"Sgt. Sausage" <nobody[at]nowhere.com> writes:

- quote -

I understand what you're saying, but the original poster
said "I don't want to lose the tax deduction", not "I
think I can get a better return on the money elsewhere."

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote in message
news:m3acn0sczo.fsf[at]animato.home.lan...
- quote -

Personally, I chalk this on up to "innumeracy" -- most
folks don't understand numbers. Especially when such
highly complex <sarcasm> things as CompoundInterest,
TimeValueOfMoney, and Taxes are involved.

It's not, however, as easy as you suggest. Paying that
100 dollars has what the economics guys call Opportunity
Cost -- I pay it on the mortgage, it becomes unavailable
for other opportunities. My normal course of action is
to pay the mortgage, pay it early, pay it often, and
get the shortest possible payback terms, but I can
certainly understand the argument that "if it ain't
paid on mortgage, it can be invested at a (possibly)
higher rate of return. Again, here comes the Compound
Interest, TimeValueOfMoney and Taxes. It's not as
one sided as you make it (even though I agree and
practice what you're preaching.)

ijs wrote:

- quote -

Good for you for asking questions and really thinking about the issue
before making a decision. So many people make important financial
decisions based only on what one salesperson tells them.

Andy

Matthew,

We should carefully distinguish between the two cases:
case 1: prepay principal and pay off the mortgage 10 years earlier
case 2: invest in mutuals for 20 years, and pay off as a lumpsum.

In both cases there are interest savings (larger in case 1) and tax
savings (larger in case 2). Then there are capital gains and capital
gains tax in case 2.

A quick calculation shows that for my particular case, and assuming a
5% annual return on mutual/life insurance over 20 years, its about
break even. The assumed return on the mutual/life insurance, with
everything else remaining the same, determines whether or not a
prepayment is the better choice.

Thanks everyone for responding. It forced me to weigh pros and cons. I
will settle for the pre-pay option.

ijs wrote:
- quote -


I always wonder why people want to have the mortgage interest as a tax
deduction. It is not like it is free. If your tax rate is 33%, then
you pay the mortgage company 66% of the interest, and you get 33% back.
Why is that a good thing?

"ijs" <ijsbrand2000[at]yahoo.com> writes:

- quote -

Some people can't see the forest for the trees, it seems. Would you
rather be able to not pay taxes on some fraction of your mortgage
payment, or *not have a mortgage payment at all*? 20 years into a 30
year mortgage, you'll be paying more principal than interest on your
mortgage anyway, so your tax deduction would be a lot smaller than it
is now.

-Sandra the cynic

NO, it would really depend on what YOU want.......
Cal Lester CLU


ijs wrote:
- quote -

1) Having read the postings - I can no longer. The difference is maybe
the high costs of a Univeral Life policy, but that may be offset by
higher returns, which is indeed the question one should be asking
oneself.

2) I guess that would depend on the policy?

Thanks,

ijs

- quote -

The only "difference" is that in the event of your or your wife EARLY
DEATH, the Mutual Fund would not have sufficient value to pay off the
mortgage. Before you mention also buying TERM INS, remember
that the cost of theTerm Ins. would REDUCE the investment in the
mutual fund..............................


- quote -

EITHER WAY. With a Universal Life Policy, YOU can select either
OPTION (A) or OPTION (B).

Option (A) contains a LOWER cost of Insurance, since the DEATH
BENEFIT INCLUDES all of the Cash Value

Option (B) has a higher cost, but upon DEATH, the Beneficiary will
receive the FACE AMOUNT, PLUS the Increase in the Cash Value.

Cal Lester CLU

Cal Lester wrote:
- quote -


Cal -

Two questions:

1) Can you explain the difference between this suggestion and merely
investing what I would have put into a Universal Life policy in a good
mutual fund on my own and then using that money to reduce or pay-off my
mortgage? What is the average rate of return I will see on my
investment in the Cash Value Build Up?

2) What happens to the Cash Value Build Up in the event that I die
within the 20 years? Does it go to my beneficiary or does the ins.
company only pay out the face value of the policy and keep the Cash
Value Build Up?

Thanks,

Ryan

ijs wrote:
- quote -

ijs;

What you are relating is the optimum use of a "Permanent Life Insurance Policy".
We in the industry have promoted such use for years. It is (if you can afford it) an
"eat your cake & have it" situation.

The Life Insurance contract provides a mortgage free home in the event of the DEATH
of either of you (assuming that both lives are covered), giving a great deal of Peace
of Mind. However, in the event that NIETHER of you DIE in the next 20 years, the
Cash Value Build Up in the contract (provided it is some form of Universal Life) will
be available Income Tax Free to either reduce or pay-off the mortgage.....

Cal Lester CLU
cal-lester[at]comcast.net

"ijs" <ijsbrand2000[at]yahoo.com> writes:

- quote -

Why would you hate to lose that possibility?

That deduction doesn't save you ANYTHING over not
paying interest in the first place.

Even if you are in the highest possible bracket, paying $100
of interest only saves you $35, so you're still $65 worse
off than if you hadn't paid the interest in the first place.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

"Missed Fortune" by Douglas Andrew would be a great read for you. It
explains how to pay off your mortgage in 10 to 15 years through the
intelligent use of life insurance and the maximizing of your mortgage
interest deduction.
Kev

We bought a house 3 years ago, with a 30 years mortgage. I plan to
retire in 20 years, and would like to have fully paid off the mortgage.
However, I would hate to lose the possibility to deduct interest
payment from my taxes.

My financial advisor tells me that buying life insurance is the best
way out. We would, at retirement, use the savings to pay off the
mortgage, while capital gains could be disbursed upon my death.

Does any of you have any ideas about this? Or are there better ideas?

Thanks!