emember the story of the The piper put up no fuss. He
Pied Piper? simply played a new melody on his
pipe, one sweet and playful. One
One day a piper came to the that enchanted the children of
village of Hambelen. He offered, the town. And the piper led the
for a fee, to rid the town of its children into the mountains where
mice and rats. Since the village they were never seen again.
had been overrun with such vermin
for quite some time, the town While the story of the Pied Piper
council eagerly accepted the is for children (though it's hard
piper's offer. to imagine that this disturbing
little story suits children), the
So the piper began to play a Pied Piper illustrates a very
melody on his pipe. It was an important aspect of mortgages,
eerie melody that enchanted the one I call the "pay me now or pay
mice and rats, and they followed me later" principle.
the piper to the river where they
drowned. The most drastic application of
the principle happens when people
Once the little animals were default on their loan. When
gone, the villagers immediately people "hire" the services of the
forgot how terribly bothersome mortgage company -- the service
the little creatures had been. of "renting money" -- they agree
They regretted having promised so to pay the company for its
much money to the piper. service. If at some point they
fail to pay "now" with regular
So when the piper came to collect monthly payments, the mortgage
his fee, the town council refused company will force them to pay
to pay. "later" through a foreclosure.
But there are other applications On the other hand points are an
of this principle that are far amount you pay when you first get
less troublesome and far more a loan. Like the interest you
appealing (and they may not even pay, points are just another cost
keep you awake at night). Let's of borrowing the money.
look at one.
Really the only difference
When a mortgage company loan between points and interest is
representative quotes you the the timeframe in which you pay
costs for taking out a mortgage, the money. Points are paid
the quote includes two parts: upfront; interest is paid
throughout the load period.
1. The interest rate
What some people don't realize is
2. An additional cost called that, when you apply for a
points. mortgage, you can get a different
interest rate by varying the
The interest rate specifies how points you pay. As points
much of each month's payment goes increase the interest rate
to pay for your rental of the decreases, and vice versa.
borrowed money. The amount you
pay in a year is roughly equal to This relationships between
your outstanding loan balance at interest rate and points nicely
the start of the year multiplied illustrates the pay me now or pay
by the interest rate. This me later principle. By paying
calculation is only approximate, additional money (as points at
because your outstanding loan the start of your loan) you can
balance goes down a little each pay less later (as interest with
month with each payment you make. each monthly payment). Or you can
pay less to start and have a
higher monthly payment. The later principle. This will help
principle applies to many aspects you figure out which is the
of mortgages. better deal. If your upfront
costs seem low, look for higher
When you purchase a mortgage, you future costs. If your future
sign up for a huge commitment. costs seem low, you must be
Taking the time to choose your paying high upfront costs.
mortgage carefully is time Remember -- the Piper gets paid
well-spent. As you consider one way or the other.
different loans, think of them in
terms of the pay me now or pay me
About the Author:
Rob Favero has written a free mortgage report to help you avoid financial disaster. His knowledge comes from personal experience and research. Since he's not a member of the mortgage industry, his advice stresses the interests of the mortgage consumer.
Read more articles by:
Robert Favero
Article Source: www.iSnare.com 
