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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127559  
Subject: Re: Refinance at 15 yr or 30yr. Date: 7/11/2001 12:53 PM
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Hi Randy,

I somewhat understand that my tax deduction adavantages for my original loan are disappearing year my year and that the new 30 yr would help that cause, but is this smart or dump thing to do? I am on the way to being debt free and can't stand the thought of another 30 yr mortgage at age 50.

Besides the debt-free part, are you at cash-flow freedom yet? If you were debt free, do you have enough passive income to no longer work for a paycheck?

If not, you may be wise to strategize how to "rent money cheap" (great metaphor JDO!) and put it to greater work for a profit by parking it in stronger growth investments.

The longer your loan ammortization, the less of your rented money you'll be required to give back each month. Keep in mind that this "rented money" is going to be working in another account in your name... so if you ever wanted to you could immediately pay down the mortgage by closing the investment account and paying off the loan.

Because of tax deductions, mortgage money is the cheapest source of money rental you'll ever find. If you're savvy and wise, you can invest this same money in ways that are tax deferred and/or protected... giving you a significant monthly PASSIVE profit, largely thanks to Uncle Sam. Even w/o the investment tax protection, you can still create significant growth on your mortgage money in your favor... much much more so than stuffing it in your non-growth home.

Since you'll be building up this investment account to overtake the mortgage, it will be the same as paying off the mortgage except you'll get to continue to reap the benefits of the investment differential.

My recommendation is the full-length 30 year loan, but once again only lock the 1st 5 years by using a 5/1 ARM. You'll be able to get the whole amount of money 'rented' for around 6 1/2% or less right now, and after the 5 years, IF it looks like the loan would adjust too much, do the same refi again except get that extra equity back out again and back over into your growth account.

Given that you ALREADY have a large amount of equity accumulated on your home, if you put THIS plan into action you'll actually overtake the balance on your new 30 year loan in possibly 10-15 years, perhaps even less.

Imagine 10 years from now;
You've got a $150,000 investment account earning 10-15% annually, ($15,000 revenue,)
you've got a $120,000 maxed out mortgage costing 6 1/2% annually, ($7,800 cost, discounted by tax deductions to $5,460,)

You're mortgaged to the teeth AND you have a strong POSITIVE net worth (IOW, your assets far exceed your liabilities.)

Monthly PASSIVE net revenues, $795.

This WITHOUT landlording anyone but yourself. No business hassles, etc.

Now imagine if you could rent MORE money and put it to work!?!

That's what it's all about!
Dave Donhoff
Lic. Mortgage Broker
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