Harry L. Jensen's

Acceleration Opinion

Free & Clear® Dilemma

"Mortgage loan acceleration earns an investment return for the home owner. Reducing the loan balance at an accelerated pace, eliminates the house payment and saves money."

My "Acceleration" dilemma centers around the catastrophic event.

My grandmother believed strongly and counseled me, that “No house payment. You will be better off.” Over the years, this free of debt advice has guided me in counseling home borrowers. In 1992, I even went so far as to develop a Free & Clear® Loan Acceleration Software program to help Adjustable Rate Mortgage (ARM) borrowers understand ARM components and their effect on future monthly ARM payments. The fully indexed ARM interest rate can be an eye opener.

“To amortize is the act of liquidating by installment payments” (Dictionary).

In simple terms, loan amortization monthly payments contains two components: 1) Principal (P)
2) Interest (I). The principal portion of the P&I monthly payment is subtracted from the current loan balance and ever so gradually the loan balance is reduced to zero. A thirty year amortizing loan balance is reduced at a snails pace (approximately 1% annual reduction in the early years of the loan) and paid down by approximately 50% over the first 22 years. A little extra added to the monthly P&I payment will shorten the loan term. Every payment saved is a dollar earned.

A Free & Clear® home allows the homeowner to redirect the monthly lender payment to other investment opportunities. Retirement planning must gage the impact of any future monthly housing expense against expected retirement income. If the homeowner's projected retirement income is not sufficient to cover future monthly debt obligations, the only solution available to the homeowner is to sale the home. Unless you win the lottery, are the beneficiary of an estate or do financially well in the work place, a home Free & Clear® of debt will take time, but possible with a dedication to monthly principal over payments. Every dollar added to the required monthly house payment reduces the time necessary to pay down the loan to zero. A home, Free & Clear® of monthly lender payments, makes for a satisfying retirement experience.

Protecting the investment becomes the primary concern.

Properly insuring the home, to protect the financial investment, is critical to long term financial retirement planning. The cost of insurance can be expensive when trying to cover, not only fire and liability, but earthquake, wind, flood, inflation cost, building code changes, termite destruction, etc.

A high deductible may kill any hope of home repair.

For what ever reason, many home owners do not understand their home insurance coverage. Along comes a open area fire (San Diego County), a hurricane (New Orleans, Coast of Florida) and the aftermath of property destruction often includes conflicts between insurers and insured. Mortgage lenders are at risk of losing money, if the insurance company refuses to cover the outstanding loan balance. Catastrophic events are sometimes responsible for homeowners losing all hope for rebuilding the home, if the insurance policy doesn't cover certain calamitous events.

Litigation among those concerned favors the legal community. The insurance industry will do what is necessary to protect the interest of its shareholders and the insured property owner will demand insurance company performance to rebuild the home. The one sure winner in any claim dispute is the legal system. Litigation is time consuming and expensive. The disaster has displaced the homeowner and lawyers litigate the claim. Rebuilding can take years.

What the USA needs is a National Disaster Insurance Fund (NDIF).

The NDIF must have state and federal tax exempt corporate status. The board of directors would be comprised of 50 state governors and 100 property owners elected every two years. The board would meet twice a year. The CEO would be elected by the board and reaffirmed every two years. The operating administrative budget of the NDIF could not exceed $2 million annually or 1/2 of 1.0% (0.5%) of the fund's balance which ever is lower. The $2 million administration cost would include the travel, lodging and meal cost of the board of directors for each board meeting. Mandatory membership would be required of all improved property owners.

The NDIF would cover federally mandated disaster relief as declared by the President of the United States. Once the President declared an area eligible for disaster relief, the NDIF would be mobilized to provide all property owners immediate financial assistance and relief. The NDIF would be responsible for the property improvement repair and rebuilding of destroyed property. Commercial, farm and residential property would be covered by a NDIF policy.

The cost to each improved property owner would be ten cents (10c) per square foot of usable space. As an example, the NDIF cost for a 1000 square foot house would be $100 per year. A 10,000 square foot office building NDIF policy would cost $1,000 per year. Depending on annual disaster expenditures, the annual cost to the property owner would vary depending on the projected NDIF financial requirements.

This is truly a shared experience and in control of the property owners and not government. Citizens helping citizens in need without depending on social services, FEMA or the good will of the politician. Control is by the governed not the government.

That's the ticket.

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