Real Estate Brokerage & Property Management Blog

Here you will find the latest real estate endeavor stuff I engage in on a daily basis.

Wednesday, September 2, 2009

My Amortization- Technique 1

Hi Prospects & Friends,
I wanted to quickly share one of my amortization techniques I use on some of my properties. As many of you know everyone at times faces hardship whether it's a job loss, medical crisis, loved one ill or etc these situations can sometimes cause us to be set back with in our own personal/business financial decisions if it happens sudden or unexpected. I always plan for any hardship and allow the planning in advance to assist me with bettering my decisions later down the road. One thing to address in your life is when you purchase a home if you want to pay it off sooner don't try and get a loan term that is shorter than a loan term that will benefit you better future wise, just because you feel you want to eliminate the monthly interest present wise. I say this because once you get a loan whatever term you choose you are stuck with it and will have to refinance it to get out. So to bypass all that I suggest consider choosing a term that best fits you future wise than present wise, then apply the shorter term payment to the longer term loan as please. I like to first do the amort tables for a 15yr, 20yr, and a 30yr on the choice of property I'm financing and compare the monthly payments. Next I will make sure their is no prepayment penalty on the loan I want and begin to do my technique. I create the amort tables for the 15yr, 20yr, and the 30yr, then I request the loan term that will benefit me greatly future wise, not present wise. Once I've chosen the loan term then I apply the shorter loan term to the longer loan term to cut interest for the first 2 years when I make my monthly mortgage payments. Since I have the amort tables already printed futuristically in front of me I can see many years in advance what the loan amount actually looks like. So then I apply my every 5 year rule "Technique 2" which will be eventually addressed in another blog post. See my example below of Technique 1:

I purchase a home for $215,000 and put down 20%. Loan amount will be $172,000 @ 5.5% interest. I then apply the next step to analyze the term payments. (Payments are not PITI they are only PI since I based it on 20%, if you have a PITI then just deduct everything except your PI and you can proceed) On a:

15yr payment is $1,405.38
20yr payment is $1,183.17
30yr payment is $976.60

I analyze the term payments and because the $976.60 appeals to me and I'm thinking futuristically if something happens I don't want to have to deal with being stuck with the $1,405.38 for 15 straight years and the only way to get out of the 15yr term is to refinance which is goal to avoid from beginning. So I accept the 30yr term and make sure there is no prepayment penalty and when the loan payments start coming I apply the 15yr term payment for the first 2yrs of the 30yr term. So for the first 2yrs of the new loan I apply the $1,405.38 to the 30yr term instead of paying the $976.60. Since I created the amort tables in advance for myself when the 24th month reaches I glance at the balances. I'm basing my example as if I closed in September 2009, so looking at the amort tables for September 2011 the loan amount for a 15yr will be payed down to $155,694.81, and the payed down amount for the 30yr will be $167,025.14. Remember the original loan was for a 30yr with a payment of $976.60 but I applied the $1,405.38 for the first 2yrs of the loan. Next thing I want to see is what is the price/sq.ft going for in my subdivision once I've reached the 24th month to see how much possible equity I've gained besides paying the extra payments I've already payed. If no hardship has occurred during the 24th month period paying the $1,405.38 then I glance at the amort tables for the loan amounts for the next 3yrs. So in September 2014 the loan amount will be payed down to $128,685.47 for the 15yr term and for the 30yr term for September 2014 the amount will be payed down to $158,784.33. So I go another 3 yrs paying the $1,405.38 and when September 2014 reaches my 30yr term will really be payed down to $128,685.47 since I applied the 15yr payment in advance. When September 2014 reaches I glance to see what is the price/sq.ft for my subdivision, then I proceed with technique 2 which will be discussed later. If you apply this technique 1 with the "Jewel Foreclosure", "Investment Analysis" or "Get Rich Quick 2" articles in this blog you can really advance yourself with wealth/money/assets.

PS- I opened another branch of my online store called the z store. You can view in the panel box or click on right side of my blog and grab something today!

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