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The Curse of the Withholding Tax 
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Post Re: The Curse of the Withholding Tax
Ok:

First StumbleBum: Nothing wrong with paying off early except: If I pay a bank the interest only payments and I take the principle, and set this money away in a side account, if I have to miss a payment I have a reserve....Lets say I decide to do you even one better and pay extremely aggressively @3 times the mortgage a month, but I lose my job and miss 3 payments...I tell the bank "Well I paid so much can you cut me some slack?" Not only will they refuse, they will actually foreclose on me first because it will be easy to sell my house for the remander if I have paid down a good bit of the mortgage. If my neighbor has the same house, has not even paid into principle yet, the bank as to decide which house to foreclose....They will pick the house that has been paid down cause it is easier to get their money back....if both houses are selling for 150K and my neighbor owes 200K and I owe 75K which house is easier for the bank to sell an regroup money?

Ok Chico:

Its hard to get your head around it....I understand here it is a little more clarity included. you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars. So you want to be as safe as you can and protect yourself from the bank... Common sense would say pay it down fast but if you look above at what I wrote to Stumble bum you will see that actually the bank has tricked you. The fact is that if you pay down your mortgage aggressively and have to miss payments you are actually at greater risk of being foreclosed on. Because the bank had gotten more money on the original amount they lent you so it is easier for them to make their money back...again consider that you have paid all but the last 3 payments on your house and lose your job, your neighbor owes 150K on his house which is the same as your house....now as the bank president you are asked by the shareholders to get back money on all the foreclosures that the bank has had to take on...these people are pressuring you and both of these properties (yours and your neighbors) come to the president's desk....he has to decide which house to foreclose on....the one which he can sell in a day (You owe virtually nothing on your house) or the one your friend is behind on 150K dollars....obviously he will foreclose on you first. This is in fact what banks do...who are banks helping now?

so what really is the SAFEST thing to do? Get an interest only mortgage. you pay the bank the minimum payment and you take the rest of the money you intend to use to pay down your mortgage....take that money and put it in a savings account...do not touch it, pay this account like you are paying the bank. Now, here is what happens: a) if you lose your job you have a reserve to draw upon (this account) to pay the bank its payment so they can't foreclose you. b) you get interest on that money in your savings account instead of paying the bank and letting them get the interest on that money. c) you also get around another 2-4% because of the deduction on taxes for mortgage income and property taxes which can be a standard deduction. d) you can put that money so instead of erasing the bank's simple interest on your amortized loan you compound the money so it basically doubles every 7 years...By the time your 25 year mortgage ends with the bank you have accumulated like 3 times at least! the amount of money you would have used to just pay the mortgage down for the bank. And if you wrap your head around it you will see this is the SAFEST way to handle a mortgage. 8-)


Sat Apr 14, 2012 3:46 am
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Post Re: The Curse of the Withholding Tax
dsimon3387 wrote:
you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars.

You lost me right there. What bank in their right mind would forfeit $950 in interest (from your required $1000 monthly payment, assuming $50 goes to principal) to accept only $300 in interest and no principal?

That's a bank that's going to need a bailout soon, I would think.

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Sat Apr 14, 2012 5:50 am
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Post Re: The Curse of the Withholding Tax
Hi dsimon,

The fact that you are paying an endowment mortgage is more to your advantage, because by paying twice a month (half of your mortgage payment every two weeks) you are reducing the amount of interest due at the end of the month. In other words, the bank can't charge you two weeks interest on half of your mortgage payment.

For you it costs nothing extra as you'd be paying the same amount at months end anyway and at the end of the day you would want to change the status of your house (from a liability to an asset) A.S.A.P.

What I talk about is not reducing principal, which is normally done in the latter stages of the mortgage anyway once the investment side of your mortgage overtakes the amount of the original loan in the first place.

Don't get me wrong, I'm not saying that you SHOULD do what I suggest, because I don't know where abouts you are in your mortgage payments, but I would suggest that you might sit down with an accountant to see if the idea is good for you. It would take around half an hour of your time and it could save you a pretty penny, depending of course on your situation.

As I said, it was just a thought.

Best regards.

EDIT: I just came back from the supermarket and whilst I was driving I had a think. Perhaps for you, if what you have is an endowment mortgage the best bet is to leave it as it is because it is the investment part of the mortgage which will pay of the loan in the end.

I think the strategy I gave you is only good for fixed term mortgages. In any case chat with your accountant. :) It's difficult thinking straight at 05:00 in the morning!



dsimon3387 wrote:
Ok:

First StumbleBum: Nothing wrong with paying off early except: If I pay a bank the interest only payments and I take the principle, and set this money away in a side account, if I have to miss a payment I have a reserve....Lets say I decide to do you even one better and pay extremely aggressively @3 times the mortgage a month, but I lose my job and miss 3 payments...I tell the bank "Well I paid so much can you cut me some slack?" Not only will they refuse, they will actually foreclose on me first because it will be easy to sell my house for the remander if I have paid down a good bit of the mortgage. If my neighbor has the same house, has not even paid into principle yet, the bank as to decide which house to foreclose....They will pick the house that has been paid down cause it is easier to get their money back....if both houses are selling for 150K and my neighbor owes 200K and I owe 75K which house is easier for the bank to sell an regroup money?

Ok Chico:

Its hard to get your head around it....I understand here it is a little more clarity included. you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars. So you want to be as safe as you can and protect yourself from the bank... Common sense would say pay it down fast but if you look above at what I wrote to Stumble bum you will see that actually the bank has tricked you. The fact is that if you pay down your mortgage aggressively and have to miss payments you are actually at greater risk of being foreclosed on. Because the bank had gotten more money on the original amount they lent you so it is easier for them to make their money back...again consider that you have paid all but the last 3 payments on your house and lose your job, your neighbor owes 150K on his house which is the same as your house....now as the bank president you are asked by the shareholders to get back money on all the foreclosures that the bank has had to take on...these people are pressuring you and both of these properties (yours and your neighbors) come to the president's desk....he has to decide which house to foreclose on....the one which he can sell in a day (You owe virtually nothing on your house) or the one your friend is behind on 150K dollars....obviously he will foreclose on you first. This is in fact what banks do...who are banks helping now?

so what really is the SAFEST thing to do? Get an interest only mortgage. you pay the bank the minimum payment and you take the rest of the money you intend to use to pay down your mortgage....take that money and put it in a savings account...do not touch it, pay this account like you are paying the bank. Now, here is what happens: a) if you lose your job you have a reserve to draw upon (this account) to pay the bank its payment so they can't foreclose you. b) you get interest on that money in your savings account instead of paying the bank and letting them get the interest on that money. c) you also get around another 2-4% because of the deduction on taxes for mortgage income and property taxes which can be a standard deduction. d) you can put that money so instead of erasing the bank's simple interest on your amortized loan you compound the money so it basically doubles every 7 years...By the time your 25 year mortgage ends with the bank you have accumulated like 3 times at least! the amount of money you would have used to just pay the mortgage down for the bank. And if you wrap your head around it you will see this is the SAFEST way to handle a mortgage. 8-)


Last edited by Grumplebum on Sat Apr 14, 2012 10:38 am, edited 1 time in total.



Sat Apr 14, 2012 9:15 am
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Post Re: The Curse of the Withholding Tax
Hi Chicodoodoo,

Banks thrive on interest payments. It's free money. As long as the principal is in place they can charge interest a gogo.

I think what dsimon didn't add is that part of the payment is sent to an investment fund where they play on the markets with it (at least that's how they did it when I worked for London & Manchester Investments many, many years ago!). Once the investment fund grew bigger than the principal, the principal was paid off by this fund (normally a 25 year fund) and the left over was kept by the client.

At the end of the day, the bank will never lose out, rest assured. :)

Best regards.



dsimon3387 wrote:
you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars.

You lost me right there. What bank in their right mind would forfeit $950 in interest (from your required $1000 monthly payment, assuming $50 goes to principal) to accept only $300 in interest and no principal?

That's a bank that's going to need a bailout soon, I would think.


Sat Apr 14, 2012 9:19 am
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Joined: Tue Feb 28, 2012 3:53 am
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Post Re: The Curse of the Withholding Tax
dsimon3387 wrote:
you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars.

You lost me right there. What bank in their right mind would forfeit $950 in interest (from your required $1000 monthly payment, assuming $50 goes to principal) to accept only $300 in interest and no principal?

That's a bank that's going to need a bailout soon, I would think.


Interest only is still a mortgage option...heck if I can I do negative amortization but that is not going to be an option. The idea is to pay the bank a minimum and create liquidity with the money...it does not preclude turning around and paying off the mortgage. But one can get an interest only payment, I have one actually.


Sat Apr 14, 2012 5:54 pm
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Joined: Tue Feb 28, 2012 3:53 am
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Post Re: The Curse of the Withholding Tax
Grumplebum wrote:
Hi Chicodoodoo,

Banks thrive on interest payments. It's free money. As long as the principal is in place they can charge interest a gogo.

I think what dsimon didn't add is that part of the payment is sent to an investment fund where they play on the markets with it (at least that's how they did it when I worked for London & Manchester Investments many, many years ago!). Once the investment fund grew bigger than the principal, the principal was paid off by this fund (normally a 25 year fund) and the left over was kept by the client.

At the end of the day, the bank will never lose out, rest assured. :)

Best regards.



dsimon3387 wrote:
you have a payment of 1000 a month and the bank will accept "interest only" payments of 300 dollars.

You lost me right there. What bank in their right mind would forfeit $950 in interest (from your required $1000 monthly payment, assuming $50 goes to principal) to accept only $300 in interest and no principal?

That's a bank that's going to need a bailout soon, I would think.


well how you get the interest is up to you. I use tax leins, which get about 18% on average are guaranteed by the states and tie your money up but give me a safe return. You could use a simple savings account and your compounding will give you an advantage even if you net less interest than the bank loan....its up to the individual. You can beat the banks its just a thinking game.


Sat Apr 14, 2012 5:57 pm
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Post Re: The Curse of the Withholding Tax
dsimon3387 wrote:
But one can get an interest only payment, I have one actually.

Yes, I know they exist, but my question still stands. Banks don't cheat themselves out of money, they cheat their customers out of money.

dsimon3387 wrote:
You can beat the banks its just a thinking game.

I can almost guarantee that if there is a way to beat the banks, a bank has already tried it, and the other banks made sure it ended up illegal.

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Sat Apr 14, 2012 10:56 pm
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Post Re: The Curse of the Withholding Tax
dsimon3387 wrote:
But one can get an interest only payment, I have one actually.

Yes, I know they exist, but my question still stands. Banks don't cheat themselves out of money, they cheat their customers out of money.

dsimon3387 wrote:
You can beat the banks its just a thinking game.

I can almost guarantee that if there is a way to beat the banks, a bank has already tried it, and the other banks made sure it ended up illegal.


Well.... the thing is for most people its not a bad impulse to simply stay out of debt...Most people cannot use debt well and consequently they do things that benefit the lenders....But I disagree that the banks are unbeatable....I am an example of a "beater" :lol:

I would never critisize a person for paying down their mortgage, but the method I shared with you is what I consider the "safest." as bumblebum has said there are different scenerios based on interest saved, versus interest forfeited, etc.

The reasons you can beat the banks is because they have to function for the moneyed class....the moneyed class do the same things that the banks do....If they can get money cheap....lets say at 3% they then turn around and put that money to work at 10%. Arbitrage is the process and it takes a brain but you can beat the big boys up!

Let me just say that paying down a mortgage is never a bad idea.


Sun Apr 15, 2012 2:54 am
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Post Re: The Curse of the Withholding Tax
Sorry guys, I don't mean to rub anything in but there ain't no income tax in the Bahamas!

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Sun Apr 15, 2012 4:25 am
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Post Re: The Curse of the Withholding Tax
Only Little People Pay Taxes.

Why a janitor ends up with a higher tax rate than a millionaire, and seven more charts that show how the richest Americans beat the IRS.

http://motherjones.com/politics/2011/04 ... arts-graph

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Mon Apr 16, 2012 2:11 pm
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