You are a good person and want to help out your best friend. What are you going to do next? How can you accomplish that? That is the question for this article.

This is a simple solution.

So, you give your friend $1610.46 and be done with it. He is a happy person, got out of a bad situation with the current house payment. You know you did the best you could do. Both of you are thankful and move on with your live.

Could you have done better with your money?

That is the $1610.46 question. The answer is a clearly Yes and a Yes. What we need to do is to give money in a way that the giving grows without giving more money.

Normal investment of money

Normal investment of money You like to see the investment grows over time. Invest $5,000 dollars and over time it will double. Now you got $10,000 dollars in your account. You have not added any new money to it, just waited 7-10 years and were sitting on a beach. This is what i call, “Being a smart person”.

Implementation of the new Idea

How do we translate this idea into the action for our friend. This is what we can do better than just giving money.

A simple real example of this idea.

Let us assume your friend has a to make a house payment each month.

Remember, we try to keep it as simple as possible. We work with the phrase “KISS”. It stands for ‘Keep It Simple Stupid’.

Assumptions.
Fixed Mortgage
Starting date: 01-01-2023
House Money: $300,000
Down payment: $0
Time: 30 Years
Interest rate: 5%
What is the Monthly Payment?

Action you need to do now.

Verify each step and see for yourself. Get paper and a pencil out. We are ready to move forward. Stay with me and understand the connection and how it works. It is very easy to follow if we do it one simple step at a time. Let’s get started.

First things first.

Step 1.
We need find out what his monthly payment is. For that we use the internet. For example i went to https://www.bankrate.com/loans/loan-calculator/ . You can go anywhere on the internet, as long as you get the result what we are looking for.
The monthly payment is $1610.46.
Total principal paid
$300,000
Total interest paid
$279,767.35
Now we know all payments for the next 30 years.

Did you see that? Did you notice something? The interest you paid at a 5% loan is $279,000.00 dollars. You bought two houses. So, how many houses did you buy with your current loan?

What is an Amortization schedule?

Step 2
Now it is getting interesting. What the heck is an Amortization schedule? Go down and click on the ‘Show Amortization schedule’.
Print Amortization schedule. This gives you an opportunity to write on it and follow our example closely.

What you seeing is a table that tells you about four things. They are very very important to understand and are very simple at the same time.
Fist column: Payment Date
Second column: Principal
Third column: Interest
Fourth column: Balance.

Crazy payments each month.

The monthly payments gets separated into Principal section and the Interest section. Scroll through the table and notice that the Principal portion goes up and the Interest payment goes down over time. This tells you that the most interest is payed at the beginning of the loan payments. of course the monthly payments stay the same.

Amortization schedule

Payment Principal Interest Balance
02/01/22 $360 $1,250 $299,640
03/01/22 $362 $1,249 $299,278
04/01/22 $363 $1,247 $298,914
05/01/22 $365 $1,245 $298,549
06/01/22 $367 $1,244 $298,183
07/01/22 $368 $1,242 $297,815
08/01/22 $370 $1,241 $297,445
09/01/22 $371 $1,239 $297,074
10/01/22 $373 $1,238 $296,701
11/01/22 $374 $1,236 $296,327
12/01/22 $376 $1,235 $295,951
01/01/23 $377 $1,233 $295,57

Step 3. Your friend is starting to make payments on
02-01-2022 of $1610.49
03-01-2022 of $1610.49
04-01-2022 of $1610.49

Check and see that the principle has gone down from $300,000 to $298,914. Not a lot.

Check the Interest payed in three month.
$1250.00
$1249.00
$1247.00
—————-
$3746.00 This is a lot of interest payed in three month.

Check the Principal payed in three month.
$360.00
$362.00
$363.00
—————
$1085.00 This is very little tor warts the Principal.

Warning Warning, Read it carefully, slowly two to three times.

Did you noticed what is going on here. For $1085.00 dollars of Principal going down you have to pay $3746.00 in Interest.

Put your thinking hat on and turn things around. If you make an extra payment tor wart the Principal of $1085.00 YOU SAVE 3746.00 of Interest payment.

let us assume that you gave your friend $1085.00 as a present. He would take that money and put it against the monthly payment.

$1610.46 minus
$1085.00
——————
$525.46 missing
He still needs to add $525.46 to make a full payment. NOT so good idea.

Way better idea.

Give the same amount of money of $1085.00. Tell him he has to put that money tor warts the Principal. Now, see the new result.

1. You gave the same amount of money to your friend. No change.
2. You made him put the money against the principal. That is the only way how to do it.
3. You NOT just shorten the length of the loan by three month, but also you saved him $3746.00 in interest payments.

This is not bad at all. You not just gave him $1085 Dollar But also you saved him $3746.00 in Interest and you shortened the length of the loan by three month. Read that again please. I call that not bad at all. And that because you took a different path but the outcome is totally better.

That is the power of thinking. Small steps, big results.

Hint:
Make sure that the extra payment goes to the Principal NOT against the monthly payments. You have to specify and verify that the money has gone against the Principal.

New idea to save money.

You get extra money, like a bonus, any extra money like you worked over time, put that money against the principal. You have no idea how fast you cut your loan length and save a lot of interest payments.

Give your house payment a boost.

Every time you get a pay increase, you save a portion of that extra money and make extra principal payments. You will not miss that money after awhile and your loan is payed off a lot earlier.

Norby’s Recommendation:

Become an independent thinker. Follow up with action. Remember only the action counts. Cut the length of loan as soon as you can. Do not listen to other people with bad advice. Understand the idea and follow your inner voice to become successful with your lives path.

I have payed off my 30 year loan in 17years. It works very nicely. You do not need to change the 30 year loan to a 15 year loan either.

Now we got a new understanding.

Norby

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