Investors Kitchen: An Equity Recipe

A Food Channel Parody.....

Welcome to the food channel for investors today’s recipe is for making a dish called ”equity”.

Today I will show you how I ”bake” more equity in my simple interest second mortgage with the same paycheck, paying the same bills and not reducing my lifestyle or cutting back on expenditures.

To do this we are going to grind up some daily interest payments and turn them into principle payments and at the end of the month we have much more equity produced from our monthly payment then in previous months where we didn’t use this recipe. That’s how we make our equity!

If you’re like me you got a 1st mortgage due on the 14th of the month and the majority of the rest of your bills are due after the 14th of the month, they trickle in until the end of the month. I also have a second mortgage due the first week of the month. I use to deposit my paycheck into my checking account and pay everything from there, frequently paying the bills and mortgage earlier then I had to pay to get a good credit rating from my creditors.

But that’s the old recipe to make equity in my mortgage.
Today I am showing you a new recipe, which uses the same ingredients, mixed differently to create more equity.

Now to begin this recipe we deposit our paycheck, which comes on the first Day of the month, in our checking account, but then transfer our entire paycheck, to our simple interest second mortgage as in paying the second mortgage with the whole paycheck. And we leave the money there, until we need it to pay our first mortgage on the 14th, paying any early month bills when due from the second mortgage. Then on the 14th of the month we do the same thing, deposit our paycheck into our checking account, but then transfer our entire paycheck, to our second mortgage. Then we pay our 1st mortgage and monthly bills, BUT only when they are due AND not early. This allows the two monthly paychecks to sit in our second mortgage reducing the principle balance for the majority of the days of the month.

This recipe results in a lower principle balance throughout the month, a lower principle balance at the end of the month and MORE equity at the end of the month. As you can see we used all the same ingredients we just changed the way we mixed them and we baked up more equity!

How and Why does this recipe yield more equity?

If we look at our simple interest loan calculator and we take our simple interest rate of 6% multiplied by our principle balance and divide by 365 days to come up with our Daily interest payment. Every month when we make a payment, a portion of it goes to pay the daily interest since the last payment and a portion goes towards the principle, thus reducing our principle balance. Once we reduce the principle balance the bank has to recalculate our daily interest payments using this new lower principle balance and thus results in lower daily interest charges, which means more of our next payment goes toward principle and less towards interest. Thus our principle balance is reduced and our amount of equity is increased.

Therefore we see how important the daily principle balance is because it determines our daily interest charges. Plus we see that the more days of the month we can lower the principle balance the more days we reduce our daily interest payments because they are mathematically connected.

Daily interest payment = yearly interest rate times the principle balance divided by 365 day in a year.

Yearly interest rate and principle are in the numerator and days in the year is the denominator. Anything which reduces the numerator reduces the sum.

So by reducing the principle balance with our two paychecks we reduce the numerator and therefore decrease the sum , which is the amount of daily interest we are paying per day. Notice that the more days we leave the money from our paycheck in our second mortgage equals more days the principle balance is reduced and the lower amount of interest you have to pay.

So that’s my recipe for increased Equity. It tastes like more of my money in my pocket and less money in my bankers pocket, and that is a satisfying meal !

✍️ Written By Shortsegments.

Picture Source : https://www.shutterstock.com/search/Cooking+money