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Thursday, March 14, 2013

The More You Own & The More You Owe, The More You Are Owned

Today, we want to continue our theme of the last week or so which is about the importance of savings over spending, and how utterly exploited and used you are by this System when you are dependent upon  credit or loans to acquire goods & services.

We're going to try to not saturate the reader with a myriad of statistics and to keep things simple and concise.  But some get confused by lots of numbers or 'math'... so.. just read slowly and get the gist

We were playing around with our mortgage calculators and the amounts spent and saved is truly striking depending on how little or much one puts down on a home...
So that will be our premise...  Here's the scenario:

On Witch Hazel Rd, three homes were sold, all of them at the asking price of $300,000.  The buyers were all approved for mortgages and able to secure the exact same repayment rates: a fixed 30 year mortgage at 5%

What is different is what amount each new buyer put down...

~ The Adams' family were only able to put a down payment of $35k and would be financing the remaining $265k..

~ The Baers were able to make a down payment of $60k which is $25k more than the Adams'..  the remaining $240k to be financed...

~ The Carlton family, being extreme-savers was able to make a down payment of $120k which is almost 4x what the Adams' family could and twice the amount of the Baers.   The remaining $180 to be financed.

OK.. with us so far?
Using a mortgage calculator, how much will each family's monthly payments be and more importantly, how much will they have spent in total to fully possess their home with title?

Adams:    $300k home...  $35k down pymt...    $265k borrowed

              Monthly Payment:  $1,735.08

              Total of 360 payments:  $624,627.83

   ** We add the $35k down pymt and the last mortgage payment in February 2043, the Adams' family will have paid very close to $660k for a home that technically was bought for $300k

The Adams because only having a little under 10% as down payment will have ended up paying more than Double the list price of the home...

In this scenario, unless the Adams' make good money in jobs guaranteed not to be terminated, it is more than likely this family will default on the mortgage and ultimately lose the home with possessions placed literally on the curb.
Baers:    $300k home...  $60k down pymt...    $240k borrowed

              Monthly Payment:  $1,600.87

              Total of 360 payments:  $576,313.88

   ** We add the initial $60k to that last figure and the Baers will have paid a little over $636k for that $300k home...

 It is still more than Double the original home cost, but the Baers over the life of the mortgage, will have saved an additional $24k vs the Adams family.  Chances are, this family will be defaulting too..
Carltons:    $300k home...  $120k down pymt...    $180k borrowed

              Monthly Payment:  $1,278.78

              Total of 360 payments:  $460,360.41

   ** We add the initial $120k to that last figure and the Baers will have paid a little over $580k for that $300k home...

So what can we observe from this?

Even when you put down 40% down payment as the Carltons did, you're still going to end up paying drastically more for your home by the end of your mortgage payments..   Its why it is so vital a family choose a home within their budgetary means and put down at least 50% minimum.
Quickie Example-- Instead of the home the $300k home they purchase, the Carltons' buy a $240k home-- 30yr mtg at 5% interest; $120k is down pymt and the other $120k financed.... How much did they save by choosing a less expensive home?

              Monthly Payment:  $894.19

              Total of $360 payments:  $321,906.94

   **  Monthly payments were reduced by about $400/mo and the total the Carltons will have spent in 30 years including the original $120k is just under $442k.  

That means by choosing a home that cost $60k less, making the same amount as a down payment and thus requiring less to borrow, the Carltons saved over $140k by choosing a $240k home vs a $300k one!!
We understand this example may not apply to everyone... many are living paycheck to paycheck due to specific conditions and situations going on in people's lives...

But this... THIS is how the system gets you!

It starts when you're 18 years old and wanting a future and being forced to go to college i.e. rack up tens of thousands of dollars of debt before graduation (even more if attending out of state)

And if you're lucky enough to have a decent job in your field of study and the means to pay back your student loans over time, well.. you need a car right?  Maybe some nice clothes?  Furnishings for the apartment?   Cha-ching... goes on the credit card...

Then you meet 'The One' and the two of you want to marry or permanently live together, well.. Buy that first home... take on that mortgage... buy new furnishings...
And if a baby is on the way?  More expenses... maybe a bigger home?  A larger car?  All the expenses that go along with raising a toddler...

And on and on and on...

And if you're Lucky... truly Lucky... you will finally be debt free by your late 60s or early 70s-- that's 40-50years of being a debt slave and working for others to pay creditors.

Its all set up this way... its no accident.

The entirety of the US and really the global economy.. its survival is entirely predicated upon its citizenry following this life course and compiling massive amounts of debt at every step of the process.
Its why no respect or value is given to one who self-educates from home...Why an adult who lives at home is socially mocked by peers or labeled negatively..  Why there's a form of social ostracizing out there if you're not part of a couple or worse, are in a relationship but don't seek or want kids...

Life is short.. One can't live their life based on other's bad choices and need for social validation

The more you own & the more you owe, the more you are owned