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Borrow Against Your Home And Pay Your Credit Card
ay you hire a worker at an Because you don't give a shit on
expensive price, then a the sort of yield he'll get.
poor immigrant is willing
to work for you at a fraction of All you care about is how much
the cost. What would you do? You from that 100% yield will he
fire the expensive citizen worker share you?
and hire the immigrants. See?
If both say that they will share
The same way, if your credit card you 10%, which one will you
company charges higher interest choose? The safer investments.
rate than your bank, you should Usually higher yield investments
hire money from the bank instead. are riskier. So, when both say
It's the principle of appeasing the will share you 10%, you will
the lesser evil. The thing is why choose the business yielding 20%
would any bank want to lend you per year. That's why Banks love
money at low interest? lending money to low yield real
estate rather than highly
Now, we need to resort to profitable silicon valley
psychology here. Say someone business start up. There is
comes to you and says, "Lend me another even more important
money I have a huge business that reason, which I'll explain later.
can have 100% yield". Say another
person comes and says, "Lend me
money, I got a standard real You don't care how much yield a
estate business that yields 20% businessman will make. You care
per year". Which person would you what your share is. That and the
give your money to? The one probability that they won't pay
giving 100% yield? your loan.
Obviously it's not obvious. Why? The same way, Banks lend money to
businessmen at pretty much collateral that will minimize
constant interest rate. If the banks' problem when the debtor
businessmen make a lot of money, ditches.
the Bank makes 10% interest, if
the business makes less money, Trivia: Why Credit Card Interest
the bank also makes 10%. So banks Rate is Higher Than Mortgage?
don't care how much money
businessmen make. Answer: When you lend money on
interest rate basis, all you seek
Banks only bite the bullet when is security. To make a profit,
businessmen go bankrupt. The same your interest rate should be
way, when a bank considers a loan higher than the interest rate
to you, they don't care how your lender gives. However,
brilliant you are. They're only that's not the only factor. You
interested whether you will pay need to compensate for the
the loan or not. If they feel probability of default. Your
secure you'll pay, they lend the interest rate should be high
money. Simple? enough so that even if say, 10%
of your debtors are defaulting,
Now, how do we make bank feel you still earn a profit.
safe that you'll pay? Collateral.
You see, secured debt are debts Different Point Of View: Credit
where banks can seize something Cards, unlike Mortgages, are
if you don't pay. You'll usually unsecured by collateral. So banks
get lower interest rates this are not motivated to lend money
way. Collateral makes banks feel through unsecured loan to
safe in lending money for you. unsecured debt. So how do we
This is the second reason why motivate them to lend money? By
banks love real estate. Real agreeing to pay higher interest
estate loans always come with rate.
Morale: As with anything, after a I'll explain more about
bunch of regulation, the market bankruptcy later.
will sort of take care of it.
More pain for a bank usually However, if your debt is not neck
leads to bigger share for it in deep and you obviously can pay,
another form. this is obviously the way to go.
The worst is you live on welfare,
As usual, I put a few simulations right? Doing this right can help
for this advance strategy. I also shorten your loan payment period
put an in-depth analysis to or cheapen your payment.
explain why this advance strategy
is possible. You should compare Loan interests go high because
the simulations of this strategy banks are taking risks that some
with the simulations of the basic people won't pay their loan.
strategy Hence, by paying high interest
loan, you are paying the loan of
Conclusions those who don't feel like paying
loan.
Is it for you? Well, I won't jump Maybe you think it's unfair that
to conclusions. If you're some people don't pay their loan
determined to pay, go ahead. expecting you to pay for it.
However, for all the bank knows,
However, if you're not, this can you are potentially one of those
make you loose your house. You people.
see, that's the downside of
collateral. It's a secure debt so Unless you can convince your bank
you cannot hide behind bankruptcy that you're not likely to default
laws to prevent banks from taking on your loan, the bank will think
it. that you're a potential
defaulter. interest rate where on average,
the bank still gains its usual
You see, unless you have a low interest rate plus some
credibility or collateral, the amount to compensate for the
bank will automatically think extra risk.
that you are partially a
defaulter. If the default rate in By signaling to the bank that
your country is 20%, for example, you're not one of them through
then the bank will look at you as collateral, you only pay interest
if you've decided to default (on for what you owe rather than
average at least) 20% of your paying for those who don't pay
loan already. their loan. Hence, you get
cheaper interest rate.
Here, the bank will give you an
About the Author:
Jim Thio is a silver medalist in International Physics Olympiad.
He uses his Math skills to provide free financial, business, and marketing advices in
http://FasterFinancialFreedom.com/art.390.0.html
Source: www.isnare.com
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