Stop Making Traditional Mortgage Payments

The financial planning industry services market was valued at $79.4 billion in 2020 and is projected to continue growing at close to 6% until 2030. That is a tremendous amount of investment dollars under financial management. Financial advisors do not guarantee results or returns on your investments. In fact, it is just as possible to lose your investment as it is to see incredible gains. There is no guarantee when investing in stocks, bonds, and mutual funds. However, there is a guaranteed return when you pay the principal balance of your mortgage off and reduce the total interest paid on your mortgage!

Your traditional 30-year fixed rate mortgage secures a monthly principal and interest payment. There are three interest rates that are disclosed to the borrower. The first is the advertised interest rate, this is the rate that most people shop for when looking for a new loan. Today’s rates are in the 5% range at the time of this article for a 30-year fixed rate mortgage. The second rate is the APR. This is a rate used by the government to help consumers determine the overall cost of the loan. The APR includes points and fees charged by a lender in the rate calculation. The APR is typically close to the advertised rate, higher to account for points and fees, but typically close to the advertised rate. The third rate that is disclosed to borrowers is found on page 5 of 5 on the borrowers closing disclosure. It may be the most important rate; however, it is hidden and often not mentioned to borrowers. This is the TIP or the Total Interest Percentage. The TIP is calculated by adding up all the scheduled interest payments, then dividing the total by the loan amount to obtain the percentage. For this 5.25% advertised rate, the TIP is more likely to be 99%, or even over 100%. Yes, that is correct, 99% or more. In other words, you are paying nearly double the loan amount in total interest paid in comparison to the amount borrowed. Here’s the example:

  • 30-year fixed rate $744,000 loan
  • 5.25% (advertised rate)
  • 5.308% APR
  • 100% TIP (Total Interest Paid) $744,000
  • Total Paid at the end of 30 years $1,488,000

Let this sink in. You are paying as much, most likely more, in interest than you are borrowing. Instead of saving $744,000 over 30 years, you are giving this away to the bank in interest. The most important number in this calculation is the TIP, total interest percentage, not the interest rate. Lowering the amount of interest dollars paid to the bank is money in your pocket. Reducing your interest paid is a guaranteed return.

Mortgage interest is amortized, and the interest front loaded. What that means is that in the first 13 years of the loan, a borrower pays substantially more in interest than principal. In the first year of a mortgage, approximately 3% of your mortgage payment is applied to your principal balance. Therefore, 97% of your mortgage payment is interest. Going back to our example for year one:

  • Monthly Principal and Interest Payment $4100
  • First Year’s Principal Reduction $10,500
  • The total Amount Paid to the Bank in Interest is $38,700

CMG offers a unique mortgage program that focuses on reducing the more important consideration, total interest paid. CMG Home Loan’s All In One Loan pays principle down first and facilitates the quick payoff of mortgage debt. The All in One offers the following benefits:

  • Reduces the Amount of Mortgage Interest Paid
  • Speeds up the Mortgage Payoff
  • Does not Change Household Budget
  • Provides Access to Property Equity 24/7
  • Permits Interest-Only Payments if Necessary

This program breaks the interest first financing cycle and can truly lend to the borrower’s wealth building and debt reduction strategies. Let’s set up a time to chat about the ways this can work for your financial plan!

Carolyn Capalbo | Real Estate Loan Officer

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