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UNDERSTANDING FINANCING
WHAT YOU NEED TO KNOW
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Over the years I've noticed that most people know little to nothing about financing, how money works and how to figure compound interest. It's not our fault really, we are never taught this in school. Why they don't teach this fundamental fact of life is for another time. But it is how our system works and how we pay for everything in the US is through financing. For instance if you have a credit card and you go purchase a pair of boots for $500 and you make the minimum payment and your interest rate is 27% do you know how long it would take you to pay off that pair of boots and how much you would really have paid for them?
$500 $15 per month @ 28.9% would take 5 years and 8 months and would have cost you a total of $1,023.37
Now let's see what it would cost you for a home in the United States over the life of your loan.
The median cost of a home in the United States for May 2025 is $368,751.
The median interest rate is 6.85 for a 30 year fixed mortgage.
Your monthly payment will be $2409.72, your property tax will be approximately $368, home insurance will be $125, miscellaneous cost of about $333.33.
But let's forget to use all of that and only focus on the mortgage and property taxes that you'll have to pay on a 30 years mortgage.
$2,409.72 per month for 360 months total's $867,500
If you keep the property up and maintain it and are in an area with good appreciation then you might do well.
But you still paid 2.7 x the original purchase price.
Now lets look and see what would happen if you paid one extra thousand dollar a month to your mortgage payment and let's compare it side-by-side with if you only paid one extra house payment a year and see what the results are.
Adding $1,000 per month
Adding $2,409 per year
So we can clearly see the effects of compound interest over the course of paying off a pair of boots or buying a home in the United States in the next 30 years. But what about investments. How does the effects of interest plays in how much you will have at retirement?
The following three illustration shows how long it takes to double your money if it's in a cd or brokerage account versus a fixed indexed annuity.
The second illustration shows how long it takes to double your money and how that will affect you over the next 40 years.
Third and final illustration shows the effects when you take into account paying of yearly taxes and a CD or brokerage account and how that will drastically affect your retirement.
If you need further explanation of this or any other financial advice feel free to reach out to us. We help people with all aspects of retirement including knowing what to expect with your Health, Life, and Annuity insurance.
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