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You’re borrowing the purchase price and you’re borrowing the interest paid. At the same time. Two loans, not one. Look at your amortization schedule. A – Mort – ization – Mort means death.
What is interest?
Rent for the use of the bank’s money.
They didn’t have it to lend anyway. You created it when you signed the promissory note.
$100k loan @ 4% interest for 30 years. You pay back $100k.
And you pay back $72k interest or rent for the use of the banks money.
$72K divided by $100k = 72% interest, not 4% as you’ve been lead to believe.
You don’t question it because the monthly payment fits into your comfort zone.
So you borrow $100k and payback $172K. You have to earn $172k plus (for example) your 25% tax bracket. You have to earn $172k plus $43k to payback the loan. That’s you earning $215k to pay back a $100k loan.
Check out the blogtalk interview with host Rick Fiorio:
The Right Side of Things
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