I've found a new "Most Irritating Caller" winner

I'm currently listening to the Dave Ramsey Show and there was this one caller who called wanting to argue how idiodic payments on an amortized mortgage. Here is her arguement that made me so angry at how inept some real estate "experts" can be.

She tried to make the arguement that in the first payment on a 30 year mortgage one is paying 500% interest!!!!! How idiodic, Dave tried to set her strait but she did her best to stop him.

For those of you who also, don't know how an amortization schelude works here is a great description I was able to find online, http://www.ruralfinance.org/servlet/BinaryDownloaderServlet?filename=1133308852080_Lesson_4_interest_rates.pdf

If you read it, you will see that the interest rate is calculated at the beginning and interest payments do fluctuate as the payments are made, but this is not the major issue here. The reason mortgage payments are on an amortization schedule is most home owners would like the convenience of fixed payments so making a budget is easy. In the first payment, typically most of the payment goes to interest. This, however, (lets say $825 of a $1000 payment) is not the interest rate!! This, as a percentage to the principal, is 471% of the payment. the interest rate is calculated as shown in that link provided, thats how the interest rate and monthly payments are kept constant. If you're given a 5% mortgage, even if the first payment is 500% interest, your last payment will be less than .1% interest and over the course of your loan if you don't make any payments early or late, your total interest payments as a percentage of your total loan amount will be 5%. Your rate will be less of course if you pay early each month and your rate will be vastly more if you pay late because of late fees and back-interest.

Please comment if you want to learn more about this

I'm making a change to my baby steps

Here's a list of the baby steps and my current progress through them:

1. $1,000 baby emergency fund - Done
2. Debt Snowball - Done
3. 3 - 6 months expenses in emergancy fund - Done
4. Saving 15% of pre-tax income towardretirement - Not done
5. College funding for children - Close
6. Pay off home early - I don't own a home
7. Build/Enjoy wealth, give - Not done


Those are the baby steps as prescribed by Dave Ramsey, below is how i've ammended them for my personal jouney. I've added a step in bettween 4 and 5 to increase my emergancy fund to a whole year of living expenses because I had the sub-prime collapse hit really close to home when Shanna's (my girlfriend's) father was laid off and was out of work for almost a year because the job market was so bad. Also, baby step #5 is really meant for saving for kids college, but since I don't have any kids and am currently still in college myself, I've adjusted the meaning of that step to apply to me. Also, since I am a college student and not working for 6 months of the year, funding college is a bit more important as a near-term goal.

My new list of baby steps:

1. $1,000 baby emergancy fund - Done
2. Debt Snowball - Done
3. 3 - 6 months expenses in emergancy fund - Done
4. College funding for me - Close
4.5 12 months expenses in emergancy fund - Not done
5. Saving 15% of pre-tax income toward retirement - When I'm making a better salary
6. Pay off home early - When I own a home, I'll work on this
7. Build/Enjoy wealth, give - Not done