The Most Overlooked, But Accurate Depiction of Mortgage Interest Paid
Total Interest Percentage (TIP) is the most overlooked yet accurate depiction of the mortgage interest paid over the life of a mortgage. This is the number that is buried on page 5 of the closing disclosure! Traditional mortgages have a high TIP because the interest is amortized and heavily weighted in the early years of the mortgage.
Here’s the scenario that I am running through this tutorial on the All ln One and how it relates to the TIP.
- Purchase Price $500,000
- Loan Amount $400,000
- Take Home Income $10,000 Monthly
- 20% Discretionary or Remaining after all Bills are paid, $2000 Monthly
Please note that I will be highlighting the absolute worst-case interest rate scenario to show how powerful the All In One is in terms of reducing overall interest paid. Remember, the lower interest rate does not necessarily equate to the lowest amount of interest dollars paid. Here’s a new purchase illustration comparing the All In One Loan adjusting monthly, a 2.5% margin, and an average interest rate of 6.480% staying constant to a 30-year fixed rate loan at 7%:
Notice that the All In One loan saves $416,826 in interest paid versus the 30-year fixed option and takes 20 years off the mortgage. Below, the TIP for the All In One loan is 35.4% versus 139.5% on the 30-year fixed-rate mortgage. There is no need to refinance the All In One loan unless you wish to expand the credit limit in the future as property equity increases!
If your beliefs are that the interest rates will go back to 18%, let’s take a look at a worst-case scenario. Recommending a 5-year initial lock on the rate, with a 3% margin, compared to a 30-year fixed rate 7% conventional mortgage:
Notice the All In One loan saves $335,645 in total interest paid and still takes nearly 20 years off the life of the loan. See below the total interest paid and TIP, 55.6% for the All in One versus 139.5% for the 20-year fixed rate 7% mortgage.
Most purchasers stay in their homes for 7 years, I wanted to highlight the power of equity with the following diagram comparing the Worst-Case scenario Principal Balances paid versus the All In One loan and the traditional mortgage. In this scenario, the principal paid on the All In One at month 84 is $215,498. The principal balance paid on the 30-year fixed-rate mortgage is only $35,410. This puts the purchaser in a much better position to sell if desired, as they have significant equity available to complete a transaction.
I love this program! I think for the right purchaser, it is a total game changer! Let’s have a conversation to see if this program can save you thousands of dollars on interest, irrespective of the interest rate! In summary, it is not about the Rate of interest paid but the amount of interest paid! Interest rate is a metric used throughout the industry and should be evaluated in several ways! Don’t forget to look at the TIP, total interest percentage!!
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