- The Mortgage Monster!
I have to admit. I have been telling my kids for years that monsters are not real. I am here to confess, I was wrong. This monster has attacked most of us reading this. We have fallen victims to the dangerous hungry monster. This monster is so hideous; it robs us of our children’s future, it steals our retirement! It is the Mortgage Monster!!!!!!
In all seriousness, debt in general is a destroyer of families. Most divorces occur in this world today because of money problems. Debt and irrational spending is the biggest part of these money problems. What is your largest debt? It is most likely your mortgage. If it is not, you are smart, renting, or flirting with disaster.
Did you know that even with today’s fairly low interest rates you could still pay a hundreds of thousands of extra dollars for your house by the time you pay your mortgage off? It is true. On a very conservative $130,000 mortgage at 6.5% interest for 30 years, the borrower will pay a total of $159,984.40 in interest alone. So, after you have paid the entire loan back you have spent a total of $289,984.40 the original cost of the house plus interest. Now look at the same loan, with $170,000 principal. The borrower will pay $209,210.37 in interest charges! Let’s say you live in one of the “hot markets” and you have to borrow $350,000 for that little ranch that you have had your eye on. You will pay $430,727.23 in interest charges over the life of that loan! That does not include any improvements or repairs that you may have done to the property. If you bought those improvements and repairs on credit, it would be even more disastrous!
Why do we do it? Why do we let our wallets fall into the jaws of the Mortgage Monster? Many believe it is the only way to buy a house. Housing costs can be out of reach, but don’t you think that is the way that the lenders want it? Of course they do, they want to protect their business, and they want to continue to make a ton of money. I could go on and on about the many reasons why we fall prey, but there is plenty of information about this subject.
I am not saying that mortgages are completely evil. In fact, to some they are a necessary evil. I myself used to have a huge mortgage, and then I wised up. We came up with a plan. We decided to sell our house with the large mortgage and by an older “fixer upper” in an older neighborhood. This house was considered to be way below our means. People made fun of us for moving into this house in this older neighborhood and giving up our beautiful large house in the new neighborhood. People would say: “Why would you want to give up that house? It was so beautiful.” It was also about $100,000 more in cost. Do you know what that translates to? It translates to about $220,000 in interest payments over the life of the loan. We realized our house does not make us the people that we are…
This time we are going to do it right! Our mortgage on our new house is much lower; we put a large sum of money down from the sale of the big house. We ended up borrowing $114,000 on our house. You are probably saying: “What? Wait a minute! I thought you hated the Mortgage Monster?” Well I certainly do! One thing we learned, was if you need a mortgage, learn everything you can about how the process works. There are a lot of dishonest people out there that will try to take advantage of you. We can see that from reading the papers today. Many people were talked into loans that can't repay.
My lovely wife and I came up with a fantastic plan to pay off our mortgage. We found out the best way to kill the Mortgage Monster was to feed it so fast that it could barely grow. Seems a bit backwards doesn’t it? It doesn’t seem backwards if you follow the principles of compound interest. You see, the Mortgage Monster needs time to digest your money to make it big and fat. If we can keep it from getting big, fat, and happy, we can make ourselves happy!
We sharpened our pencils and found every extra penny in our budget . We took every available surplus that we had and put it into our mortgage payoff fund. We will have paid off that $114,000 mortgage in about three years. We are still doing it, methodically. We have about $5,000 dollars to go. We will have it completely paid off within 14 months of the time of this writing. We will also have saved about $115,000 in interest charges! Then we will be completely debt free! We will no longer have to work so hard to feed the evil Mortgage Monster.
This has not been an easy task. Although not easy, it is very do-able. We had to take a hard look at our lifestyle and make some difficult choices, but it is well worth it knowing that we are the best managers of our resources that we can be. Do you know what the best part about it is? We will save about $115,000 in interest payments! We will be able to take the money that we were paying towards mortgage payments and invest them in our children’s education and our family's future. They will have a future! Hopefully it will be a future without mortgage payments to the Mortgage Monster.
Rick Bolt
Husband of one
Father of six
Mortgage Monster Conqueror
http://allbolt.blogspot.com
http://largefamilyfinances.blogspot.com
I admit the article is a bit "dorky". It is a little fun though....
2 comments:
Rick, I'm sorry to say it but you are looking at this all wrong and it will cost you in the future. I do agree that a mortgage that is too big is a killer, and you were wise to move into the fixer upper. However, your analysis is wrong. You should not look at how much interest you pay over the life of the loan, but how you will end up in 30 years depending on which path you take. Given that the effective interest rate of a loan against your house is around 4%, it makes much more sense to put your extra dollars towards investments that yeild a much higher return than this. It is impossible for me to fully analyze your situation without more data. However, if you invested the money you put towards the mortgage principle into good mutual funds instead, then at the end of the 30 year loan you would probably be richer by a million bucks. I am going to e-mail a detailed analysis to you concerning similar advice that Dave Ramesy gave a guy concerning paying off his house. In his case Dave's advice cost him over 6 million bucks.
It is important that you understand these things if you are attempting to teach others, lest you may be found leading people down a path that will cost them dearly.
P.S. By the way, I have 5 kids, and over $2M in mortgage debt on a typical five figure "engineer's" salary, so I know about all these things you are talking about.
Actually Baheshdi, I think you are looking at it all wrong. We are not here to teach people how to get rich, we are here to show them how we do things financially. We do not sell anything on this site, it just presents information on how we do things. Therefore your comment about being careful about how we help people is irrelevant. We don’t tell anyone that they have to follow our financial strategy. I also realize that you dislike/disagree with Dave Ramsey. I began my studies on being debt free by reading Larry Burkett, who happened to teach Dave Ramsey…Not sure if you ever read any of his books, feel free to check them out. I personally like Dave Ramsey and think he is doing great things for our credit bloated society.
Now let me explain why I think you are looking at this all wrong. Out of all of the numbers, interest rates, and rates of return that you can crunch on a spreadsheet, you left out one big variable. You left out risk. There is no value that you can put in your spreadsheet for risk tolerance.
For example, what would happen if you immediately lost your income and could not replace it for several months and you were unable to sell your property (properties) quickly? My guess is you would have a difficult time making the payments, which could put your financial situation at risk. We have seen this happen. After all, we live in the area of the United States that has the highest foreclosure rate. We have seen friends that were doing very well in others eyes lose their home because they lost their income for a few months.
We understand your point of view perfectly. We often have disagreements with others that have your same point of view. We did not create this site expecting everyone to agree with us. We only offer information on how we do it. We get our financial advice from how we handle money from the Bible, which is what we believe in.
Thanks for the comment, we really do appreciate it. We have strong beliefs about debt here. I think we will just have to agree to disagree……
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