My friend works as a financial advisor. He told me I get a 0% rate of return on my equity and principal. If I make interest only payments my tax deductions will be the same on the life of loan. If I invest 0 a month in to a fixed rate of 6% after 30 years I would have accumulated 0,000 in a tax deffered investment with the distribution not taxable. With this type of structured investment my only options would be a roth IRA or an investment grade life insurance. I would have to structure it with the minimum death benefit and fund it over 5 years with equal premiums so it would not become a MEC. Since I am so young and the cap on Roth IRA investments would be ,000 a month the insurance would be my best bet to get a good return on my money versus a taxable or tax deffered investment. I could withdraw my money via policy loans at 2.6% which would be much less than a 33% tax on my money. He told me people in the mortgage industry only know about mortgages and would probably disagree
Also finance people typically don’t deal with mortgages and only invest discrestionay income for a fee so they would also probably disagree. He says a lot of people dislike whole life or UL’s because of bad info on them with commisions and so forth. Most people reccommend buying term only and mutual fund investments but after taxes if your getting 12% it ends up being only 8%. If I get an Equity Indexed Universl Life ( the index is the S&P 500) the average is 8% and I can’t lose any principal. It nets 7% after cost of Insurance. It is also an interesting fact that most "savvy" investors say it’s bad to buy any type of whole life however the top 5% of the wealthiest people in America all have whole life. It really makes you think.
I am not talking about home appreciation which my home would appreciate no matter what. I am talking about a rate of return on my principal payments which sits at an idle in the motgage banker’s pocket which I receive no interest from. The rate of return on principal payments is 0% and that is a fact. What I am talking about is investing those otherwise idle dollars into an investment which will make me money and take it. I have a 0,000 mortgage with interest only payments of 00/month which frees up 0 a month which would ordinarily go to principal. If I continued with a standard amortized schedule my tax deductions would decrease yearly and after 30 years I would spent 8.000. With this plan I would have made 0,000(0,000- 0,000 lump sum mortgage principal payment due after 30 years with an interest only loan). What is your rebuttal?
I am not setting up a Roth IRA because I couldn’t fund it with 0 a month which would put me over the ,00 a year cap.
I would like some information to support your answers. The rate of return on principal payments is 0% as well as equity. You will never realize that money again until you mortgage it again or sell your house and pay capital gains.
the distribution would be via policy loan @2.6% which is a lot less than a 33% tax liability. Amortized ,500 a month. Interest only ,000 amonth. 30 years or investinsting 0 a month= 0,000 tax free. I guess this is too compicated. What you suggest is I should put more money besides my amortized mortgage into the principal and that would make me more money? Why is this a bad plan?
http://www.kcmortgageplanning.com/tale