     $223,814       $0

For a total picture of the amount you have saved, here is the calculation....$231,840 (180 less payments made) + $122,191 (interest cost saved) = $354,031 - $109,800 (the difference between the higher 15 year payment and 30 year payment) = $244,231 l saved.  The amazing thing is that this amount is over the full amount of the original loan itself!  Therefore, by “turning the tables”, so to speak, you can enhance your financial position in a most significant way.  There are other methods in “buying down” your mortgage, such as through our Mortgage Savers Program, which is described below.

Mortgage Savers Program

The Mortgage Savers Program© uses the same concept as
“paying down a mortgage”.  Taking our example of a $240,000 mortgage at 5% for 30 years, you would be able to save an extra $50,833 by eliminating 72 monthly payments, thereby shortening your mortgage to 23.8 years and building up your home equity 300% faster!!!  What is so great about the Mortgage Savers Program is that it works without increasing your monthly payment.  This revolutionary program is free of charge and will only cost you a $49.00 one time set-up fee, yet can save you thousands upon thousands of dollars.  In combination with the money made and saved through the “Smart House Program” you can now potentially make over $357,000 in nearly 24 years, which is six years sooner than if you had not used this program at all (based on a 30 year mortgage)! We show the calculations below on how this total came about......

    $750/mo x 23.8 yr. = $214,000 (Smart Home income)
                                         $50,833  (int. saved with MSP)
  $1,288/mo x  72 mo. =  $92,736 (72 mortage payments                                         eliminated with the use of MSP)

               Total saved  = $357,569 (exactly)

And this doesn’t even include the increased potential valuation of your home in the 24 years.  Just click on this hi-lited word, MSP, and you will be brough directly to the page which explains this great program in detail and how you can enroll with your existing mortgage.
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Page: Presentation Paper/What a Smart Home can do for You?
Quality Affordable Homes
Featuring the "Smart Home Program"
in Alliance with Amazing Homes
HOME
WHO WE ARE
OUR MISSION
CONTACT US
HOMES
LAND
LINKS
FEATURES
The Advantages of Home Ownership
Renting vs. Owning
Applying For a Mortgage
The Financial Effect of "The Smart House Program?
Mortgage Savers Program
In Conclusion
A View to Debt Reduction
Paying Down a Mortgage
In perspective, if you could save $750 per month from the income generated from the “Smart Home” addition, your total profit would be over $270,000 over a 30 year mortgage.  But by using the Mortgage Savers Program (MSP) and employing the "Turn a Great Financial Tide" payment accerleration program, you could make a total of $278,000 in sheer profit within 13.3 years compared to holding a mortgage for 30 years and making $0. Read our presentation on the left to gain a much better understanding on how this works!
How to Become a Millionaire Using the Smart House Program
The Advantages of Home Ownership

  The incredible blessing of owning your home is it can be one of the greatest and most secure saving and investment vehicles in the world today.  The truth is, we all have to live somewhere.  Unless we live somewhere for free, there are typically three choices we have regarding our housing situation.  Either you have to live with someone, rent or own a home.   If you rent, you gain absolutely nothing. The only time I recommend renting is if you cannot afford to purchase a home or plan to spend less than one to two years in a specific location.  Let me explain.  Home ownership allows your home to become a savings account.  No doubt, most people begin owning a home by taking out a mortgage, which basically is a loan to purchase a home from a lending institution.  By taking out a mortgage, the lender will be the majority owner for a lengthy period of time (typically 30 years).  The interest payments and accumulation thereof will also be fairly great.  However, history has shown that houses by and large appreciate in value through the length of the mortgage to such an extent, that the increase in value will surpass the costs of interest charged by the lending institution.  The only time this may not occur is if interest rates are extremely high (usually greater than 10%) and/or if a protracted economic downturn takes place.  However even then, by renting you are giving your hard earned funds to another whether in good or bad times.  You will never develop ownership in one of the most needed and desired assets in our country today; a house.  Let us consider how one can benefit, and may we say benefit significantly, using the ”Smart House Program“.
Renting Vs. Owning

Typical rent for a 2 to 3 room apartment in a nice and safe neighborhood will range anywhere between $500 to $1,200 monthly, depending on the area you live. Usually utilities are not included.  For example, over a 5 year period of time, a monthly rental payment of $750 adds up to a total of $45,000.  Although $750 per month doesn't seem like a lot of money, $45,000 saved in 5 years is a considerable sum.  Again, if you rent, this money is gone forever.  But, if you were to take this amount and help pay part of the mortgage, not only will it help to pay off the home but you may also derive significant tax benefits as well. Thankfully, home mortgages are still tax deductible.  This means that a $1,400/month mortgage payment offers nearly a $16,800 yearly deduction from your total taxable income because of the interest paid on the mortgage (read "Buying Down A Mortgage" below which explains this strategy). Here is an example that explains this perfectly. The percentage tax burden for married couples filing jointly for the year 2013 is as follows; 15% under $72,500, 25% from $72,501 to $146,400 and 28% from $146,401 to $223,050. Therefore, if your combined income as a married couple was $85,000 for 2013 and you had a $1,400/month mortgage, the IRS will allow you to subtract around $16,800 of your yearly mortgage payment from your income.  This leaves you with a $68,200 taxable income ($85,000 - $16,800 = $68,200),  Now look what happens! This drops your taxable income from a 25% income tax rate to a 15% taxable income bracket. In real terms, you would receive a $8,160 tax reduction (or refund check) just because you owned a home!  Or put another way, you just made $8,160 due to both owning and having a mortgage on the home.

It is worth mentioning that due to the combined additive effects of real estate ownership, not only would you receive a $8,160 tax reduction, but in most instances your property has also increased in value because you 1) are paying off your mortgage and 2) local real estate values have increased.  To illustrate this concept, in 2003 we built the Windsor model "Smart Home" for an approximate total cost of $300,00 (land and house combined).  Three years later, it sold for $547,000, which amounted to a $247,000 profit!  This is certain proof that home ownership can be a very worthwhile investment.

  Also, another great tax advantage is the recent IRS ruling that allows you to sell your home after two years and not have to pay any tax on any profit made.  This is true only if the home is your primary residence and you have actually lived in it for a full 2 years. This can be quite a windfall as there are few investments where one can write off total profit compared to other investments which require capital gain (taxable) payments.

The Financial Accumulative Effect of "The
Smart House Program"

  Let's look at some of the benefits that can be derived from "The Smart House Program".  Consider if we could generate a conservative $750 per month from the "addition".  If we purchased a house with a $240,000 mortgage at a 5.0% fixed interest, our monthly payment would be $1,288/month with a 30 year mortgage.  Add an extra $180/month for house insurance and property taxes, which most lenders add to the mortgage payment, the total house payment would be $1,468 per month. Most lenders would require a yearly gross household income of $61,000 to be able to afford a mortgage of this amount at a 35% debt to income ratio.  However, if you subtract $750 from the $1,468 monthly housing cost, your total out of pocket expense would only be $718! This makes the mortgage not only more manageable to pay, but offers additional funding to pay bills, purchase additional items for the house, apply to savings and so forth.
                      
A View To Debt Reduction

By using the above example, it is easy to see how the additional income generated by “The Smart House Program” can be used to help pay off debt.  In perspective, over the life of a 30 year mortgage, if you could save $750 a month because of the additional income generated from this arrangement your total income, not including interest or income tax,  would be $270,000!  If you add 5% interest compounded monthly to this amount, your $270,000 savings would increase to a whopping $627,545!! Then add the tax savings in our previous example, and we can add another $330,000 (not including interest).  What a great savings plan!  In totality, this is worth over $958,000!!!  Friend, this is not chicken feed and paints a realistic picture for debt reduction, investment, and a retirement savings program. Moreover, this does not even take into consideration the increase in property value that normally occurs over time. We are truly on our way to realistically becoming a millionaire without getting involved in dangerous investments. 

Applying For A Mortgage

   Buying a home starts with knowing how much you can afford.  Three factors determine this. 1) Income 2) Debt level and 3) Downpayment ability.   Lenders (as in banks, private mortgage companies, etc.) will base your ability to pay the monthly mortgage on a percentage of gross income minus monthly debt (credit card payments, car payments,  loans, alimony, child support, etc.).  Most lenders take 32% to 42% of your gross monthly income minus your monthly debt.  Some private mortgage companies will go higher.  For example, if you made $85,000 yearly, then $85,000 x 0.38 = $29,750.  Divide this figure by 12 months/year = $2,479.  From this, you need to subtract out monthly obligations.  Additionally, most lenders will include the cost of property taxes and house insurance as part of the mortgage payment. Generally, this is about 14% of the mortgage amount. Therefore, with a $320,000 mortgage at a 5% fixed interest, our mortgage payment would equal approximately $1,718/month.  If we include property taxes and insurance at $240.00 monthly ($1,718 x 0.14 = $240), our total monthly house payment equals $1,958. 

  Most lenders require a downpayment of 5% to 10% of the purchase price of the house (a number of lenders now require a 20% downpayment, however may be modified for first time homebuyers).  Of course, you subtract out the amount of the downpayment you make. Looking at the  mortgage  calculator  below,     we can  determine the            






























monthly payment our mortgage will cost dependant on the prevailing interest rates at the time.  Based on a fixed rate of 5% as of this writing, an income of $85,000 would allow you to buy a home costing around $390,000, which includes the taxes and insurance amount on the mortgage.

I highly recommend that individuals go to at least three lending institutions, whether banks or private mortgage companies.  Have them perform a pre-qualification for you (which almost all do for free), which is a lenders process of determining if a borrower is creditworthy and capable of making payments on a loan.  At the same time you can find out what the lending institution is willing to offer you.  Shop for a mortgage just as you would a car (only more so) since this may be the largest loan you will probably ever make.

Finally, a word on debit/credit cards. Although convenient, the indiscriminate use of credit cards can be dangerous and eventually lead the user into the bondage of unmanageable debt.  Again, an example would best describe this.  Let's say you borrowed $10,000 on credit at an 18% interest rate (common credit card interest rates range between 12% to 22%), your monthly interest payment alone would be around $150.  Because it appears manageable, people continue to use credit cards indiscriminately.   But you must understand that you are not paying off one single cent on the principle amount of $10,000!  In other words, if all you paid was the $150/month minimum payment, you will pay $150/month for eternity!  If you paid just an additional $50 monthly ($200 total) to help pay off the principle of $10,000, it would take you almost 8 years to resolve this debt without even using your credit card once!  This is why credit debt can be dangerous and should only be used if it can be paid off monthly.  The goal is that credit (or finances in general) should be your servant, not your master.
Turning A Great Financial Tide

Would you like to consider a way to really get a strong financial footing and build a nest egg second to none?b One way would be to apply a 15 year mortgage to our example.  Remember, we calculated a 30 year $240,000 mortgage to cost $1,468 a month, including insurance and property tax.  A 15 year mortgage at 5% would cost $1,898.00 (including the typical 14% amount added for tax and insurance costs). However, if we used the $750 income generated from the “Smart House Program”, you would only have to pay $1,148 per month on your mortgage, which is actually $320 less than what you would have to pay for a 30 year mortgage!  Then, if you also use the Mortgage Savers Program© with the 15 year mortgage, you could own your home in 13.3 years instead of 15 years, saving you another $36,000 over the 13.3 years. And this does not include savings on the tax deductions you could claim because of the mortgage, property improvements and depreciation based on your house being a income producing property.  The end result is that you'll own your home free and clear in approximately 13.3 years and have made a possible* total profit of $393,569 ($357,569 + $36,000 in interest and mortgage payments saved from a 15 year mortgage using MSP) compared to holding a 30 year mortgage at its full term.  To be debt free and having a net worth of nearly $400,000 in 13.3 years using this program is no small achievement. Again, this does not include the increase in your homes value over time.

Now, let’s take this a little further.  What would happen if you continued saving the $750/month monthly income generated from the rental of the "Smart Home Program" and placed it into a savings account for the remainder of the 16.7 year that would have normally constituted a 30 year mortgage.  We believe this should be feasible since you had been doing this for over the 13 years when you where paying off your 15 year mortgage. Again, if you signed up with MSP, you would be finished paying off your 15 year mortgage in 13.3 years.  Continuing such a savings program for the next 17 years would net you an additional $150,300 in gross profit.  And if you had invested this amount in a 5% savings account (or bond), your total would swell to $240,395 in a little over 17.1 years.  And, more than likely by this time, your house could have appreciated at least to half a million dollars, if not more.  Now, you have accumlated a total saving of over $507,869 using the tools we have described in this presentation. This leads us to our next discussion point.  

How To Become a Millionaire (or more)
Using “The Smart House Program”

  Is it possible to realistically become a millionaire using the “Smart House Program”?  We believe so as the above example has illustrated.  But it probably will take help from above, a willing heart, and a commitment to follow through with practical financial planning and budgeting. Moreover, we also believe that at the time of this writing that if you were to purchase an average American home, and if real estate values continue to rise as history has shown, your home will probably worth well over $1,000,000 within 15-30 years from today.  If this is so, you would have a combined cash and asset value well over 1.5 million dollars.  Amazing isn’t it?   We seriously believe this program is a practical and realistic means to do so.  We hope you do too. 

In Conclusion

We hope this presentation has been a help and an encouragement to you.  Please feel free to contact us if you have any questions.  We hope that we can launch you into a "Smart Home Program" and begin to see the benefits accumulate as we have described.  At the same time we would like to help you with your building plans through our network of national builders.  We can also modify a favorite houseplan of yours to suit individual desires and/or family needs.  If you have a mortgage, in the very least we hope you’ll take advantage of the Mortgage Savers Program©.  It is our hope that we can be a blessing to you in your housing/financial needs. 

Hope to hear from you.
Blessings!

*possible is used to describe these examples for realistic illustration purposes.  However, one needs to keep in mind the variableness of life (such as a not being able to rent out the unit a full 12 months), market volatility and downturns whereby the examples used may not be able to acheive the same results.
Loan Amt

$100,000

$120,000

$140,000

$160,000

$180,000

$200,000

$220,000

$240,000

$260,000

$280,000

$300,000

$320,000

$340,000

   4%

  $477

  $573

  $668

  $764

  $859

  $955

$1,050

$1,146

$1,241

$1,337

$1,432

$1.528

$1,623
   5%

  $537

  $644

  $752

  $859

  $966

$1,074

$1,181

$1,288

$1,395

$1,503

$1,610

$1,718

$1,825
   6%

  $600

  $719

  $839

  $959

$1,079

$1,199

$1,319

$1,439

$1,559

$1,679

$1,799

$1,919

$2,038
  7%

  $665

  $798

  $931

$1,064

$1,198

$1,331

$1,464

$1,597

$1,730

$1,863

$1,996

$2,129

$2,262
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Turning a Great Financial Tide
How To Realistically Become a Millionaire Using the "Smart Home Program" is best understood if you read this article in its entirety.
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