Avoid LOAN shark tactics by doing this Financial Advisor Explains The Truth About Interest

My name is A.B. Ridgway and this is the Ridgway Report. I am very excited because I have my Grammarly State University gear on, which is my alma mater, so always excited for that. I have my calculator so you know what that means. We are going to be running some numbers for you and I'm going to teach you how much are you really paying at the end of the day for a loan. So a lot of us are going to accumulate some type of debt, whether it's going to be for a down payment for a mortgage, whether it's a car or maybe even just a personal loan. But I'm here to tell you that it's more than just the price. A lot of people like to negotiate with their car dealership and I'm saving $500 or I knocked them down $1,000. Who cares if all they're going to do is raise the interest rate at the end of the day. We'll talk about how to purchase a car and what type of interest rates you may want to look at and how to get a lower rate if someone is offering one. But for today, we're going to focus on the idea that interest rates are king. They are going to determine how much money you're actually going to pay in the long run when you are taking out a loan. Now, if you just pay cash, you just pay the amount that's due. You don't have to worry about it. That's it. But when you are taking out a loan, interest rates are going to be very important. So in these types of scenarios, we are going to consider that all other things are being equal at this point because when you are purchasing a car or a house, there may be some other fees associated. There may be HOA fees that you may have to worry about. There may be property taxes, insurance. It may be in a flood zone, not in a flood zone. Don't think of this as the only thing you need to consider when purchasing a home, but think of this as the majority of where your assets are going to go because really a majority of the money that you save is going to go to actually purchasing the house, not necessarily the taxes and fees associated with it. But if you do need help creating a financial plan around home purchasing, make sure you schedule a consultation with me so I can walk you through that. But first, before you do that, let's go through these calculations so you can actually see the magic of what a financial advisor actually does that's going to save you maybe a thousand, tens, or hundreds of thousands of dollars on your purchase price. So let's take a first look at this scenario. Well, let's say that we want to buy a property. Let's say an investment property. You have your home, but you're looking at something in another state that you could be a snowbird and you could retire to, and it's $170,000. So you run down to your local bank and you say, well, I need a loan. I don't want a 30 year loan, but I will take a 15 year loan because I don't want to pay a lot of interest. Well, the bank says, we'll give you 5.5%. You say, okay, that seems low, but how much is that? I mean, we really don't do percentages in our heads that well. And when you do the math, it's going to be a little bit more complicated than trying to figure out how many payments you're going to have to make over that time period. So let's do this with the calculator. We have $170,000. What I like to do first is I always like to clear my calculator. This is the HP 10 B2 Plus. I am not sponsored by them, but I love this thing. I've been in the financial industry for over a decade, and this has saved me more times than none. And it is a wonderful tool to use when you want real numbers. Okay. So we're going to make our present value $170,000. Okay. We'll put that here. That's signified as a negative there. Then also our future value is going to be zero. I actually put the numbers up here too. So you can kind of over there so you can follow along. It's going to be zero because we're going to be paying down this loan. So at the end, our balance is going to be zero. And then our period, 15 year loan. Now, this is where a lot of people get confused. Well, it's a 15 year loan. So the time period is going to be 15. That's not necessarily the case because we're going to have 12 payments in that year. So we have to multiply 12 by the 15 and we end up with 180. So that's 180 periods. Also the interest rate is going to be 5.5, but once again, that is on an annual basis. So we're going to divide that by 12, not multiply. We're going to divide by 12. We ended up with 0.4583. We're going to be the interest there. And then we're going to determine what the payment is going to be for that home. So our calculations show that our payment is going to be $1,389 and 41 cents. Unfortunately, this is not the only step that we need because what does this payment actually entail? It entails principal, which pays down the cost of home, the literal cost of 170, but it also includes the interest. And that's what we're interested in. How much are we paying in interest? Okay. So we have to take it a step further and we're going to multiply by the number of payments, all the payments, not just the 12 in one year, but all the payments over the course of the loan. And we have $250,000, well, $250,027.53. Now, once again, we're still taking another step. Once again, this can be confusing. Well, am I paying $250,000 in interest? No, no, no, not an interest, but we have to subtract our principal, which goes to the cost of the home. Your interest that you pay is actually $80,027.53 over the course of your loan. Now, this is going to be good when we're comparing houses, because if an interest rate is a little bit lower, but maybe the cost of the house is a little bit cheaper. Once again, the total cost of that house with interest included is going to be $250,000. If you're comparing two houses and you have these two numbers, like I said, everything else being equal as far as taxes, HOA, things of that nature. If one of the houses is $270,000 at the end of the day, and the other one is $250,000, which is going to be the cheaper home? It's going to be the $250,000. And that's what we have to think about because we're always focused on the upfront, the sticker price of the car or the house that's Zillow. That's not necessarily what's going to be coming out of your pocket and diminishing your wealth. Now we're talking about minute changes, 10,000 here, 20,000. But what happens when you have that million dollar house and your interest is half of a point more than it would be at another bank? That's why it's important to shop around so we could figure out what is the best interest rate and how are you going to get the best price? Sometimes we can't even get the best price without maybe even lowering the cost of the house. And that's where down payments come in. Maybe if we pay off 20% instead of 10%, then we can get rid of PMI, which is another fee associated with the payments of that home. These things we need to take in consideration when making these large purchases and figuring out how much you're going to pay for the loan. A lot of times these credit card departments, these personal loans take advantage of youth and maybe even some older adults is because they say, Hey, we'll give you the money and then we'll just give you this high interest rate. And they think, Oh, I qualify for the car. Nobody would accept me. Yeah. Nobody's going to accept you at 5%, but if they're going to charge you 16, 18, 20% for your car, you're going to be paying for that car forever and probably pay two, three, four times what that car is actually worth. And that destroys your wealth in the long run. So as a financial advisor, this is how we preserve wealth. It's not necessarily about growing your assets because if I can save you eight, nine, 10% on a purchase of a million dollar house, that's a lot better than trying to make a hundred thousand dollars in the stock market. Sometimes an ounce of prevention is worth a pound of cure because that's what planning does. Planning is not about sitting down, just writing your goals and having this woosah moment. No, it's about getting the numbers so we prepare and we can pay just what we need as opposed to overpaying because of our ignorance and not knowing. So I don't want this video to be too long, but I just want to show you that there are real numbers. We need to look at that car dealerships, realtors are not going to show you because they want their commissions and they want their ones and 2% as well. But here with these calculations, we can see where we stand and we can make a good decision for our family and keep more money in our pocket. Well, that's it for me. My name is A.B. Ridgeway and this has been another Ridgeway Report.