UnThreaded | Threaded | Whole Thread (22) | Ignore Thread Prev | Next
Author: Kirkydu2007 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75595  
Subject: Re: Book review: Missed Fortune (long) Date: 10/6/2007 3:08 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Leverage on a house can be a good idea if there are no cash flow issues for the borrower. However, since a house has the tangible value of living in it, I tell clients to try to at least have their house mortgaged at no more than 50% of the value of the home when they get towards retirement. This allows them flexibility to borrow in an an emergency without needing mortgage insurance, and withstand real estate fluctuations (contrary to the belief of flippers and many wannabe real estate investors of the past decade, real estate can go down in value, as we are seeing, and will continue to see for a couple more years).

It is true that funding investment vehicles like Roth IRAs and 401k plans can be priortized over paying down a mortgage, this is especially true for people more than a decade from retirement, but in general, other investments, e.g. life insurance, don't make the math or overcome the "I can live in my house argument." About the only situation where having a fat mortgage (in the 70-80% range of home value) and buying life insurance is for those with $million+ homes and household income over $160k (current Roth phase-out for couples) or individual income over $100k.

Universal life policies have been blowing up, that is the cash value hasn't come close to accumulating as projected rates and the policies require more premium than anticipated, since these policies were made popular in the 1980s with the tax-free IRC 1035 exchange. What was double bad for a lot of those policy holders is that because of the way the policies were often funded with lump sums and high early premiums that were supposed to phase out (paid-up is a lie), is that there were huge tax problems when the policies lapsed.

Universal life is an efficient way to buy death benefit, but it is no better than U.S. bond (some tax advantage to boot), without the govt guarantee, for cash value accumulation.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (22) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Berkshire Hathaway

Burger King's Play Not For Taxes?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement