Don’t Be Deceived by Mortgage Illusion #1, You Own Your Home

When you think of an illusion, you may think of watching a magician perform some sleight-of-hand trick, such as pulling a rabbit out of a hat when it appeared there was no rabbit just moments ago.

This is an illusion, the appearance of a reality that isn’t really true.

Thesaurus.com gives other synonyms for the word “illusion,” such as “confusion,” “deception,” “delusion,” “fallacy,” “misconception,” and “myth.”

The opposite meaning, the antonym, is “reality.”

Many ideas are stated over and over so often that people will soon accept them as truth, even if they are truly illusions like pulling a rabbit out of a seemingly empty hat.

Don’t let yourself fall prey to these illusions, because it could be at your financial peril.

Here is the first of three mortgage illusions.

Knowing the truth and acting accordingly will help your loan payment freedom plan and your ultimate financial freedom.

Mortgage Illusion #1: You Own Your Home

In some states, you do legally own your home, even if there is a mortgage lien against it. In other states, the ownership is held in escrow until you pay off the mortgage.

But in effect, regardless of which type of state you live in, in a practical sense you do not own your own home until you do not have a loan against it. The idea that you really own your home when you have a mortgage against it is an illusion.

If you don’t make the payments, you will discover who is really in control. You will learn that the lender will take your home away from you — that you didn’t really “own” your home after all.

Not only that, but with a mortgage you are only “renting”, even if you have “purchased” your home.

All you have to do is look at your mortgage amortization schedule to see the truth.

In the early years of a mortgage loan (especially a 30- or 40-year loan) you pay mostly interest and very little principle (see the “How Much Interest Do You Really Pay?” chart below).

Notice that 83% of the first payment goes to interest. Even after 6 years 76% of the payment is still interest. There are even interest-only mortgage loans available now where all of the payment goes to interest!

How Much Interest Do You Really Pay?
On a $100,000 loan at 6% interest, $600 payment
Payment Number	Principal	Interest	Balance
1 - after 1 month	$100	$500	$99,900
24 - after 2 years	$112	$488	$97,500
72 - after 6 years	$142	$458	$93,100
120 - after 10 years	$180	$420	$83,700
180 - after 15 years	$243	$357	$71,100
222 - after 18.5 years	$300	$300	$59,700
252 - after 21 years	$348	$252	$50,000
312 - after 26 years	$470	$130	$25,500
336 - after 28 years	$530	$70	$13,500
Notice how much interest and how little principle is paid on the first payment. This imbalance remains through most of the first half of payments. It takes until the 222nd payment, 18.5 years, over halfway through the total payments, before the principle and interest portions of the payment equal each other. And then it takes another 2.5 years until the loan balance has been paid down to half of its original balance, over two-thirds through the payment schedule. The higher the interest rate, the later in the payment schedule these two events happen.

Also, the average family moves every 5 – 7 years, according to anecdotal evidence from many different sources.

When they move, they are probably trading in a loan with very little paid off for another new mortgage loan, again for 30 years.

In the same chart, “How Much Interest Do You Really Pay?,” you can see that after 6 years when 20% of the payments have been made, only $6900, 6.9% of the balance, is paid off. They then start all over again in the early years of the payments on a new mortgage loan.

Make a habit of this and it’s just like renting – paying mostly interest and very little principle. It can actually be worse than renting, because they have to pay for all the maintenance as well.

Do you really own your home if you owe money on it? Legally, perhaps yes; but for the purposes of your financial freedom, no you do not.

My Loan Payment Freedom Secrets debt elimination plan will help you really own your home more quickly than you might have imagined. My plan is not an illusion, or some magic trick, it is truth that really works when you follow it.

Go here for Mortgage Illusion #2: Don’t Pay Off Your Mortgage, You Can Earn More in the Stock Market

Go here for Mortgage Illusion #3: Don’t Pay Off Your Mortgage, It’s the Last Tax Break You Have Left

Don’t be deceived.

These three mortgage illusions are so commonly believed that people fall for them and blindly follow along, whether it is really good for them or not.

Don’t be one of those people who are deceived.

Contact us instead.