What if there were a way that you could earn a 600% or better return on your investment with zero risk? Too good to be true you say? The fact is, it’s a strategy you already know and that many people have already used to great personal benefit. Over the decades I have shown many people how to do this. There are, however, some requirements. First, you must have a fairly recent long term debt or mortgage that has no prepayment penalties associated with it. The loan should be similar to the one I describe below or have a higher interest rate than described.
As I said, the idea is one you are already familiar with. You may not have thought of it the way I plan to present it to you. The idea is to simply make an extra principal payment on your loan. In fact, if the debtor in my example pays his home off 10 years early and invests the money he would have been spending in house payments over that 120 months for a 6% return he’ll make nearly an extra $1.3 million for himself instead of just giving his money to the banks.
Let me illustrate this excellent return with an example. Let’s assume that you have a standard $200,000 1st mortgage on your home. It’s a 30-year, fixed rate, 6% APR, mortgage with a monthly payment of approximately $1,193.00. Of that monthly payment on this newer loan approximately $193.00 goes to principal each month and the remainder goes to interest. If you were to add $193.00 to the principal payment next month you would effectively eliminate an entire payment on the back end of the loan. Therefore, a $193.00 payment eliminates a future $1,193.00 payment. $1,193.00 divided by $193.00 yields a return of 618%.
Of course, if your loan is older then more is being applied each month to the principal already and paying an extra principal payment will cost you more than the example shown above. It may still be a better investment than many that are offered by the stock market and the bond market.
The fact is, the return may even be better than what I’ve stated above. What do I mean by that? Once you make that extra principal payment you change the curve on the loan payoff and the interest charged on this loan. You will have a smaller principal balance for the remaining years on the loan and that will save you interest month after month after month for the remaining term of the loan.
Some of us see interest as a cut in pay. We would just as soon keep that money for our families. Interest saved is money we don’t have to earn to pay the lenders.
Imagine that you are able to pay 12 extra principal payments over the next year and save yourself a year of house payments on the back end. In the example discussed above that might cost you approximately $2,450 of extra principal payments to save $14,316 in house payments later on ($1,193 x 12 payments= $14,316 payments avoided on the back end)!!! Who wouldn’t spend $2,450 now to save themselves $14,316 later?
When banks are offering you a paltry 1% to 2% APR on your savings account, why would you not opt for a 600%+ return by making extra principal payments? If you don’t have something that you can invest in with no risk to give you that high return why wouldn’t you decide in favor of making extra payments against your mortgage principal?
I know what you’re thinking? I’ll lose my interest write off. So what? If you’re in a marginal tax bracket of 35% you’re only saving $.35 in taxes on every interest dollar you spend. Who wouldn’t rather save a dollar instead of $.35?
Did you know that making extra principal payments can also improve your credit score?
Can you imagine how quickly you would reduce the term on your mortgage if over the next sixty months you made a full extra principal payment each month? I’m not talking about an extra house payment, just an extra principal payment.
You can Google mortgage calculators on-line and play with the numbers. It’s easy to graph on a spreadsheet as well. A little extra money applied to a young mortgage now will save you tons of interest in the long run.
The 30-year mortgage I described above will cost you about the same in interest as the house cost if you pay the entire 360 payments the bank wants you to pay. You will actually pay for the house twice; once for the house and again for the interest.
Of course the banks want you to refinance as often as possible. That way they can restart the clock on your loan and reset the payoff period to 30 years. They know that most of the interest is collected in the first seven years of the loan. Save yourself the refinance charges (unless there is a significant difference in interest rates) and simply put the money you would have spent in refinance charges against the principal.
If you do examine your mortgage and realize that you can drop your annual percentage rate from let’s say 6% to 4% and you decide to refinance, consider a 20-year, 15-year, or 10-year term instead of a 30-year term. Or, get the 30-year term, but decide to pay it off in 10, 15, or 20 years instead. You’ll thank yourself when that last payment is made years ahead of the original schedule.
Can you imagine yourself without a house payment. What would you do with that extra money each month? If the debtor described above paid his house off ten years early and invested that extra $1,193 per month for ten years at 6% instead of just giving it to the bank, not accounting for taxes, it would yield approximately $1,298,207.98. So, your mortgage is costing you more than just the interest you are paying. It’s also costing you the interest you might have earned with the capital you are so cavalierly surrendering as interest payments on your mortgage. I know I’m repeating myself from above, but this bears repeating to emphasize the potential value in your life. (visit here for a future value calculator and run the numbers yourself: http://www.investopedia.com/calculator/FVCal.aspx#axzz1lAzEApMX)
If you look at the opportunity cost taken together with the interest you can save the return on your investment is much greater than 600%. Can you imagine if you had invested that hypothetical $1,193 each month in precious metals over the last ten years instead of giving it to the banksters? You’d have a fortune if you’d invested in silver and a smaller fortune if you’d invested in gold.
Do yourself a favor; get out of debt. Then start investing in gold and silver. Or, start investing in gold and silver now so you can get out of debt. Have you read my article on getting out of debt by investing in gold and silver? If you haven’t, you should. Read it here: https://www.area-info.net/articles/show.php?cty=Providence&st=Utah&article_id=759 You may also enjoy reading about ending your indentured servitude here: https://www.area-info.net/articles/show.php?cty=Providence&st=Utah&article_id=934.
Investing in stocks and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. Precious metals is not for everyone. I sell precious metals as an affiliate of American Gold Reserve (see my website below). You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I might make that you will realize any return. Beware, all commodity markets and other markets carry risk of loss.