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Ninety percent (90%) of all the people in the world today are in need of loan planning. They pay too much to banks, credit card, finance, and mortgage companies in interest, points and other payments.
The way out of debt is to control these loans with a combination of strategies which include tactics for lowering interest rates, payments, points and principle of the loans.
The first step is to understand the system: Loans are composed of several factors.
Generally, you want to pay the least amount of costs including interest, which can be evaluated by looking at interest rates.
How companies cheat you.
Mortgage companies and others in the loan business, who sell cars and furniture try to confuse consumers with the amount of the payment, and not the length of the loan, the interest, or even the principal. The wise loan shopper must consider all the aspects of the loan.
We have seen people refinance a 10% fixed interest mortgage loan which had only about 10 years left to pay on it to a 16% fixed interest loan and pay 10 points to the mortgage company to reduce their payments. This represents an interest rate of 26% (16% interest and 10 points). The mortgage company reduced the payment by streatching out the payments to 30 years, and they pocketed a check at settlement for 10% of the principle value of the loan. The refinanced $50,000 on their house, plus $5,000 for the prepaid points and $3000 for settlement costs and ended up paying 16% on $58,000 dollars over the next 30 years. The real tragedy was that the going rate for loans at that time was 6 to 10% and a 15 year loan through a bank would have lowered their interest by at least 2 points (2%) and the payment would have been less than the mortgage company loan.
Points are prepaid interest and although they do not seem like a lot of money, remember the "time value of money" principle. If the consumer pays 5 points today that is the same as adding 5% to the loan and paying it over time, because the mortgage company often adds the prepaid interest to the principle of the loan. The consumer ends up paying interest on the interest. We had another client come to us after seeing a mortgage company, who refinanced his 10% mortgage to 13% with 5 points while extending the payment period to 30 years to reduce the payment. The consumer looses and the mortgage company pocketed $5000 in commission on a $100,000 loan at the loan refinance settlement.
Credit card annual "membership" fees are also like paying interest. Many credit card companies charge annual fees. Whenever you pay fees to borrow money you are paying interest. Depending upon your credit balance the interest changes. If are paying a $60 annual fee this is equivalent to 12% annual interest added onto your regular credit card interest with a balance of $500. If your credit card interest is 9.9% your effective rate is almost 22% with a $500 balance. Be smart don't pay annual fees on your credit cards.
How do you get started?