Your Questions About Home Loan Calculator

Daniel asks…

What is a better rental investment plan 15 or 30 yr loan?

Putting 20% down should I either get a 15yr loan or a 30 yr loan. The property would cost about 170K and would rent for conservatively $1000 a month. Putting the #’s into the calculator below http://www.finance.cch.com/sohoApplets/MortgageRentvsBuy.asp

On the 30yr loan my value of investment goes into negative even though the rent would carry my mortgage costs. However, when I do the 15yr my value of investment is really high but, I would have to bleed a few hundred dollars each month. (which i can afford)

I preface this with I don’t really understand home equity loans but, at 24 I would like to maximize my money for the long-term in the best way possible.

John answers:

You should get a 30 year loan, positive amortization, no pre-payment penalty, fixed rate mortgage.

At the time you go to closing or settlement you ask for or its automatically given to you:
an amortization schedule – tailor made specifically for your mortgage.

Simply by taking the total monthly payment of principlal and interest THEN adding the following month’s principlal to that amount, you’ll save the interest on the second month.

Paying the principal does not mean you can skip the next month.

It means you’re saving the second month’s interest.

When month 2 comes, you pay the same amount of principal and opayment for month 3 AND ADD the principal for month 4.

Repeat this throughout the life of the loan. You’ll save THOUSANDS – tens of thousands of dollars.

With EACH payment, you enclose a note:
IDENTIFY THE PROPERTY: ADDRESS & LOAN NUMBER – AS WELL AS ALL BORROWERS.

Then you simply type a small note. The body is the same. Only the dates and amounts change:
Date: ____________, 2008

To Whom It May Concern;

Please be informed, enclosed is check no. ___ in the amount of $___. This payment represents
this month, ____, 20___ principal & interest, as well as the principal payment fior next month, ____. 20____

Please appl;y that additional amount to the balance of the mortgage.

According to the amortization shedule, the balance on the loan is $____

Very Truly Yours,

Signed

IF you have ANY Qs, speak with the loan officer. They may have the letter already prepared.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Michael asks…

Car dealership scammed me.. playing with numbers. Advice?

I recently bought a used Corolla at a Toyota dealership, I have yet to pick it up. Over the phone we were told a bunch of BS which turned out to be false once we saw the car (it had more mileage, was NOT certified etc..). So, through negotiations, we were able to get 14K “out the door” and an additional bumber to bumper warranty for 36K miles at NO COST.

Through financing, our rate was 9% and so we were told that resulted in a monthly payment of $280/mo for 14K “out the door”.

They fudged with the numbers and charged us 7.84% for 16K total claiming that they had to fudge with the contract to “get us” our exteneded warranty because it was worth $2000. He even showed us that the total interest was still the same at $4152.
Once I got home, I plugged it all into a loan calculator and found out that 14K out the door @9% was really $250/mo and, yes he was correct that $4152 interest would be paid, but he forgot to mention that increasing our total to 16K upped our principal by $2000

John answers:

You’ve fallen victim to what is pretty standard practice in the industry. Most dealers play fast and loose with the numbers in the hope that you won’t be able to keep up with what’s going on. And they’re usually right on that score.

Sadly, this is all quite legal most of the time. The only thing that matters is what’s in writing on paper. This is why it is SO important to carefully review everything before you sign and take delivery. Compare every number on the contract with what you THINK you negotiated and question and challenge everything that isn’t clear.

It typically takes about 30 minutes to read a sales and finance contract and the dealer is banking on the fact that you won’t take the time to do that. They’ll often create a small circus that makes careful review nearly impossible with several people popping in and out of the office to congratulate you on your purchase, compliment you on your negotiating skill or sign some “meaningless” piece of paper. If you challenge anything they may say, “It’s standard practice, everyone signs that.” or “It’s the law, we have to do it that way.”

The best defense against that is to pick up the unsigned contract and say, “OK, let me take this home and review it at my leisure. I’ll get back to you tomorrow sometime and we’ll arrange to sign everything then.” Then do just that! Don’t be bullied by claims that that is “illegal” or “We don’t do business that way.”

The biggest thing you have going for you right now is that you haven’t taken delivery. If I were in your shoes, I’d just call them up and tell them that in a moment of sanity you’ve decided to scrap the deal. There is a lot more funny business going on here than meets the eye.

First off, at 9% on 14,000 the loan term would have to be 6 years to get the payments down to around $250.00 ($252.36 to be exact.) $16,000 at 7.84% for 6 years works out to $279.28. There’s something funny with their numbers as they don’t work out right. The total finance charge doesn’t work out quite right either with either set of numbers.

Also, $2000 for a 36k extended warranty on a Toyota — one of the most reliable cars on the road today — is quite simply a rip-off; pure profit for the dealer and worth exactly $0.00 to you.

Personally, I always bring a financial calculator with me if I’m considering financing a car through the dealer. There are several nice ones on the market for around $30.00 or so. Not an ordinary pocket calculator, but one that does loan calculations such as the TI Business Analyst. The numbers you get from that should be within one or two cents on the monthly payments and within 50 cents on the total interest charge and total of payments.

Better yet, get pre-qualified at your bank or credit union. You’ll go in the door knowing how much you can spend and what the payments should be. This way you can compare the dealer’s offer with your bank and select the best deal. (Dealers often can get you a better deal on the financing but they’ll only offer you that if they think you’ll go elsewhere.)

Toyotas are good cars and are in high demand. They’re well built and reliable and the dealers know this. As a result the dealers tend to have an extremely cavalier attitude towards the customer. Toyota dealer practices are some of the worst in the industry in my opinion.

The local Toyota dealer here (SW Missouri) also sells Mercedes. If you walk into the Mercedes showroom, they treat you like royalty. They shoot straight and are willing to deal with you. No funny business what so ever. I love doing business with them. But if you walk next door to the Toyota showroom they’re the biggest bunch of wolves and leeches I’ve ever had the displeasure of trying to work with. If I were buying a used Toyota — and I’m considering it right now — I’d work with the guys in the Mercedes showroom. Nuff said!

Mark asks…

What’s APR and how do I figure it out for a specific house?

The calculator I’m using to figure out the loan payments automatically says it’s 3.75% APR, the payments seem too low though, then I saw it said “(as low as)”.

So how do I figure out what the APR will be for the home I’m looking at?

John answers:

APR is not the rate. APR can not be given until all closing costs are figured in & a rate chosen. If you have mortgage insurance or pay points your APR will go up considerably. Closer the APR is to the rate the lower the closing costs you are paying.

To answer your question…call your lender to get the APR. If you are calling different lenders be sure to compare apples to apples. The lowest rate is not always the best deal.

Linda asks…

Dealership increased price by $2000 by selling me “free” insurance?? Can I sue?

recently bought a used Corolla at a Toyota dealership, I have yet to pick it up. Over the phone we were told a bunch of BS which turned out to be false once we saw the car (it had more mileage, was NOT certified etc..). So, through negotiations, we were able to get 14K “out the door” and an additional bumber to bumper warranty for 36K miles at NO COST.

Through financing, our rate was 9% and so we were told that resulted in a monthly payment of $280/mo for 14K “out the door”.

They fudged with the numbers and charged us 7.84% for 16K total claiming that they had to fudge with the contract to “get us” our exteneded warranty because it was worth $2000. He even showed us that the total interest was still the same at $4152.
Once I got home, I plugged it all into a loan calculator and found out that 14K out the door @9% was really $250/mo and, yes he was correct that $4152 interest would be paid, but he forgot to mention that increasing our total to 16K upped our principal by $2000

John answers:

Don’t trust used car salesmen. You should be able to cancel if you haven’t picked it up yet. It depends on the state as to your specific rights. Check with the state Attorney General Office.

If you are paying that much per month why don’t you get a new Corolla? I am pretty sure that the lower rate on new cars will balance it out and you will end up paying about the same.

Legally speaking you have no contract if there is a misrepresentation as you seem to indicate here. Also, there has to be a meeting of the minds with regard to the terms of the contract which is not the case here. If they try to enforce the contract, which they won’t, you will be able to avoid the contract under most common interpretations of contract law.

Ruth asks…

Borrowing calculators on internet.. are they accurate?

I want to get a home loan soon and have just looked at the borrowing calculators that are available on the internet to see how much I can borrow. Are these reliable? Many of them vary with how much I can borrow. Has anyone else used them and found them to be correct when you have spoken to your lender?

John answers:

No, they are completely inaccurate! The amount you can borrow varies depending on so many factors & the assessment rate used by lenders varies depending on the loan product you choose and changes regularly. The online borrowing capacity calculators are a guide only.

Mortgage brokers usually look at someones individual circumstances and matches a lender who’s calculator is more favourable for someone in that situation. For example Bank A may lend more to investors, whilst Bank B lends more to first home buyers.

Either talk to your bank (but don’t let them put anything on your credit file!) or talk to a mortgage broker and you’ll get an accurate figure.

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