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  • Fletch November 10, 2008, 9:33 pm

    Joe,

    One quick point for all to understand… technically, interest is NOT “cancelled” in any of these pre-payment examples. Cancelling implies interest was owed (acrued) and later forgiven, e.g that the debt was reduced by the lender… this is NOT the case.

    Interest accrues on a daily basis (for virtually all mortgages), calculated based on the rate and outstanding balance. If the total debt is less today, then the total interest owed is less. This is the first, and most simple but critical point consumers should understand about debt. If you pay it back sooner than required, if you make more than the minimum payment, if you owe less… then you are charged less and pay less interest!

    Part of the misunderstanding (Lies) perpetuated by Ufirst / mma/ and their ilk is that their schemes somehow “saves” the consumer money… when in fact it does not.

    As you show in your examples, “savings” result ENTIRELY from pre-payment of debt, with cash that is earned! Taking a shorter term loan with a lower interest rate saves even more money because both the rate and time are less.

    Why pay 6% over 10.5 years when you can pay 5.5% over 10 years?

  • JOE November 10, 2008, 9:49 pm

    Fletch – you are correct. I suppose I allow them some poetic license to use the word “canceled” with regard to interest no longer due as a result of prepaying principal. And of course you are right in that a shorter term mortgage will have a lower rate, saving a bit more. My series still has a few weeks to run. Visit again.
    Joe

  • Fletch November 13, 2008, 2:11 pm

    kudos! … keep up the good work!

  • Melissa December 16, 2008, 8:34 pm

    Would you please send me the mortgage calculator spreadsheet?

    Thanks for all of your information.

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