Those who have taken my note classes know I will often go over some of "the tricks of the trade" that lenders and credit card companies use to enhance their position. 




Here is the technique that you will often see at this time of the year. To get you into the Holiday Spirit, often mortgage or finance companies will send you a card that says "Ho, Ho, Ho!! Merry Christmas!!! Since you are a valued customer, and we know how Christmas can be a financial burden on you, we are going to play Santa Clause and allow you to skip the December payment, so you will have more money for holiday gifts. We will just add your payment on to your balance, and you can resume making payments in January".



Sounds good, doesn't it? Well, if you are financially embarrassed at Christmas time, this would appear to be a generous offer. Why would they allow you to skip a payment? Out of the goodness of their heart, right? Nope, let's look. 



Say you had a $100,000 mortgage @ 7% for 30 years with payments (PI) of $665.30 beginning in January 2010. In November 2010 after 11 payments, your balance is $99,071.58. So you decide to take up the mortgage company's offer and skip the December payment. This innocent act causes $665.30 to be added back to your balance. In January of 2011, instead of your balance being $98,896.32 (with a December payment), your balance is $99,561.60. Not much of a difference you say?

Well, plug this amount into PV (Present Value), and look at what happens to N (Number of Payments). You have added 9 more months of payments to your loan. In essence you now have 357 months to pay off this loan, instead of 348 months.



Start playing with your calculator further and you will see that by allowing the payor to skip one payment a year, and adding the payment to the balance, this not only increases the balance, but also increases the amount of time to pay off the loan. When credit card companies or finance companies apply this technique to revolving credit, how long will it take to pay off a debt? I am reminded of a Johnny Mathis song, "Until The Twelfth of Never, and that's a long, long time."

Finance companies want a performing note on the books for as long as possible. Every extra payment adds to their cash flow. By allowing you to skip one payment a year, this extends their cash flow, meaning additional interest for you to pay and pay and pay.



Remember, "Let your money work for you, not against you".

If you have questions or comments, please CONTACT ME. Remember, I pay for referrals if you know of someone who has a note to sell.

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Tom Henderson
a.k.a. THE NOTE PROFESSOR

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In last month's article explaining how Obamacare contradicts the laws of supply and demand and will therefore create shortages in both medical professionals, as well as individuals purchasing insurance, a couple of you sent comments taking issue with me by contending health care is a right. At a party last week the issue of health care being a right also was a topic of conversation. It seems this is a topic of interest. Although we are delving into the sphere of political philosophy instead of economics, I hope you are realizing that political philosophy and economics cannot be separated.

Without going into an academic dissertation of the concept of a "right", to keep things simple let's agree there are two types of rights; Natural Rights and Legal Rights. In other words, Natural Rights are inherent, while Legal Rights are man made.

Natural Rights are self evident such as the right to life, liberty and property. The primary property each individual possesses is the right to his/her life. As stated in prior issues liberty and property rights are actually the same thing. Unless one is allowed to acquire, and equally important, to own the fruits of one's labor, he/she has no liberty, because his/her life "belongs" to others.

Moreover, the State cannot grant Natural Rights that already exist in Nature; the State can only abolish Natural Rights.

Legal Rights on the other hand are created by the State and laws. For example, the right to an attorney, the right to vote, and yes, the "right" to health care. The State can create any "right" it so chooses. Recognize also that in a democracy, the state is nothing more than individual politicians and bureaucrats.

In last month's issue we examined the language of Obamacare. "Rights" should be another word added to this vocabulary. With this in mind, our politicians have already created "rights" with wealth redistribution programs. These programs were not called rights at the time, but rather entitlements. In other words, with the stroke of a pen, Congress has bestowed "entitlements" or "rights" to one group of people. The same can be said of medical care. Medical care is now a right, not because it is inherent in Nature, but because our politicians have deemed it so.

Now that we have distinguished the political difference between a Natural Right and Legal Right, let's examine these political philosophies. There are two questions that are completely ignored by proponents of the "right" to health care. When discussing health care, or anything for that matter as being a right, we must then ask "To be provided by whom, and at whose expense?" If a right must be forcefully provided or paid for by others, does this not contradict primary right each individual is bestowed by Nature; that the individual owns the right to his/her life, and no one has the moral right to lay claim to it.

When man made rights come into conflict with Natural Rights, it begs the question; which right takes precedent? We are back to the moral question of "Does my plight or misfortune give me the moral right to lay claim to another's life to support me?"

The answer you give to this question determines which economic system you support. If you believe no individual or legislative body has the right to lay claim to anybody's life, for any reason, then you support individual liberty and free markets. Likewise, if you believe a person's life situation gives him/her the right to lay claim to others' life to support him/her, you advocate the philosophy of from each according to his ability; to each according to his need; and the socialist system of economics. Political philosophy and economics cannot be separated.

It should be noted that Natural Rights are not paid, nor provided to one group at the expense of another. For example the right to one's own life does not require another person to forfeit his/her right to life. On the other hand, man made rights or entitlements based on wealth redistribution will demand one group sacrifice their lives to pay or furnish benefits to another group.

Since we have deduced any "right", including health care that is made possible by forcing others to provide or pay for it is based on socialistic principles. it also follows that this "right" is not sustainable. Why? Because forcing others to pay for a "right" is consuming without producing. We know that consumption cannot exceed production.

No matter if something like health care, housing, food, clothing etc is deemed to be a right or entitlement by government does not negate the reality of economic laws. Even rights are governed by the laws of supply and demand. If a right is furnish or paid for at the expense of another, the price system becomes distorted which will result some sort of shortage. Obamacare is a good example. Here is a program that mandates the healthy, young people pay for the premiums of the elderly and sick. The result is a shortage of young people signing up. At the same time, Obamacare mandates health providers to furnish services at prices below market value. The result is doctors leaving the system thereby creating a shortage of health care professionals.

If your moral code believes the disadvantaged must be helped, the force of government is not the method for two reasons.

First, forced charity is not charity. It is a form of theft because it forces one person to give up a part of his or her life to pay for the "charity".

Secondly, when government takes on the responsibility to care for the disadvantaged, the concept of from each according to his ability; to each according to his need is applied. Socialism in any form is not sustainable.

Summary: If you are asked if health care is a right, the immediate question should be "to be furnished by whom, and at whose expense". On the same side of the coin, the question of does one person's plight gives the moral right to lay claim to another to support him/her is paramount when discussing any right. A "right" based on concept that one group pays for the "right" of another is unsustainable because it is based on socialism.

Man made rights made possible at the expense of one group over another is a fantasy, an illusion. It would be nice if we could vote to have others provide us with health care. But, alas, Nature will not permit it. The system will collapse. The short answer to "is health care a right?" is NO!! It demands one group to surrender part of their lives, as well as it is not sustainable.

By the same token, giving is not wealth redistribution, but rather a voluntary act. Remember to give, not only during the Christmas Season, but the rest of the year as well. Merry Christmas and Happy New Year.

If you have questions or comments, CONTACT ME Tom Henderson /a.k.a. THE NOTE PROFESSOR .

Copyright © H&P Capital Investments LLC
All rights reserved