St Louis Real Estate

I recently read and commented on a post here on Activerain regarding a mortgage acceleration program that the guy was selling. 

In the post he spoke authoritatively about how a 30 Year Fixed Rate Mortgage is a rip-off and that if you end up selling the home or refinancing it before the end of 30 years, that the "effective" interest rate could be as high as 580% on a loan with a stated interest rate of 6%. He showed examples, using selective numbers from an amortization table, that "proved" his point. 

Several people, including myself, commented on his math and pointed out that he was in error.  That the interest rate on a 30 Year Fixed Rate Note @ 6% was indeed 6%.  He strongly defended his position referencing a formula

published by somebody called "The Asher Institute".                                       

I followed the debate and when he continued to avoid certain facts such as the fact that interest rates are based upon a period of one year and that he wasn't taking this fact into account with his figuring, I commented again.  Both of my comments were soft spoken and in no way, other than the fact that they disagreed with him, belligerent.  I simply pointed out the errors in his math.

Apparently he felt challenged by my assertation that his numbers didn't add up and my comments disappeared from his blog.  Oh well!

At first I was pissed.  Then I accepted the premise that you can't fix stupid.  Then I decided that way too many people had commented on what a wonderful post he had made and that maybe I should write this post to try and counteract  his.  I thought about calling this post, "Pissing on Mr. Hill's Parade" or something equally juvenile, but decided to play it straight and simply point out to people that there is no vast conspiracy regarding the 30 Year Fixed Rate Mortgage. 

While the government may be covering up their knowledge of who shot JR, they are not participating in a giant fraud that has been going on for decades and has duped millions of gullible borrowers, including myself and probably hundreds of thousands of other people a hell of a lot smarter than myself.  The 30 Year Fixed Rate Mortgage is simply one of many tools that the consumer can utilize to obtain their slice of the American Dream. 

Are there upsides and downsides to this program? Yep!  Is it the best program for everyone? Nope! Is there any reason what so ever to spend your hard earned dollars purchasing a computer program to "accelerate your mortgage"?  Nope!

This includes paying someone to pay your mortgage on a bi-weekly basis.  Though less of a rip off that the MMA programs, there really is no reason to pay someone else to do this for you.  You can accomplish the exact same feat by a number of different methods.  All of them free!

I won't go into all of them, but a few of them are pretty cool.  Such as this trick:  Open up a amortization calculator such as this one 

  hsh.com amortization calculator

Plug in your particular numbers, then try adding the next month's principal payment to your mortgage each month.  While not exact, each time you do this, you can pretty much scratch off the last payment on the amortization schedule.

If that is too much trouble and you wish to "accelerate" your mortgage, try dividing one month's payment by 12 and then adding that amount to each of your monthly payments.  This will shorten your mortgage by around 5 to 7 years.  About the same as if you had made bi-weekly payments.

The basic fact is that if you want to shorten your mortgage, you are going to have to make principal prepayments.  The bigger the prepayment, the shorter the mortgage.  Be sure to check with your lender to make sure that you will not incur any kinds of pre-payment penalties.

Now, all that said, is it the best thing for you to "pre-pay" your mortgage?  Not all of the time, but that's a subject for another post.

As always, thanks for reading my rant.  Feel free to drop me a line or visit my site www.valuelist.org 

R.B. "Bob" Mitchell

ValueList Real Estate Services, Inc.