39 - Wednesday, October 5, 1988 - North Shore News BUSINESS MAKE ENDLESS AMORTIZATION DISAPPEAR lortgage ma IT’S MORTGAGE magic time! First, I’ show how an ap- parently endless amortization can disappear and hey, presto! — a pile of cash suddenfy bursts out of your pocket. Then I'll break the magicians’ code by explaining how you can perform mortgage magic on your own. I have been preparing this show for you ever since mortgage rates broke through the 12-per-cent level. I know a few rates have dropped back again, but I’m sure you — and your pocketbook — will still enjoy my performance. Let’s take a modest-size (at least in some parts of the country) mor- - tgage of $60,000. The amount of . the mortgage is not as important as the payoff period (the amortiza- tion). If your $60,000 mortgage is calculated monthly at 11 per cent interest, a 25-year amortization will produce a $588 monthly pay- ment — and a total interest bill of $116,400. (Of course, you must also repay the original $60,000 mortgage as well.) . If you choose a 20-year amor- tization, your monthly payment will rise to $619 a month — but your total interest bill will drop to $88,560. . In other words, an extra $31 a month will pay off your mortgage in 20 instead of 25 years and save you $28,000! if that isn’t magic, 1 don’t know what is. “But where’s that pile of cash in my pockets you promised?’? you ask. ‘‘I love your magic but so far it’s all smoke, mirrors and paper profits.”’ : Ah, but the show isn’t over. Gay after me the magic words, “Ig- nore-and-pay-on.”’ At the end of 20 years, you ig- nore the fact your mortgage is gone and pay on for another five years, as if you had taken out a 25-year, mortgage. But now, through automatic deductions or postdated cheques, make those payments to your RRSP or other investment program. The $619 a month, compoun- ding at eight per cent, will produce a pocket-bursting $45,482 by the end of those five years. (This same trick works with any new or existing loan: shorten the payoff period to see some magic interest savings, then continue your payments — to yourself — for more amazing results.) To their credit (and your profit), many financial institutions have presenis ~~ Puerto Rico Travelogue film narrated in person by STEVE GONSER TWO LOCATIONS — THREE SHOWS North Van CENTENNIAL THEATRE Thu., Oct. 6 — 6:00pm & 8:30pm Res.: $10.50, Stu. $7.00 VANCOUVER ORPHEUM Wed., Oct. 5 - 6:00pm RES: $11.00, 9.75, 9.25, Stu. $7.50 TKTS AT ALL VICICBO OUTLETS INFORMATION and CHARGELINE ph: 280-4444 (ticket prices subject to service charge) introduced mortgages which aliow you to save thousands of dollars on interest by making extra pay- ments. * Royal Trust, for example, notes that a 25-year, 11-per-cent $50,000 mortgage will cost $94,700 in in- dollars and sense Michael Grenby terest. But pay off 10 per cent of the principle ($5,000) every year, double up your monthly payment once a year -~ and save $73,700 interest. You will wipe out your mortgage in seven years, five mon- The general rule for paying off non-deductible debt: if you can earn a higher rate of return — after tax — elsewhere, with no risk or expertise, go for it. Otherwise, knock off the debt. Exceptions to the rule? Of course. A large, low-interest assumable mortgage could be a good feature if you pian to sell your home a reasonable time be- fore the mortgage comes up for renewal. An emergency reserve could be more important. Putting all your spare cash into paying off debts could leave you strapped if you suddenly found yourseif:-out of work, needed cash and were un- able to borrow because you had no income to make the payments. Depending on your tax bracket and various other factors, you might be better off to contribute to your RRSP, and then use your tax refund to pay off personal debts. Back to mortgages for a mo- ment. Consider this approach when you calculate how much home you can afford: List all your monthly expenses and deduct this total from your after-tax disposable monthly in- come. Use that figure to determine the size of your mortgage (amor- tized over 20 years or less). Add that mortgage amount to the money you have available for a down payment, and that’s the maximum value of home you can afford. Royal Trust’s Homeward Bound, a 14-page booklet, has several checklists and worksheets to help you choose the right home at the right price with the right mortgage. You can get a free copy from any branch or phone 1-800- 387-1808 weekdays. Canada's largest chain of paint and wallpaper ... 245 stores ‘anada to . stores across C serve your decorating needs. ineering A joint programme, St. Lawrence College and The Canadian Armed Forces. . Programme benefits. 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