Keep your in­vest­ments earn­ing


The con­cept of fi­nanc­ing a pur­chase of a home and keep­ing your in­vest­ments safe is more im­por­tant now than it has been in years. Done prop­erly, a fam­ily will ac­cu­mu­late more wealth by lever­ag­ing. The year of 2017 was ex­pected to be a year of in­creased in­fla­tion. This means that your in­vest­ments in the stock mar­ket, your IRA, your 401(k) plan and even sav­ings ac­counts show in­creased yields.

Let’s take a look at how you can in­crease your wealth with a mort­gage with prac­ti­cally no risk. Isn’t that why you may think youwant a home with no mort­gage? Be­cause you want no risk? The process is not com­pli­cated. Just lever­age your home pur­chase with to­day’s low in­ter­est rates, take the tax de­duc­tion to lower your taxes, and in­vest in a risk-free, tax-free bond.

With a 3.875 per­cent, 30-year mort­gage of $400,000, your pay­ments are $1,881 per month. Your tax de­duc­tion is $139,511 over 10 years, which saves you $41,853 in in­come taxes (as­sum­ing a 30 per­cent tax bracket). In­vest the $400,000 that you would have used to buy the home in a tax-free bond that is guar­an­teed by a gov­ern­ment en­tity.

Lets do the math. At the end of 10 years, you sell your home for $600,000. If you paid cash, you sell at $600,000 and that’s what you get after 10 years: a profit of $200,000. If you lever­age with a mort­gage, after 10 years you will re­ceive the fol­low­ing:

- tax de­duc­tions of $139,511 that save you $41,851 in fed­eral taxes;

- in­come on the $400,000 bond, taxfree, of $160,000 (as­sum­ing a 4 per­cent rate);

- the re­turn of your bond for $400,000; and

- the value of the sale of the home less the mort­gage amount­ing to $286,203.

These ben­e­fits to­tal $262,340 after sub­tract­ing your mort­gage pay­ments for 10 years and your orig­i­nal bond in­vest­ment. So we see that us­ing a tax–de­ductible mort­gage for 10 years will cre­ate a to­tal of $262,340 in net ben­e­fits at sale com­pared to the $200,000 gain from pay­ing cash. You are $62,340 ahead us­ing the mort­gage. And with­out risk.

Of course, get­ting a mort­gage to­day re­quires more pa­per­work and dis­clo­sure frus­tra­tion. You must de­cide if the ex­tra cash ben­e­fits are worth go­ing through the mort­gage process. It is a must to have an ex­pe­ri­enced mort­gage per­son help with the dis­clo­sures and ver­i­fi­ca­tions. After more than a year of the new­mort­gage rules, I find that as­sist­ing bor­row­ers through the process is very smooth and fea­si­ble. Also, use a fi­nan­cial ad­viser who will com­mu­ni­cate with your mort­gage per­son. Speak to ex­perts and keep your money in­vested.

Jim Gay was a real-es­tate bro­ker for 20 years and has been a fi­nan­cial con­sul­tant to For­tune 500 com­pa­nies. He is cur­rently a bro­ker/owner ofThe Mort­gage Place (986-9080) and can be reached at jim@ jim­gay­home­m­o­rt­

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