Mortgage Loan Decision: A Tough Decision Long Payout Commitment Finance Charges that exceed the actual principal Bad Payment Choices can cost literally.

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Presentation transcript:

Mortgage Loan Decision: A Tough Decision Long Payout Commitment Finance Charges that exceed the actual principal Bad Payment Choices can cost literally 10’s of thousands of dollars

Definitions Finance Charges: Cost of interest from taking out a loan, where the bank makes a profit CD: Initials for “Certificate of Deposit”; money deposited that will lock in a return from interest if kept deposited for a specific amount of time. Mortgage Loan: Money borrowed that will be paid off in a specific amount of time in installments at specified times, usually charges an interest rate on money borrowed.

Definitions Back End of Note: Payment made that does not roll a due date, the next payment must be made at originally scheduled time. Home Equity Loan: Money that can be borrowed against the money that has already been paid into an original Mortgage loan for a house. Up to 80% of the appraised amount of property may be borrowed (Wilson). Fannie Mae or Freddie Mac : Government Agency that buys loans from banks and provide better interest rates, plus benefit the banks

Assumptions Government Agency bought the loans providing a fixed rate and payments on the back-end of the note They have already purchased some type of term insurance Three payments are feasible within the budget

Questions How many years can be cut off the note by paying one, two, and three payments extra each year? What if the customer does not know if they can afford to make extra payments? What are some alternatives and would they be beneficial?

Approximate Figures for Early Payoff No Extra Payments 1 Extra Payment 2 Extra Payments 3 Extra Payments Time to Payoff 30 Years25 Years21 ½ Years19 Years Interest Saved $ - $ 11, $ 23, $ 35,000.10

Home Equity Loan Information Can be taken up to 80% of appraised value Reduces risk of paying extra on home Allows a “cushion” for unexpected situations

Other alternatives Putting money back into a deposit account drawing interest – BankRateBankRate Investing into the stock or bond markets - S & P 500S & P 500 Shooting your spouse and collecting the insurance

Decision Our advice would be to pay as many payments as possible  Finance Charge Advantage  Accessible Money through Home Equity  May be reevaluated for a better deal later