Basic Loan Amortization Secrets

Most people when they borrow money to purchase a property never realize how the mechanics of the payback work. This is a result of their lender not taking time to explain or their real estate professional not explaining the fundamentals In a nutshell generally when you make a payment it is for the principal (borrowed money) and the interest (the charge for borrowing).

The payment amount usually is large enough to pay the interest first and then a calculated amount to reduce the principle over and up to a specific period of time. When all the scheduled payments have been paid then the original borrowed sum (the principal) will have been reduced to zero (payoff) and interest being paid decrease to nothing as well. An example of an amortization of $1000.00 over 12 months at 10% interest is as follows:

Monthly Amortization Schedule
Loan Amount: Interest Rate: APR: Total Payments: Prin. & Int. Pmt.: Balloon: $1,000.00 10.000% 9.987% 12 Payments $87.92 $0.00 on 0
Payment Number	Payment Date	Total Payment Amount to Date	Total Interest Amount to Date	Interest Payment	Principal Reduction	Balance Due
1	1/1/2002	$87.92	$8.34	$8.34	$79.58	$920.42
2	2/1/2002	$175.84	$16.02	$7.68	$80.24	$840.18
3	3/1/2002	$263.76	$23.03	$7.01	$80.91	$759.27
4	4/1/2002	$351.68	$29.36	$6.33	$81.59	$677.68
5	5/1/2002	$439.60	$35.01	$5.65	$82.27	$595.41
6	6/1/2002	$527.52	$39.98	$4.97	$82.95	$512.46
7	7/1/2002	$615.44	$44.26	$4.28	$83.64	$428.82
8	8/1/2002	$703.36	$47.84	$3.58	$84.34	$344.48
9	9/1/2002	$791.28	$50.72	$2.88	$85.04	$259.44
10	10/1/2002	$879.20	$52.89	$2.17	$85.75	$173.69
11	11/1/2002	$967.12	$54.34	$1.45	$86.47	$87.22
12	12/1/2002	$1,055.07	$55.07	$.73	$87.22	$.00
2002 Totals:		$1,055.07	$55.07	$55.07	$1,000.00	$.00
GRAND Totals: Payments to Date Interest to Date Total Interest Total Principal Balance $1,055.07 $55.07 $55.07 $1,000.00 $.00
Final Payment of $87.22 which includes a balloon payment of $0.00

The complex formula calculates the equal monthly payments to be $87.92. The interest due after the month in which the money is borrowed in the first month is $8.34. The principle amount paid off after the first month is $79.58. As the principal has been reduced by that amount, the interest on that amount of principal reduction is no longer due each succeeding month.

If you want to pay ahead then you pay the payment that is next scheduled (principal and interest payment) plus the next scheduled principal amount or amounts down the principal amount column. i.e. 4^th payment due $87.92 and to prepay ad $82.27. The next payment due would be $87.92 but it would be payment 6 not 5 but it would still be due next month.

Next blog will address why when you borrow money you should always borrow the longest term possible if prepayment without penalty is allowed.

Learn the basics and real estate can be a sharp tool for trimming the problems and reserving options.

Come see the properties for sale in Western Colorado at Keith Loucks Realty, LLC and Western Colorado Dot Net.

145 1/2 NE 4th St. Cedaredge

Comfortable Cozy Home

A nice quiet cottage located in the east-central part of Cedaredge. This 937 square foot two bedroom single bath home is well arranged for comfort and easy living.

It is located just two blocks from the downtown center and downtown shopping. The mature apple trees provide shade to keep the home cool in the summer. The off street location has extra parking and the oversize two-car has extra additional space for the workshop.

There is ample room here for those extra toys and hobbies. This modest very solid masonry home can be yours for a reasonable $129,000.00. There is too available an additional vacant lot for a reasonable price. Build your main home on this lot and use this cozy home as an additional related residence.  This is a broker owned property.

You can find more detail on this or nearly all listed properties for sale in Western Colorado at Western Colorado Dot Net.

Wait-and-see Mistake in Real Estate

In the most recent nine calls from prospective buyers, the buyer prospect said that they were waiting to see what was going to happen to real estate prices. That seems to be the trend these days. Please remember that may seem to be the most cautious approach to take but can be very costly in the long run.

The fact is if you are paying rent the fundamentals have not changed. You are likely paying mortgage, taxes, and maintenance someone else, building or rebuilding their equity, and missing out on huge the tax credits benefits and the chance to make it your very own home. 

A second fact is that, if you own and are selling to reposition, even if you have to sell at a lower price, the replacement home you buy regardless of price will most likely be at a lower comparative price for what you get.

 This is a big one. As long as you don’t overextend your ability to pay, buy. Inflation is the major factor (demon) to consider. Inflation will arise sooner or later and the interest rates will rise with inflation. When that event happens, Katy bar the door, when one wants to purchase at that time they will pay and pay and pay while they chase the upward spiral in interest and property values.  They will look back on the good old days when they could have bought for a song in the wait-and-see times.

There are other logical considerations in real estate and there are information exchanges where you can see Multiple Listing data, one of which is my real estate website at Western Colorado Dot Net. Come look for homes in Western Colorado.

This is your tidbits for the timid for today.

Leverage In Real Estate Investing

Basics truths that any person should know and understand about real property are many. What is addressed in this issue is the concept of leverage. There have been many securities laws written as a result over leverage of stocks and bonds in the 30’s depression and market crash. Bankers are very conservative when lending on property because they know and understand the following concept.

 Leverage simply put is buying more with the same amount of capitol and borrowing the balance to pay for the commodity or property in hopes of multiplying the return on investment. As an example if the investor has $100,000.00 to purchase property and were to purchase one property for $100,000.00, then if appreciation occurs at a rate of for example 5%, then the investor would have gained an appreciation of $5,000.00.

 The application of leverage takes the idea further. The investor now puts for example 20% down payment on each of five properties of the same value of $100,000 each, and then finances $80,000.00 on each property. Now the investor, may we say speculator at this point owns $500,000.00 value in property appreciating at the same 5% or $25,000.00 per year. The assumption here is that the income from rents will pay for the interest, taxes, insurance, and maintenance. The owner also has five times the principle reduction on any loans more than the single property above had. Good idea when it works and a net return of 25% on original capitol.

 On the flip side of the coin, Leverage can and will work against the investor inversely and exponentially faster than leverage works for the investor going up in appreciation. It only takes a short time to eliminate the original $100,000.00 equity in a depreciating economic cycle. Generally the rate and accreditation of depreciation is faster going down than when it goes up.

 Leverage is not bad, it is simply a fact and method of investment management which can be used to benefit and can work brutally against the investor.

 We continue postings about the basic real estate truths that everybody should, must know before they become involved with ownership of real property. Information on any of the property for sale in Western Colorado can be seen by clicking here.

That’s all the tidbits for now!

Basics Everyone Should Know About Real Estate

There are basics truths that everyone should understand about real estate. Succeeding this article will be a multi-topic list of what the average person should understand about real estate.

• First, Under all is land
  • Whether you own, rent, camp or squat you will be living on the dirt somewhere. We in our society have decided that someone owns this land. Ultimately the Federal Government has the underlying title to the all property. In addition there are many government entities that have a finger or the whole hand on your real property. That is generally in the form of tax for the support of public services. They most often are beneficial in the form of emergency services (i.e. hospital, ambulance service, fire protection) and public good services (i.e. schools, utility districts etc.)
  • Owning property is more permanent but if you have to borrow to own then you are subject the lender influence. The scripture says, “you are a slave to the lender”. In the old days we used to say, “if you don’t pay, you don’t stay”. Then as time and lender experience matured the terms of loans became restricted severely and more limited substantially. On the other hand should the property appreciate then as owner that appreciation is added to his or her coffer as is principal reduction from loan payments made.
  • As a renter you are subject to the landlord. You pay his toll, the rent and may be subject to eviction at any time. You still indirectly pay for the landlord expenses of tax, insurance and repairs whether they happen or not and there is the feeling of the lack of permanency as a tenant. In addition the landlord builds equity in good times from appreciation and if paying a loan with your rent he or she builds equity from principle reduction on the loan.

We will review in the next posting more about the basics truths of what everyone should understand about real estate. In the meantime if you would like to see information on any of the property for sale in Western Colorado you can do so by clicking here.

That’s all the tidbits for now!