arayder wrote:Some folks are simply financially illiterate. I have known adults who were dumbfounded to learn that the total payment of the loan on a $15,000 car amounted to more than $15,000.
When you think about it most folks eventually run into some sort of financial term or function they don't understand. Ya' gotta' figure it's better to ask, "What's that?" and "How does it work?" than to think you are going to embarrass yourself by asking stupid question. It's no problem anyway . . . I have yet to have a financial advisor look crossways at me because I didn't know a principle from a principal.
If I recall Crawford adopted a mortgage payment plan by which he paid only the interest. After a time he would be obligated to pay the principle. When that time came Tom just figured he'd paid enough. I figure he simply didn't know what was going on and didn't bother to ask. I suspect he had/has some sort of inferiority complex that won't allow him to admit he's ignorant about something.
I figure the way to make the interest only payment thing to work is to religiously invest money that's the difference between the interest only payment and a "full" payment. Before the call to pay the principle comes in you cash in your investment, pay the principle and keep the earnings from the investments.
That's what, in theory, the endowment policy was for. As I understand it, it was essentially a life insurance policy. If Tom died, the death benefit would pay off the mortgage. If he lived, the increasing cash value would have (again, in theory) been enough to repay the principle, when the balloon payment came due.
Unfortunately, Tom and Sue, for some never-explained reason, stopped making the premium payments on the policy a year or two after the loan was taken. The insurance company then paid the little cash value he had, something on the order of 175 pounds, to the lender, which did reduce the principle. As far as I know that was the last that was ever paid toward the principle.
In reality, I believe that these endowment mortgages did not, overall, perform as well as expected and many borrowers who paid the premiums diligently, still found themselves short of funds when the balloon went up.