Monday, February 19, 2007

Effective Borrower's Cost

Mortgages fascinate me. .. mostly in the fact that you can pay on a $100,000 mortgage for a year, at about $750 dollars a month with is a total payment of $9,000 and your ending balance left to pay on your mortgage is roughly $99,200. So $800 of your hard earned $ went to the principal and the rest went into the sweaty little palms of the mortgage lender. All I have to say is: I am on the wrong side of the table.

I made a quick little sheet on the right hand side titled: "Mortgage EBC" (EBC standing for Effective Borrowing Cost). When you roll discount points and closing costs into a mortgage you are actually receiving less money to put towards your real estate investment, but you are still paying on the full loan amount. This difference, along with living in your home for less that the length of the full mortgage, will increase your APR on your loan by a substantial amount. It is fun necessary to figure this stuff out. This sheet will help you do it.