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What if no one can afford to live there?

Date: December 13th, 2007, Filed under Mortgages

Zion, IL
By A.B. Dada
—

A reader, Jen, posted a comment on a previous posted titled Housing Prices always go up — not really. Her insightful comment was as follows:

Very sound advice, but according to your rules, only about two percent of the country can afford to live in Southern California. In Sherman Oaks, where I live, the average income is about $62,000; the average price of a home is over $500,000. Since apartments in the area rent for about $2,500 a month for a 1100sqft 2-bedroom, it’s hard not to see the appeal of paying about $3,500 in a mortgage for a home the same size. Of course, that mortgage is about 75-85 percent of a family’s income. In order to “afford” even a tiny house or studio apartment in most SoCal neighborhoods, one would have to be bringing home about $200,000 per year.

Jen closes with the following question:

Are the rules any different for those of us living in areas where homes are often double or triple the national average? (Aside from “move somewhere else until you make your millions,” of course!)

In my opinion, California is a tragedy, specifically due to the inaffordability of housing. Yet this has not always been the case. For many decades, California was expensive, but not 9-10X income expensive. Wages did hold up to inflationary pressures that caused housing prices to rise. What really broke the dam and flooded the housing market with higher prices but yet kept wages stagnant was Alan Greenspan’s use of the Federal Reserve’s low forced rates and high level in the creation of credit. In the beginning, that easy credit was used early on by those who saw California’s housing prices creeping up, so they bought in with new money early. That new money, as it continued to be added to the California market, caused more people to malinvest into housing, which caused the prices to go up even more. This continued for almost 2 decades, as new people saw the prices rise (due completely to the Federal Reserve’s immoral policy of creating money non-stop during Greenspan’s leadership), those new people were fearful of being priced out of the market forever (a common line by real estate agents). More people bought, even if it was beyond their level of affordability.

Now we have California as it is today — houses 8X income or higher. It is tragic.

Going back to Jen’s question: what is the best thing a person can do if houses are not affordable?

First, before you pick a place to live, you must compare your income level, your stability of income for the future, and the price of where you want to live. Add in the cost of fuel and the time spent commuting, and you can get a better picture of what you need to do to find where to live.

From my experience in California, having quite a few friends move to LA or San Diego, I’ve said for the past 7 years that renting was far more reasonable than buying on debt. Bubbles are easy to spot: when a market of used products goes up faster than the average wage is, there is likely a bubble forming. This is true in the stock market, where the only new stock one can purchase is at IPO. All other stocks are used, and if the companies aren’t showing a profit margin rising as fast as the stock, I’d be weary of buying. This is true of used cars, used homes, or anything that is easily created and IS created quickly. There is no such thing as “They’re not building any more land.” Even in Japan, housing and commercial real estate goes up fast, even if there is almost no land left to build on. They build up. They downside square footage. New condos and apartments are constantly added.

Once you do calculate your net income, and realistic non-housing expenditures, only then can you look to see what you can truly afford. In some markets, such as coastal California, it becomes obvious that what you can afford may not be what others believe they can afford. This is where an intelligent and research-driven individual can maximize their financial stability by minimizing what they live in versus everyone else. If I’ve learned anything in life, I’ve learned that individuals don’t tell the truth about financial troubles. Whether it’s gambling losses or debt burdens, people are very good about hiding their deficiencies. I don’t trust anyone in regards to their financial capabilities unless they have paid-off titles to show for all the assets they own. No one in my mind owns a home until it is paid off. No one owns a car if it is leased. I’m vocal about it when people tell me about the car or house or boat they bought: I’ll ask “Did you buy it, or is the bank lending it to you?” That’ll usually get the truth out.

Of the 10 or so friends of mine who have moved to California in the past 7 years, I’ve made the exact same recommendation: don’t buy. Don’t live alone. Of those 10 friends, more than half have made the error of buying, and are paying severe consequences. It’s quite sad. 3 of them, though, made wise decisions. They saw that rent was outrageous, but once you included the mortgage payment, insurance, taxes and maintenance on a home, renting was far cheaper than buying, even if you were possibly building a little equity. But renting isn’t enough, not even for families. In California, having a roommate makes much more sense than trying to rent alone. If you are single, having a 2 bedroom, 2 bath rental condo makes little sense, strictly due to the overheating property bubble that has existed for over a decade. If you’re a family, taking in a boarder or subtenant still makes sense, just from a financial stability perspective. We have a home in Illinois, and we have a boarder who helps with the bills and basic needs around the house. It’s win-win for both of us: he pays far less in rent than he would alone, and we get a little help with the property taxes. Almost all my friends laugh about the thought that we would “need” a subtenant, but why wouldn’t we take advantage of a mutually agreeable decision?

Jen’s comical answer at the end (just move away) is my absolute best answer, but one that almost no one would heed or accept. I personally would not live in a bubble prone area. Where we bought in Zion, Illinois is a very poor neighborhood. Our home is around 1X our annual income. We do feel safe, love the families around us, and have maybe a 10 minute longer commute than our friends who own homes 4-6X their income, which are not as nice as our home. Comfort and financial stability is key!

Yet the threat of moving is the best motivator to fix the housing market in California. First of all, the key to affordability is the income to price ratio. If the ratio exceeds 3X (3.5X maximum), it is unaffordable. That’s just the truth, even if you think you may make more money in the future. That’s a big risk, and I call it a gamble. I’ve heard that California’s affordability index is around 16, meaning that 16% of people living in California can truly afford to own a home or condo there. This means that either housing prices are too high, or wages are too low. Pressures on both would deal with the problem very quickly (and may likely happen in the next few years).

Let’s make the assumption that people who are intelligent and research-driven realize that they can not afford to live in parts of California. The incomes are too low, and housing is too high. Let’s assume that they decide to move to a region where income is lower, but housing is much lower. This has an instant market pressure: the supply of labor drops, and the demand for housing drops. In a free market, the supply of labor falling has a pressure on employer who need good labor: they raise their wages to try to attract more people to their business. In a free market, the demand for housing falling has a pressure on the sellers who need a buyer: they lower the price of homes to attract more people to buy.

A decline in intelligent and good workers in California would create a big change in the affordability index. This is true even of the poor, who I hear complain quite often in my town. If a poor person cannot afford to live near where they work, the best thing they can do to correct that is to move and work in an area where you can afford to live. Your previous area would lose your (meagerly-paid) labor, which would put an upward pressure on employers to pay future workers more. Rentals would fall in price, again just by you and others like you moving away. The free market is powerful for the poor, and the middle class, if they would stick to financial truths rather than to what banks and politicians tell them they deserve. The most powerful weapon a person has is their ability to move, even if most people are fearful of the proposition.

So those would be my two answers:

(1) Move, even if it is painful. Even if you have to leave family and friends behind for a few years. Move to an area where you an actually SAVE money, money that you can use when the housing market declines (and it tends to decline on a 17-year cycle), so you can move back with a big down payment, and buy at the low end of the housing price cycle. What have you done for the past 5 years? Suffer financially? In those 5 years, living elsewhere would have put significant money in your pocket if your goal was to love in a nice Californian neighborhood.

(2) Rent, but rent a small place and find someone to share the financial burden. This is difficult for families, but it is easy for individuals. I have little sympathy for families that tell me that the thought of renting, or sharing a rental, is no feasible. Many of those families were just single individuals before their move to marry and have children, and it is when you are a single individual that your goal should be to save money to some day buy, or at least have a big nest egg to secure future rental payments. If a single person lived life frivolously, paycheck-to-paycheck, spending all their income on useless toys and trips, then their future will be horrible. That’s their own responsibility, and it’s one that have to learn from and pass on to the next generation. If you go from middle class to poor because of your inability to save and life live more simple, you have a powerful teaching tool for your children: don’t do what I did.

I’ve personally wasted over $500,000 since I started earning money (around 13 years old). Had I not wasted that, I wonder how different my life would be. My parents never taught me how to save and life thrifty, but its not their fault. Every time I had big financial troubles, I never learned quickly why that was the case. I never thought about what having a year’s worth of income in the bank would mean. Yet it’s a fact I will teach my children — moreso than drugs, premarital sex, or other things that can be beyond a parent’s control. Living life at a level lower than your peers and neighbors is the fastest way to being the most stable person, and family, in your life.

It’s not too late, either.

Comments: none

The Crash of the Banking Cartel

Date: December 9th, 2007, Filed under Bank bankruptcy, Foreclosure, Mortgages, bailout

Zion, IL
By A.B. Dada
—
I can’t seem to wrap my head around any possible situation that can save many of the top tier banks in the U.S. and the rest of the world. There’s a problem that the Old Media is still ignoring, a problem that has the possibility to effect cash flow and the middle class more than the so-called “credit crunch” that we’re facing today. This problem is the absolute illiquidity of the big banks due to the pending litigation and fallout from the mortgage frying pan many have played with over the past few years.

As some of the regular readers know, the mortgage industry was a big game with big profits. The banks would happily loan money to people who had no credibility in their ability to pay that loan back. Because the banks thought that “housing prices always go up,” they felt they could loan money out to anyone, even the credit score poor, and if they had to foreclose, they’d make money on the foreclosure since “property values always go up.”

The banks didn’t have the money to make all these loans, which may number in the tens of millions of individual loans. Because this idea that property values always go up was so rampant for the past 3-4 years, banks took their loans, packaged them together, and sold them to a hungry bond market in the form of CDOs and MBSes. Basically, a bank could take 10 or 100 mortgages, and sell them for a nice commission to investors who also thought their money was safe. Many of these CDOs have fallen in value, some as much as 90-100% (meaning they’re worthless or near that). The investors will lose all or most of their money, is the thought. The banks profited by taking a nice chunk of a commission for producing the mortgage before it was sold off.

Here’s the catch, though, the saving grace for the CDO or MBS buyer-investor: many of these bond issues have contractual wording that protects the investor if the loan origination had any fraudulent activity. If the bank loaned money for a mortgage and the investor can find any fraud within that origination, their purchase is contractually invalid. If that situation comes true, and it seems it may in some cases, the bank would have to refund the investor 100% of their original investment, basically buying back the mortgage onto their own books.

Many loans are coming out as fraudulent. Mortgage brokers and agents accepted “stated-income” statements from borrowers, who inflated their incomes double or triple in value from reality. Some brokers and agents even inflated the borrowers’ incomes without the borrower knowing. Appraisals may also have been fraudulent as some mortgage brokers/agents shopped for appraisers who would give the mortgage lender a number that would maximize their profit. Many in the industry thought the fraud would be overlooked as the housing prices escalated. With the recent downturn in housing expected to continue (severely, still), those frauds are becoming evident.

If a bank has to buy back their loans, they will need cash (liquidity) to reimburse the investor who was defrauded. Many of these investors are fearful of redepositing these refunds back into banks (fearful that the money will be used to bail out other defrauded investors), so the banks can’t rely on their refunds coming back as deposits, to be refunded again. The banks up to now have been able to use some of their mortgages as collateral to borrow short term from the Federal Reserve, but the collateral is declining in value, so their ability to generate new liquidity from the Federal Reserve is becoming more difficult.

As the fraud involved in some (or many?) mortgages comes to light, more and more CDOs will be returned. Banks will be desperate for money, pushing interest rates on CDs and savings accounts up as they need to borrow from millions of small savers versus borrowing from the Federal Reserve. Higher rates on deposit accounts means higher interest rates on loans and credit, which will increase the cycle of foreclosures and home owners feeling the pain: as loan interest rates go up, housing prices tend to fall.

The banking cartel, centered around the fractional-reserve banking system, is in trouble. The money that was created by the Federal Reserve for the past decade is not being redeposited in the banks, so their cash capital is declining. As more people find themselves upside down on their mortgages, more will face foreclosure. As the foreclosures increase, the fraud on the books will come to light, forcing the banks to buy back more mortgages.

No Federal bailout can save the banks without utterly destroying the U.S. dollar. No investor will risk putting their money into banks if the banks may go bankrupt. The FDIC only insures the first $100,000 of a deposit, so those will millions of dollars to save or invest will stay away from the deposit accounts.

I have no idea what to recommend for those without millions. I believe that gold and silver is still the safest form of savings, but in a deflationary economy, which we may experience, the gold-dollar ratio and silver-dollar ratio will fall (although I believe the buying power of gold and silver will rise).

Markets will crash. Banks will shut down. Millions will be hurt financially. The question is: what will the powers that be, the powers that created this problem, do to try to save the system that is built on fraud and monetary value destruction?

Comments: none

Mortgage Short Sale: Forgiveness of Debt and the 1099

Date: December 7th, 2007, Filed under Foreclosure, Mortgages, bailout, short sales

Zion, IL
By A.B. Dada
—

There’s talk of the Federal Congress working for a law that would remove the tax burden from the short sale of a home when the owner can’t make the mortgage, and can’t sell it for the remainder of the mortgage. What is happening now is the option of the mortgage lender to “gift” the difference between the mortgage value and the sale price of the home, with the lender optionally giving the borrower a 1099 for that price difference. If you have US$200,000 remaining on a loan, and the home short sells for US$150,000, the lender is gifting you US$50,000, and issuing you a 1099 since the gift is considered income.

If the bill passes, the lender will be unable to give you that 1099, which would supposedly “help” the short seller by not having the tax burden from such a big gift. While I am vehemently against the IRS and the Federal Income Tax at every level, this new proposal creates a loophole that I believe many wealthy people will use.

Picture this: You’re offered a new job earning US$100,000 per year. The employer is also offering you a US$50,000 bonus to sign on and leave your old job. A move of some sort may be required (not not necessarily). You’d be liable for US$150,000 in income towards your Federal income tax return for that year. If the tax-free short-sale gift proposal passes into law, this picture changes significantly for the intelligent.

Instead of taking the US$50,000 bonus and the US$100,000 income for the year, you could instead take a US$20,000 salary for one year (with a contractually guaranteed raise in year two to US$100,000), and have your boss loan you US$130,000 as a mortgage. Since your income that year is only US$20,000, there is no way for you to pay that mortgage back, so you could ask for forgiveness in the loan. Your employer would forgive the loan, which did put US$130,000 in your pocket, and you’d be tax free on the forgiven loan.

While I do feel the whole idea of being taxed on gifts is ridiculous (it’s not income, it’s a gift, generally paid for out of someone else’s after-tax income), this proposal will create this loophole, and possibly many others like it.

Instead of looking to help homeowners going through hard times with various government proposals, bailouts, and grants, how about ending the Federal income tax, reducing Federal government spending by an equal amount, and letting homeowners keep what they’re normally paying (sometimes as much as 20% of their gross income)? A 20% raise would quickly solve many homeowner mortgage dilemmas, possibly allowing some to pay down their mortgage to the point that they have equity in their home, at least enough to refinance into a fixed rate mortgage.

Nothing will help people who bought homes that their income can’t afford. Freezing rates will only push the problem off for a few years, but not lower prices to be affordable by others. We need a clean-sweep of the homeownership numbers, bringing home prices back down to 3-4X annual income. As is typical of all market bubbles, they’re created by government, and then they’re made worse when government tries to save people from bad investment and purchasing decisions. Also remember that many home loans today were financed by pension funds that invested in the mortgage market. By freezing rates, those pension funds could go from being worth little to being worthless. Who is going to bail those people out?

Comments: none

Splat: another bank goes bankrupt

Date: October 5th, 2007, Filed under Bank bankruptcy, Foreclosure

Zion, IL
By A.B. Dada
—
Fresh news this morning as the FDIC reports on another bank, the third one in this credit bubble crash, going under. Miami Valley Bank, in Ohio, is now in receivership with close to US$90 million in deposits. According to the Reuters report, the bank has deposits totaling over US$14 million that don’t qualify for FDIC insurance due to being over the US$100,000 cap on deposit insurance per depositor. This is a lot of money for people left holding the bag, who become “creditors” instead of depositors. If you’ve ever had a borrower declare bankruptcy on a loan you’re holding, you know how much you usually end up with: zero.

For the average depositor, this means as much as 19% of their deposit value wiped out. For the rest of us, it could mean a hit in our own deposits if the Fed needs to print away to cover the losses. Usually, when the FDIC declares a bank insolvent, other member banks pick up the loss and cover it themselves. If we continue to see banks go under, we might see member banks unwilling or unable to pick up the hundreds of millions, or even billions, in losses that could flow out of the insolvency.

I’m not a fan of FDIC insurance. It creates an undue burden on well-run banks to pick up the trash of the badly-run banks. This means that investors in a well-run bank have their return decreased from the premium of the bank having to worry about being forced to be the first step insurer to other banks who go belly up.

When you put money in the bank, rarely are you a depositor. A depositor puts money into an account to secure it: in a full reserve banking system, this means that you specifically tell the bank to protect your money, not to loan it out. Today, even your checking accounts and small saving accounts are not deposits, but investments. The bank quickly finds a short term to medium term loan product for you so that they can make money, and giving you a piddly 1-1.5% return for your risk. Most “depositors” are unaware that fractional reserve banking defrauds them of their security in a deposit, with the bank making the profit and the depositors having to spend countless hours worrying about how much of their deposit is insured, and how much that insurance is actually costing them.

We don’t have any full reserve banks in the world today, because they are uncompetitive. If a bank told you they’d charge you 1% a year to secure your deposit, you likely wouldn’t go near them, even if they’re really just putting your cash in a vault. You’d rather deal with a 0.5% return than pay someone to watch your money. Most of us would feel wiser with the cash under our mattress than lose 1% plus whatever loss inflation puts on the value of our money.

In a full reserve bank, banks would give you two choices: pay them to secure your savings (they wouldn’t re-invest them), or accept some risk and let the bank invest your money in a variety of loan or credit products. I believe a full reserve bank makes the best sense for a free and truthful society, because the owner of the money has full control over how that money is used. You may be willing to give up 1 year of access to your money so the bank can make a 1 year loan to a business or homeowner — this would give you a nice return if the bank was charging 8% for that loan, with competitive forces giving the investor 5-6% of that profit back. Many banks could exist just fine on a 1-2% profit, considering the billions that would accrue that small percentage.

The Reuters report is just a drop in the well, with a future fear of torrents of banks going insolvent due to bad loans and risking too much for too little. When you include the derivatives market, there is an even bigger fear of massive loss.

Here’s a question, though: when a bank goes insolvent, it goes under because borrowers can’t pay them back for money they borrowed. The money they borrowed was spent, so it exists, somewhere. When billions of dollars worth of value get wiped out, we still have to understand that the money exists SOMEWHERE: maybe a home developer, maybe a kitchen rehabber, maybe a car manufacturer, or a furniture retailer. The money is there, it isn’t destroyed and it surely isn’t lost forever, never to be seen again. This means that another bubble, somewhere, is waiting to rear its ugly head.

Comments: none

Does 28% gross income for a mortgage include property taxes and insurance?

Date: October 1st, 2007, Filed under Mortgages

Ft. Atkinson, IL
By A.B. Dada
—

A regular reader of this site asks an important question:

When you say a mortgage payment shouldn’t exceed 28% of gross salary, and when Dave Ramsey says it shouldn’t exceed 25% to 33% of net pay, do you (and he?) mean a mortgage payment of:

P & I: Principal and interest?

or:

PITI: Principal, Interest, Tax, and Insurance?

Ramsey is more correct in this case, because he’s putting the more conservative viewpoint ahead of the “maximum” viewpoint I hold. In my calculations, and from going over more than 100 friends’ and family’s finances over the past decade, the 28% gross salary is a serious cap, not a recommended number to hit. 33% of net pay for mortgage payment is FAR smarter (and 25% even moreso). If it were up to me, and the Federal Reserve wasn’t destroying affordable housing, I’d cap a monthly mortgage payment + insurance + taxes at 33% net pay. Due to the housing market always being overpriced at some level, I feel my numbers make sense from a historical perspective in the research I’ve made.

For me at the current time, I think mortgage payment should mean P&I, not necessarily including tax and insurance.

This is because I believe that many homedebtors are WAY overinsured for home, health and vehicle insurance. I consider insurance a hazard-only plan, not something that you should ever use if possible. A few weeks ago we had a toilet overflow, shorting out an entire leg of our home’s electricity and causing some minor damage. Total cost to fix was under $1000, but my father said I could (not should) file a claim. For minor damages, I consider this part of the maintenance and overhead of owning a home. Over the next few years we hope to have a deductible of at least $10,000 on our home insurance, and maybe double that. We have that same deductible for our cars and our health, because we have “savings” set-aside as a deductible payment, if needed.

If for any reason we have to use that specific savings towards a deductible, it would mean an immediate shutdown of any discretionary spending (including clothing, food beyond basic absolute needs, entertainment and travel) until we have that savings secured again. Dipping into savings to cover an emergency means all non-emergency spending can’t be performed until we’re back in the black for a future emergency.

Most people have smaller deductibles because they (a) don’t have signficant emergency savings, and (b) they file claims without thinking. Health insurance for us is for real emergencies (over $30,000 lets say). I can’t think of a single claim we filed in a decade other than when the wife had a glass explosion on a past Christmas that almost killed her. Other than that, we pay cash, ahead of service, and get a significant discount on that health service.

Because of this outlook, the insurance cost is not as high as if we had a $500 or a $1000 deductible and filed claims on every toilet explosion or minor accident.

If you’ve visited my True Mortgage Calculator site, you’ll see that the biggest impediment, in my opinions, for most homedebtors is the lack of a decent down payment. If you can afford 20%, you’re 99% ahead of the rest of the country. After that, personal debt (credit cards, auto loans, personal lines of credit) are the next reason why people overbuy. The actual mortgage payment (P&I) is insignificant in terms of the barrier to entry that personal debt and no savings produces in terms of a realistic mortgage.

That being said, you SHOULD take considerations if you live in an area with an indecent property tax bill, or one prone to flooding or other regular natural causes that would mean you can’t insure against all disasters. I always recommend looking over flood plains and river watersheds in the area to see when they last flooded or caused misery to local homeowners.

In terms of property taxes, it is also wise to do a little research into what long term debts the town you’re researching has. Many local villages with reasonable property taxes may have huge long term pension liabilities that could be paid off with property tax hikes or other unreasonable future cost adjustments.

Why don’t I include property taxes in the mortgage calculator? I might, because this is a common question, but my reason for the mortgage calculator is to look at renting versus owning, and in every case, property taxes are already factored into the rent you would likely pay, so while not a net zero sum, it is part of the cost of living anywhere that you should factor in under your “maintenance” costs of home debtorship or renting. When I help people consider rental costs in their budget, I _always_ have them look up the landlord’s property tax payment, then divide it into the total square footage of their units and multiply it by the square footage they’d use. For example, if your landlord pays $10,000 a year in taxes, and has 22,000 square feet of which you’d rent 900, your portion of taxes is $10,000 / 22,000 * 900 = $409 per year, or $34 per month. If your rent is $700 per month, I recommend putting $666 (doh) under housing cost, and $34 under maintenance-propert taxes. This allows you to do a better comparison for purchasing in the future, but is a cost you must budget for.

Remember a few points in my mortgage recommendations:

1. If you’re working to secure financing for a 30 year mortgage, don’t take a mortgage that you feel you can’t pay off in 15 years. This means run the mortgage calculators for both 30 year and 15 year loans, at the interest rate you can get. If you look at the 15 year payment and it is too much, don’t jump into the 30 year payment. When you close on a loan, either make the 15 year payment as best as you can, or at least put into savings the difference between the 30 year and 15 year payment. If you do a form of savings instead of paying it down faster, I recommend a combination of gold bullion and ladder CD purchases.

2. If you get a bonus from work, use it to pay off your mortgage faster. Don’t budget with an expectation of a future bonus. I used to recommend putting all raises towards your mortgage payment, but with rampant price increases due to money supply inflation, most wages don’t keep up with the cost of living increases each year.

3. Re-assess your insurance plan EVERY YEAR. You’d be surprised how much you can save if you switch insurers upon getting a better deal. Also, re-assess your deductible based on new emergency savings value (especially if it is in gold, or if there is a large penalty for withdrawing from a ladder CD plan). If your savings value has gone up more than 10%, you might get a decent reduction in insurance costs by increasing your deductible. If your value has fallen, you might need to adjust your deductible lower. This is one area where I do believe that having a credit card with a credit line as large as your deductible makes sense (use it monthly for vehicle gasoline purchases to keep it active, but pay it off every month). In an emergency situation, that credit line give you time to liquidate any savings to cover the deductible, and also is there if another REAL emergency pops up before you can replenish your savings during your “reduced expenditure” lifestyle after an emergency.

4. Be aware of short term maintenance needs that can keep your long term costs down. We’ve been discussing starting a “roof maintenance” group in our area, where we take 3 spring weekends a year to fix each others’ roofs together faster than any of us can do it alone. By reducing your long term maintenance costs by making inexpensive short term maintenance repairs and upkeep, you can save significant money over the long term.

Lastly, here’s my example of why long term mortgages are terrible:

$100,000 loan, 8% interest

30 years, interest paid: $164,155 (monthly payment: $734)
15 years, interest paid: $72,017 (monthly payment: $956)
10 years, interest paid: $45, 594 (monthly payment: $1213)

By paying the minimum ($734) you lose $164,155 in interest over your mortgage. Yes, making an additional $479 payment a month is painful, but you save 20 years of payments and a total of $118,561 in interest alone. You’re free in 10 years, so you’re just paying $57,480 extra in 10 years but getting rid of a total of $176,160 in payments over 20 years later in life. Of course, if we have RAMPANT hyperinflation, mortgage debt is a good thing to be sitting on since your actual payment goes down in dollar-value.

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