I came across a blog post earlier today by Ramit Sethi at Iwillteachyoutoberich.com. The blog is titled “Have a mortgage? Save $71,000 in interest payments”. That’s a pretty catchy title. I think most people would take a few minutes to learn how to save that much money. Ramit with the help of Andy Jolls from videocreditscore.com go on to show you a few different ways to save money. The main strategy is one in which you have probably heard before, make extra principal payments. Ramit talks about bi-weekly mortgage payments. Through this strategy you pay ever other week or 26 payments a year. The key is this gives you an extra monthly payment going to your mortgage each year and thus you save interest and pay off your mortgage faster. Sound great right?
The best part of this post is the comments. People really impress me in the comments. Numerous people call Ramit out for how this is an outdated theory. As you read through the comments, there are a couple of people that agree (of course). What I love seeing is how a few people go on to correct him. SBE, Susanamnm and Travis go on to talk about how the key to the strategy isn’t bi-weekly payments but the extra mortgage payment per year and how this is just paying your mortgage company. This is what the bank or your mortgage company wants. They want your money, the sooner the better. How do banks make money? Off of other people’s money. Can’t you do that?
Then we have Darwin’s Finance comment on how Ramit’s calculations are bad and that there is a better way to do this than giving extra money to the bank/mortgage company. I want to commend Ramit for being completely honest with his reply when you basically says that Darwin’s Finance is completely right but that most people are unable to be disciplined enough to save this money elsewhere. I commend him for coming out and saying it but I have a problem with his almost giving up on people. I’m confused on the purpose of his blog. Ramit claims it’s to help people automate there financial world which his concept would accomplish but how is it harder to make that extra mortgage payment per year to another account or savings vehicle?
The best comment is made by LBG Financial Services who saves me typing by covering the main reasons why you shouldn’t follow Ramit’s blog but instead you can do it a better way. Ramit is yet to reply directly to them but I look forward to him doing so.
In a reference to evie’s comment, it is better to save the extra mortgage payment each year than pay it off early and then save the full payments. This is prooven through time value of money and I would be happy to discuss this.
This is a great example of misinformation. I say this because what Ramit is saying does save you money but as others, and Ramit himself, point out it isn’t the best way to do so. I want to help you find the most effective and efficient way. What would you prefer to learn about? The second best way? Me neither.
*** Disclaimer: In this blog post I am in no way talking about whether a house is a good investment or not, I will save that for other posts. Also I am in no way recommending that you save the extra money into an investment account. I do notrecommend that you put the extra money at risk in the market. I will be happy to discuss this with anyone that has questions. I also don’t have any relationship whatsoever with anyone mentioned in this blog post and have not verified any information they provide. ***
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