Episode-952- Listener Calls for 8-3-12 — 42 Comments

  1. Re: Mortgage

    I won’t address the issue of having cash on hand vs. paying the loan down, but if you make extra payments it will technically be better than paying the saved-up amount at the end of a (let’s say 12-month) cycle.

    On the other hand, the difference is probably not hugely significant. It might be easier to save up the payments just because it’s easier to make 1 big payment a year.

    I did the math and assuming you had 100,000 loan at the beginning of 2011 with a payment of 536.82. At the end of 2016 you would owe $95,210.95.

    If you paid 200 extra every month, the outstanding amount at the end of 2016 would be 87,439.24.

    If instead you saved the payments and made them in Dec of each year, at $2,400 per year, the outstanding balance at the end of 2016 would be 87,615.74.

    So you can see the monthly payment is better, but not really by much. If interest rates were much higher, the difference would be more meaningful.

    For my money, given the difference above, I’m more interested in the convenience of payment. For instance, in my case I can pay Wells Fargo online, but there isn’t a good way to indicate an extra payment should go toward the principal. Therefore, I would prefer to save the money, and make a written payment once per year. The reason is that on the physical coupon I get from them each month, there is a place to explicitly put the extra amount toward principal that way I KNOW it’s being applied according to what I want.

    • Thanks for taking my question, Jack.

      So they do calculate the interest due each month based on the real-time principal owed? I thought they didn’t – that they just charged interest according to the original schedule, regardless of whether you put extra towards principal or not, and that in order to get them to calculate a new schedule, you had to ask them to re-amortize it, and that they weren’t under an obligation to do that, and most banks would do it like one or maybe two times during the life of a loan.

      • Interest is calculated based on how much you owe, anything else would likely be illegal and at minimum violate the contractual agreement that is the loan. Your payment is set ahead of time and won’t change (unless they reamortize). Even if your first payment paid off 99% of your house, the next payment would stay the same and the ratio of interest/principal applied would change (in that case interest would be almost nothing).

        You can confirm that each month by calculating the interest yourself. It should be amountowed*(interest/12) (or something very close to that). There are some alternative methods used..but I think 1/12th is the typical way that banks calculate interest on a traditional mortgage. (not talking about arms and all that…)

        The previous payment distribution should be shown on the current month bill and on your monthly statement you could calculate how they applied the payemnt. After you calculate interest for that month, subtract it from the payment and what’s left is the amount applied to principal.

        • I thought you were right, and you might be, but I went to an early mortgage payoff site and did this example, and this is what they show:

          Payment 44 $2,275.44 $1,864.90 $410.54 $343,879.25
          Payment 45 $2,275.44 $1,862.68 $412.76 $343,466.49
          Payment 46 $2,275.44 $1,860.44 $415.00 $343,051.49
          Payment 47 $2,275.44 $1,858.20 $417.24 $342,634.25
          Payment 48 $2,275.44 $1,855.94 $419.50 $342,214.75
          Payment 49 $2,875.44 $1,853.66 $1,021.78 $341,192.97
          Payment 50 $2,875.44 $1,848.13 $1,027.31 $340,165.66
          Payment 51 $2,875.44 $1,842.56 $1,032.88 $339,132.78
          Payment 52 $2,875.44 $1,836.97 $1,038.47 $338,094.31
          Payment 53 $2,875.44 $1,831.34 $1,044.10 $337,050.21

          The columns are total payment, interest payment, principal payment, balance remaining.

          Notice how the principal payment increases dramatically when the extra $600/mo is made in month 49, yet the interest barely declines – in fact it declines at pretty much the same rate it has been declining.

          So again, I’m not saying you’re wrong, but if you’re right, this very well known big company might have mathematical errors in their calculations, or at least the effects are minimal I think.

          Seems to me given this, even if you’re right, might be worth stocking this up in savings and just paying a big lump every so often (I’d say less often than once a year – maybe just one big ass payment at the end). But I do appreciate your effort & analysis – thank you!

    • metaforge,

      The extra principal payments do indeed result in you paying less interest essentially immediately. The request to re-amortize a loan is actually different and is designed to achieve the result of a lower monthly payment after paying the extra principal so that the duration of the loan remains the same as the original term.

      I think Jack covered the response pretty well in giving you all of the various options. My simpler response would be something along the lines of making sure you have a good emergency cash (in savings) fund built up and then start paying the extra on the mortgage. Yes, there could absolutely be conditions in which you might want the $100,000 in savings rather than $100,000 in equity but for the likely, and even remotely probably situations, once you have a large emergency fund, putting extra cash flow into the mortgage every month certainly makes sense to me. I would not recommend putting all or most (or perhaps even any) of the spare cash-flow into extra principal payments (on a mortgage) until you have a good reserve fund built up.

      One additional note, while we should generally avoid ‘feelings’ when making financial decisions, I can say that as long as something makes good financial sense, taking feelings into account as a secondary consideration seems fine to me. There may not be much harm in having a mortgage at today’s low interest rates but the feeling of not having a mortgage and owning your home outright is pretty powerful and it may free you to think more clearly when making other life decisions.

      • Thanks for the response, Jeff. I tend to agree with you wrt feelings, and I think it’s even more – it’s experiences. I’ve borrowed on “good debt” for business and houses before (safe, right?), and I’ve ended up with my ass kicked. As far as I’m concerned at this point ALL debt is BAD debt, and I just want it gone.

    • From my experience I can say, there are financial calculators which show you in detail how to payoff mortgage early. The calculator which I use is ” Smart Loan Calculator Pro ” which is available in app store for 2 bucks. It is awsome. It is not for one time. It is life time useful smart calculator. Give it a try. I guarantee, you would thank me after you download and check it. After checking this, I realized how easy to payoff martgage early.

  2. Re: Metal garbage cans

    I use lots of metal garbage cans to store animal feed. It keeps the mice out most of the time. If I do my part and keep the lid on tight it keeps them out.

    • I do the same thing. However, I had the bottom of one of the galvanized metal cans rust out. It was set on bare earth. So I have started to make sure to either put it on a concrete pad or one of those cement squares that you can buy. So far, so good, the bottoms are staying fine.

  3. Jack-
    Thanks for taking my call today! You made some excellent points about why having a well represented populace is a really great thing.

    I did have some info for you, re: taxes. In NH individuals only pay property tax and a “rooms and meals” tax. There is no income or sales tax. That means I pay my $5,000 to my town for property taxes (1.9% of my homes value) and 9% every time I eat out. Besides that, the state of NH collects 0 money from me. NH residents pay the least percentage of their income in taxes out of all 50 states. See page 4 here: (I only mention it because you said TX paid less taxes). NH does have a corporate income tax though, and I believe TX does not.

    At any rate, things are going GREAT here in NH, hope to see you at Liberty Forum again next year.


    • @Kyle, you also pay taxes on interest and dividends and I am sorry but convincing me that 5K in annual taxes on property equals low taxes is going to be one hell of a tough sale.

    • @Jack fair enough, I agree $5k is too much but when compared to what I was paying in AZ, it’s a welcome relief.

      I’d really like to see 0 property tax and just a consumption tax (a la the Fair Tax), but I don’t see that happening on a large scale. Which is too bad.

    • Property taxes are cheap in NV too. And no personal or corporate income tax of any kind, just a sales tax. I gotta think we’re one of the lowest.

      But…. in Alaska, they have no income tax, and many local municipalities also have no sales tax. On top of that, they actually pay you to live there via the Permanent Dividend. That has got to make it the winner. Sorry NH – no way you are #1. 🙂

    • NH is far from perfect and thus we are working on it but in general, the story is somewhat better than some responses have indicated. One of our former governors (Mel Thomson) had a saying “Low taxes are the result of low spending”. Some states have fairly low taxes but their spending exceeds their tax income and thus debt grows and it is just deferring taxes to the future.

      Any ranking of the states for things like taxes is going to be incomplete as for example tax rate on property in Tx is somewhat high but this is more than offset by the lower property values in Tx resulting in the dollars paid per year being lower so one would be misled by a raw tax rate per thousand comparison.

      This site attempts a complete comparison.

      Let me be clear that I think this is just one way of looking at the data and it probably has some spin to it but it actually ranks Alaska as the worst in the country (see what I mean about spin) but the data behind it factual though at times misleading. Still the data is interesting as a jumping off point to do more digging if one is interested.

      • It’s really pretty nebulous, as it relies on “share of federal inflow”… do the feds put a lot into Alaska? Sure. If they stopped, what would the effect be? Would a lot of Alaskans get hurt? Probably. Especially if your business is structured on things related to the military bases and such. The oil’s still there – if that runs out, sure, Alaska will get hurt. I’m not saying it’s a panacea, but one can always move with ones feet if times get tough, and AK is insanely rich with natural resources – even if the feds pulled the rug, I think most would be fine. I like what you guys are doing with the free state project, don’t get me wrong, and I want to see you succeed. But as long as you have an income tax of any kind, even if it is just corporate/interest/dividends, you are not #1 in my book. Freedom involves not turning your books over to the state *at all*.

  4. Re: The TSP community — I truly feel like Jack’s common-sense approach to “survivalism” is what seals the deal for most folks. He doesn’t sound like a member of the foil hat club, and he generally discusses topics that aren’t off-putting (gardening, getting out of debt, things that folks can do every day to make things better NOW.)

    Jack, I know you say “The revolution is you,”, and that’s true, but you’re definitely a powerful gathering force. Thank you! The revolution has to start somewhere, right?

  5. I always thought a great way to have meet-ups with other tsp’ers would be to have a thread on upcoming appleseed projects. People going to a shoot could post the date and place they were going to. If you want to meet another TSPer go to that one, or hope someone sees and comes to the one you post. What better place to meet a TSPer?

    • I plan to do an Appleseed shoot in a few months and think this would be a great idea.

  6. Jack you need to come up near Michigan for a show LOL,I have been a listener for over 1 year now. I bought my homestead 8 months ago and havent even had time to participate in the online TSP community I hate that I have not had the time between work and the 10 acre log home homestead but dont let it fool you a homestead will keep you busy..

    cutting firewood, building hugelculture garden, rain catchment sytem for garden, trimming trees, planting fruit trees and berry bushes and filber bushes/Hazelnut. I tell you what I havent work so hard in a long time but it is so good for the soul and mind, I never felt so good after working so hard.. I have more critters coming in to my animal feeder right outside our bay window, so many deer and right now spotted fawns, turkeys with there babys and every critter you can think of.. The wife and I comment everyday with this sentence ” have I told you home much I love our new home” its been so awesome.

    Jack I am glad you answered the question about paying the home off if you have a incredible interest rate, I was lucky and got 3 1/4 % on my new place..
    Well love the show Jack keep up the good work..

  7. Thanks for another great show. I sure hope the Alaska caller returns, too.

    On a side note, I’m curious as to what you think about the jobs reports spin this week.

    Also, I am finding more normalcy bias among the folks than I would have expected in these times. Even the gun owners on a prominent Austrian handgun forum poo-poo the economic mess that we are in. You can’t talk to these people. They don’t want to hear it. Oh well, you can lead a horse to water, but you can’t make him drink it.

  8. Just a quick note on the rice for or from storage. You can also soak rice before you cook it, and it cuts your cooking time way down. My wife and I soak ours before cooking anywhere between a half hour and an hour. This cuts its cooking time way down to less than 15 minutes, almost becoming minute rice. The texture and flavor come out fine, I would say the only downside is you have a shorter window between crunchy and cooked to shit. So you can’t just walk away from it.

    We figured that our when trying to avoid using the stove in the summer here in Tucson. Our house is hot as all get out. Just figured another option for people that don’t have a dehydrator, but still have a fuel situation.

  9. @ Brent – don’t know if you’ll get to read this, but all the work you’re doing “today” WILL pay off and the maintenance will be easier down the line a ways. I was in your shoes 18 years ago and the investments now return the dividends as you get older and have less energy. That is, except the firewood. I don’t think that ever gets easy, even with modern implements. Good luck and keep on keepin on!

  10. Jack…
    Off topic: I saw this ad on an early morning TV commercial that said to call this 800 number to vote to force Obama to prove who he is (real documents) or the Democratic National Convention will have to find another candidate 1-800-588-0773.
    Got any thoughts on this, have you even heard of it yet.

    • @Craig are you familiar with the phrase, “you’re trying to push a string”?

  11. In your mortgage answer you said money was so cheap you would borrow rather than pay cash so you would have the cash. Would you borrow against a paid off house to have cash? I wouldn’t, it’s the same thing

    • @Thomas Kime, you are trying to use my own Jedi mind trick against me. It won’t work though because right now the answer is I might, I would depend on many things. What is the house worth and how much would I borrow? What do I want to do with the money? Am I completely free of other debt? What is the condition of the existing property?

      Debt is a leverage tool, the problem is people have been suckered into leveraging against depreciating assets. Cars, trucks, electronics, college educations, etc. All of these drop in value, and yes I said college educations. A masters degree in 1980 was worth a crap load more then today and not just do to the recession.

      People would point out that houses have lost massive value in the great recession, this is both true and false. If we remove NV, CA, FL and NY it really doesn’t work out that way. Value was still lost but not much. If we further remove what I refer to as “islands of real estate stupidity”, which is anywhere idiots were regularly paying 350K for a very average 3 bedroom house on a tenth of an acre or less we find the market even now fairly stable.

      I don’t know if you were around back when I sold my Arlington house but there were countless questions from the audience as to how I could possibly sell in such a market. We sold the house for the asking price in three days after the listing went live.

      I am a business person with the mindset of such and so I understand the two edges of the debt sword. I understand leverage and what this tool should be leveraged for. On smart property buys right now with 3.8% rates on 30 year fixed loans there is room for such leverage. To be blunt one can get about 5.5% on a guaranteed cash flow on a 30 year annuity right now. It can even be done as life insurance with 5.5% over three years with the remaining principle paid to a beneficiary in the event of the account holder. So one could effectively take out this 30 year mortgage, have the annuity make the payment on the P&I and make 1.5% on other peoples money and do so in a way that is about as safe as anything can be for a modern human. I wouldn’t do it that way but it does make a point.

      • Dave Ramsey would say you are not factoring in the risk
        even with all you have said most people would not borrow money against a paid house to have cash on hand. I’m flipping burgers part time on the side to get my house paid off ASAP 5-6 years I figure, then I will be 100% debt free and im never going back. Prov 22:7 The rich rule over the poor, and the borrower is servant to the lender.

  12. I moved out to West Texas because I wanted to have a true rural end-of-life life and did a web search of population density of Texas counties. I wanted to stay in the state because I knew what state laws were that applied to females and Texas has good laws for women. Jack would like it because there is no alimony, only child support. The problem for me was that the powers that be did not really enforce it so I had to raise my son on what I earned, which isn’t much and still isn’t that much with women still earning less then men. I also remember the bag ladies of older women kicked out by husbands marrying younger women after the first wive has worked at home throughout her life and with no work history. I think alimony needs to be put into place until the equal rights amendment is passed and laws are in place prohibiting discrimination of wages. I worked for an attorney and was making about $8.00 an hour. I read an economic report of a laborer injured in a case. He dug ditches and made $13.00 an hour. It is not equal pay for equal work–it is equal pay for skills. The clerical is pretty much all women and the work is quite skilled, particularly with knowledge of computers, diplomacy, and high language skills as compared to many jobs that are held by men.

    But as I reached retirement, I found a property that looked good and the population density was 1 person per square mile. I bought it and enjoy the sense of nature I live in as opposed to the suburban life of constant noise.

    It was a hunting subdivision with 8 units and me the only full-time resident. I figured what with all the collapse prognostications I was reading about (before listening to The Survival Podcasts), I should try to form a mini-community of interested persons. My solution was to go to the local pertinent counties (two of them) and get the mailing addresses of all the owners. I then mailed everyone a letter introducing myself and asking if they would be interested in joining an internet e-mail group that I would set up with only property owners and their relations as members. I got near a 100% response and eventually did get a 100% response. Following that we had a meeting at my house of a potluck meal and the local game warden coming in to give us a talk.

    There has only been one other face-to-face potluck, but the e-mails stay pretty active. In fact, I found out my immediate neighbor was not the good guy he alleged himself to be. He was using a crew of brush beaters and those 4-wheeler runarounds to herd deer in all the unsecured and/or unfenced pastures around to run into his property with a 12-foot high game fence. He was never invited to join and recently finally sold out.

    Although I am a lone survivalist now most of the year, I figure when collapse comes and I am still alive, my neighbors will be here and I can help them get started showing them how to prepare ground that is 25% soil and 75% rock for gardening and what plants survive the extremes of winter and summer.

    There are too many invasive species of deer now, but as economic conditions worsen, there is much more poaching and these numbers are diminishing.

  13. Yes, absolutely, pay your house off early. Two hundred dollars extra on the first month saves you that interest for the entire length of the loan while the same two hundred means almost nothing at the end of the loan. Before you start paying extra make sure you have some cash set aside. The number I have heard, and agree with, is eight months worth of cash. That means ALL your living expenses for that period without tightening your belt. It does you no good to have your mortgage paid ahead if you lose your job and can’t make next months payment.

  14. RE: Mortgage acceleration

    In addition to making the extra payments on principal, which is great.
    Pay the same monthly payment you would normally pay BUT, instead of making one payment per month, divide it in 4 and weekly payments. You pay the same amount per month but you pay it in 4 installments which slowly decreases the amount of compounding interest. Since the interest compounds daily, making weekly payments will cut that compounding.

    • While this is an excellent idea, I know from experience that not all banks will let you do this unless you pay a month ahead. In other words, let’s say you wanted to start this process for the mortgage due on 9/1. You’d have to make your mortgage payment on 9/1 and THEN start weekly (or semi-monthly) payments so that your mortgage for 10/1 isn’t late.

      My MIL tried this on her own with her mortgage company, and even though she was paid ahead, they held her payments and didn’t apply them ’til they had received the total mortgage payment for the month because she didn’t “sign up” for a different payment schedule. (IOW, she paid a mortgage payment 2 weeks before it was due so that she could start paying semi-monthly. When she sent the first half payment though, they didn’t apply it ’til she sent the other half of the payment.)

      Banks don’t like you using those tricks, and that’s why they make it hard sometimes. Same thing works great on credit carb debt too if you’re still trying to pay that off.

  15. Jack, thanks for bringing up the 17th Amendment issue. I believe this is more important than the 16th Amendment and the Federal Reserve Act combined, because Federalism died, or was stolen, with it. And, interestingly, according to my understanding of the Constitution, Article One, Section Four, the Congress didn’t have the constitutional right to change where senators were chosen without first amending the constitution to change said section so that they could even discuss such an idea: I could be wrong on this, but that’s how I read it.

    Anyway, while I don’t particularly care for WND, this article by Devvy Kidd is rather interesting:

  16. I concur with the ammo can temperature differences and trying to open it back up. My old unit had us put all our medical records in a metal medical case (same type of thing as an ammo can but about 3’x3’x1′ with worse latches) in Kuwait at about 110 degrees. When we landed in NC at about 80 degrees and had to hand them back out, the case was near impossible to open. One busted Gerber multitool and a Ka-bar later the case almost exploded on the flightline as the vacuum was broken. Papers flew everywhere and the case would no longer close correctly.

  17. When storing rice and lentils, look into dosas:
    Safe Castle has ghee on sale and butter, coconut or palm oil will work great, too! Spices repel bugs and are good for digestion.
    I am also a Free Stater. New Hampshire is awesome! Greetings to Jack, Jeff, Kyle and everyone from Liberty Forum!

  18. Heard the 2nd question about food storage from the Vegas caller and just a quick comment – I hope he has a shitload of water stored – I’d worry about that & self defense & getting out a lot more than beans & rice there, as if the SHTF, 2.2 million desert dwellers with a diminishing reservoir as their only source of water for hundreds of miles is going to get real ugly real fast. Store water, and have a serious bugout plan would be my 1st order advice, as a former Vegas (aka Death Bowl) resident myself. If you can, for Gods sake, get out of that death trap, IMHO.

    • @ Brian yeah I am slowly starting to slow down on the chores, I am actually going to meet up with a farmer that raises organic chicken and pork and see if this husband and wife would let me work for food. I really just wanna learn what there doing it, the learning process never ends even at 47 LOL. Cya Brent

    • The bitch about Vegas is there’s only 4 ways out:

      north to Utah
      Southwest to Cali
      Northwest to Cali
      and Southeast to Ariz

      None of them are pretty in a SHTF scenario. Even with those 4 you’re looking at a 3-5 hour trip to where you’re going. And in SHTF, frankly, you’re screwed. So – you’re gonna hunker down? And count on the Colarado River for your water and defending against 2M zombies? You’re double screwed. You better be Cody frickin Lundin you want to get out of that.

    • Somebody please explain to me – ala Karl Denninger – why I don’t see assholes swinging from fucking lampposts outside my community, and yet why I am supposed to obey the rule of law? The only answer for that is: honor. I have it – they don’t. Otherwise, this country is in chaos.

  19. I just watched the video of the Texas Legislation video. It out rages me as a citizen of the great Republic of Texas. This video was taken in 2007, a bit out dated but looks like they had no plans to fix this, I am sure it is still going on. But what should we do about it, in the morning I will be calling my representatives. Beyond that I really don’t now how to proceed, maybe go watch a session next year (Texas is only in session on the odd years for six months).

  20. Jack,

    just listened to the podcast today. gotta say, i laughed loud & long @ your coining of the new phrase, “assclown house.” thank you for making my day a bit brighter.

  21. You may have better luck opening the ammo can with a drill rather than a sledgehammer; just a thought.