How To Make Big Money With The ITAO Tables
Now I'll really try to get you interested in all this math by showing you how you can use it to save yourself tens of thousands of dollars!! And I'll even give you a real life example. One of my instructors told our class this story while he was teaching the appraisal course. His friend had a 12% contract interest rate loan with a bank. The current market interest rates were 16.5% at the time his friend was selling his house. The remaining loan balance on the mortgage was $75,000 at the 12% interest rate. Using the ITAO tables, his friend showed the banker that the book value of the bank's loan was worth less than $65,000 with the market interest rates at 16.5%. He told the banker that if they would accept $65,000 as full payment for the loan, instead of the $75,000 that was the actual balance due, he would pay them off in a few months. He would pay off the loan early, rather than the bank having to wait many more years of just getting monthly loan payments. Believe it or not, the banker accepted the guy's offer and he put an additional $10,000 in his pocket when he sold his house!
Now I'll really try to get you interested in all this math by showing you how you can use it to save yourself tens of thousands of dollars!!
This guy must have been an appraiser or an economist to figure this technique out. But either way, I think it's a brilliant idea to try to save a lot of money when you pay off any of your loans. However, it's like negotiating anything else, some lenders will say "yes " to the idea, and some lenders will say "no". If you have the courage to ask for a discount, you can only get two answers and one of them is great!
Obviously, my class instructor's friend didn't tell the banker that he was selling his house. I think he just said that he had gotten some extra money to pay them off with. If you're going to do this and you don't tell the lender that you're selling the house, then it becomes a business decision for the bank to make. The bank has to decide if it would be more profitable for them to take a discount on the loan and receive a lump sum now. This would enable them to lend that money out again at a higher interest rate. If they do this, then they won't have to wait for their monthly payments to fully amortize the loan. The banker may say "no " to the discount if he feels that you're going to sell the house anyway. In order to sell your house, and give the buyer a "clear" title, you'll have to pay off all of the existing mortgages and liens on the house. If the lender knows you're getting the money to pay off the loan from the sale proceeds, he also knows that you have no choice if he insists on getting the full loan balance from you. However, if the lender thinks that he's going to have to wait many more years of only receiving monthly loan payments to fully amortize his loan, then he has some incentive to give you the discount. Try it out on your own mortgage and see what your bank says. Hey, you never know, if they say yes you'll profit big time!