Is the fastest way to pay off a mortgage is to not pay any principal?

Question

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 $500 a month in to a fixed rate of 6% after 30 years I would have accumulated $500,000 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 $4,000 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 $200,000 mortgage with interest only payments of $1000/month which frees up $500 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 $568.000. With this plan I would have made $300,000($500,000- $200,000 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 $500 a month which would put me over the $4,00 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 $1,500 a month. Interest only $1,000 amonth. 30 years or investinsting $500 a month= $500,000 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

Answer 1

What your friend suggest is a valid option. He also is biased because he would make more money in commissions by making you do a refi, buy life insurance and set up a Roth IRA.

However, if your goal is to pay off your mortgage as fast as possible without changing your lifestyle, this is the best way to do it:
http://www.mortgage-accelerator.com/?jratliff

However, you will need to have a positive cash flow every month to make this work. As a mortgage broker, this is the program I tell my clients about when they have a fixed mortgage rate and positive cash flow.

Regards

Rebuttle:
Anytime you can borrow money and make more than the interest rate you borrowed on while using tax laws to your advantage, you're investing correctly. That said, one must look at the risk factors and investing goals of the individual and make a decision based on their particular factors, such as their age, whether they have kids or not, are married, etc. Your investing goals might differ than mine.

Answer 2

the only thing that i'm qualified to address here is in reference to real estate mortgages.

no, the more you pay towards the principal balance due, as well as the quicker you pay it, saves you the most money as well as forcing the extinguishment of the mortgage in far fewer years than if you only pay the required mortgage payment.

ask a mortgage banker to show you 2 amortization schedules based on the same principal balance, for example, $450,000, and at the same rate of interest. 1 will be for a 30 year term and 2 will be for a 15 year term. wow! you will see what i mean.

the way to achieve saving a lot of money on paying interest is every month, or once a year when you get a tax refund, but better, both, is to write a separate check to your lender with your loan number on it as well as the words "for principal only" in both the memo area of the check as well as written on the back of the check.

sorry, i don't know enough about your other investment options to talk about them. i wish you financial freedom!

Answer 3

Don't listen to that guy.
If you want to be rich, get out of debt as fast as possible, put extra payments on your mortgage, never lower the payments per month but increase them when you can.
Interest rates have a way of changing and biting you in the butt, when you least expect it. The secret to life is having options, Allways take the path that opens up more options instead of paths that norrow down to dead ends.

Stay away from complicated schemes.

Answer 4

No the least puzzling way is to characteristic one extra a hundred each and each month. ensure you mark it as theory. The early you start up up the swifter you decrease the theory the shorter the term We did it and and cut back 15 yrs off the interior maximum loan.

Answer 5

If you pay Interest only, thats what you will pay I/O. You can only tax a percentage of that. If you Pay Principle you will maximazy your rate of return if your equity increases. If I didnt answer your question, please simplify itt with specifics.