My wife overheard a conversation the other day that she shared with me this morning. A couple were going to refinance their house and were going to get an "interest only" refi. I can't remember if I've covered this here but I go into it in some detail in my book. The short of it is that for most people, these are a bad deal. For mortgage companies they're great. That's usually how it works. If it's wonderful for the mortgage company, you're getting screwed. If it's good for you, they aren't getting any money.
The conversation came to an end with a shrug and the words, "I've accepted that I'll always be in debt."
The hardest part of my job is breaking the programming that the banks have instilled in the general public. People don't have to always be in debt. In fact, people can get out of debt rather quickly if they want. They don't try. One of the reasons they don't try is because of this belief. There are other reasons but this is a big one.
When you follow the payment plans that the banks have put in place, the balance changes very little each month giving the impression that it's going to take a long time to pay it off. It will - if you keep paying the minimum amount. That's because most of your payment goes to interest. If you pay more than the minimum amount, debts start to disappear rather quickly.
When I hear stories like this, I just want to run out in the streets and yell. That wouldn't work but maybe this blog will make a difference for people. Most people could pay off most of their debts except their mortgage in 2 to 3 years if they wanted.
In less than half the time it takes for most people to pay off one car, people could eliminate most of their debt. For most people, that just doesn't compute but it's the truth. We have been programmed to think that it's impossible. I can say "we" because I was in the same belief structure until I was able to break free. We are taught that it takes a long time to pay off debt and to get used to the idea of being in debt forever. If we want things like nice TVs or cars, we have to get a loan.
For those people that have a mortgage, it might take another 5 or 6 years after the other debts are gone to pay it off. How is it possible to pay off a 30 year loan in 5 years? By not paying the hundreds of thousands of dollars in interest, that's how. You could buy 3 houses for what you give to the bank for one house. If you just pay for one house, it doesn't take 30 years. You only get one house out of the deal so you really should only pay for one.
Of course in today's world of "interest only" loans, people aren't even buying the one house. The best thing you could do for the mortgage company is give them money and never own the property. If it's the best thing for them, you know what that means for you.