Posts Tagged ‘payment’

“In the United States neither paper currency nor deposits have value as commodities.  Intrinsically, a dollar bill is just a piece of paper….  What, then, makes these instruments…acceptable at face value in payment of all debts and for other monetary uses?  Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.  Money, like anything else, derives its value from its scarcity in relation to its usefulness….  Money’s usefulness is its unique ability to command other goods and services and to permit a holder to be constantly ready to do so.” -Federal Reserve Bank of Chicago

A recent report by consumer-credit-tracking firm Experian shows the average term for a new car loan is 67 months – a record.  And the average amount financed for a new vehicle is $28,711 – also a record.  The average monthly payment for a new vehicle is $488 – yet another record.  Bank of America predicts that new car-loan securitizations – the packaged sale of car loans – will reach $125 billion this year… Again, a record.  These loans will account for more than half of all consumer loan securitizations.  Keep in mind that roughly 30% of the loans in these securitized packages will be subprime. That’s why credit losses on these bonds are growing and beginning to reach levels last seen in 2008.” -Porter Stansberry

Excess Debt?

Posted: December 17, 2014 in Debt
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“Never borrow money unless you know—with a high degree of certainty—the asset you buy with borrowed money will yield a return far in excess of your debt service payments.” -Mark Ford

“What really happens is the financial industry borrows funds at a rate of interest near zero to make mortgage loans. Aided and abetted by Fannie Mae, it is now landlord to 44 million Americans. The poor “homeowner” is turned into a mortgage slave. He is stuck for life – or longer – making payments on a house that cost the financial industry nothing.” -Bill Bonner

Borrowing money is no different than renting money.  A bank loans its assets and in return receives a payment of principal and interest.  The wealth of the bank increases, while the borrower has transferred that opportunity to the bank.

The good:  A person can save thousands of dollars over the long haul (if the home is kept for the long haul).  The bad:  There are many miscellaneous fees and finance costs associated with the refinance; lower home value, in relation to limited equity level, may lead to the necessity of paying private mortgage insurance (PMI).  The ugly:  mortgage interest is front loaded up to 90% once again, lowering the amount of the payment going toward principal.  This refinancing, coupled with the average American moving every 5-7 years, keeps homeowners spending the majority of their money on interest instead of building equity.

What does debt do?  Debt takes the control of money out of a person’s hands in the following ways:  1) Mortgage financing:  up to 90% of payment is front-loaded interest, 2) Auto financing:  20-25% of every payment is interest, and 3) Credit cards:  up to 70% of minimum payment is interest.  These things actually enslave money and prevent one from becoming financially free.