 |
|
|||||
 |
 |
 |
||||
 |
||||||
The Bond ReportLeveraging your home or paying it down rapidly - which is the best way to go? |
Special Offer
|
||||||||
 There is a great debate within the
inner-mortgage circles these days: Is it better to borrow as much as
possible and keep investment money liquid, or does it make more
sense to pre-pay principal and save on interest? Let's analyze the
pros and cons of both strategies.The argument for leveraging your property: The concept that equity has a zero percent rate of return must be understood before really understanding why you would want to borrow as much money as possible. Here's an example showing why this is true. If Consumer "A" buys a home for $300,000, and puts 20% down, he/she has $60,000 in equity. Over the next 5 years, that property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity. Consumer "B" buys a home for $300,000 and puts no money down and at the end of 5 years that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000. It is important to understand that your down payment has nothing to do with your rate of return. The key component becomes what you choose to do with the $60,000 you did not use as a down payment. If you use it for frivolous activities, such as buying toys, going to Las Vegas or just spending freely, it would likely, from a financial perspective, be more prudent for you to use that money as a down payment. Especially since you will get a lower interest rate as a result of having a down payment. However, for the prudent investor who invests the $60,000 in a vehicle that can out-earn the cost of that debt, this could be a formula for success and is the argument that lending professionals make for putting as little down as you possibly can, maximizing your tax write-off and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The same holds true for the philosophy of leveraging your property to the highest degree possible. The key component behind making this formula successful is once again, taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free. The case for putting down more money and paying on a rapid acceleration schedule. Debt often represents an over-extension of what is realistic for an individual's existing lifestyle. Paying off all your debt can reduce stress and put you in a situation with more freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure that gives consumers a game-plan to generate the predictable result of having their mortgage paid off in a certain period of time. Simply put, it contains built-in discipline. Many consumers have a difficult time setting aside the money necessary to pay off their loans rapidly. But if they can do it in a structured plan, it serves as a very valuable piece to the long-term financial planning strategy. It's important to understand, however, that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly. The key reverts back to what you could do with that money if you were investing it in a different place, rather than paying that extra amount of money monthly through an accelerated amortization schedule. Conclusion: I believe the choice depends entirely upon the individual. Savvy consumers with great discipline who are not fearful of taking some chances from an investment perspective would bode well with the first scenario. Over the course of time it is proven over and over again that your rate of return over the long-haul will be far greater than the 4.5 to 5% you pay for a mortgage interest rate in today's day and age. Note: You would always want to seek the advice of a skilled investment advisor for these purposes. For those who will sleep easier at night knowing they are in a plan to pay thier loan off more rapidly, and/or they have a difficult time disciplining their money on a month-to-month basis, they are better served to set themselves up on a rapidly accelerating amortization schedule (as long as that doens't put them in a crippling position in terms of cash flow). Too often we see consumers bite off more than they can chew by getting into a 15-year mortgage and realizing they can't make the larger payment. If you find this subject intriguing and would like to know more, I recommend that you read a book entitled Missed Fortune by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas Andrew is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments. If you have any questions in regards to this, please feel free to contact me at my office: 513-521-4390. |
|||||||||
|
|||||||||
The Money Pit |
|||||||||
Creative Cuisine
Salad
Ingredients: Dressing
ingredients: Preparation: |
|||||||||
Natural Ways to Avoid the Flu
Wash your hands - Wash your hands often, or use an instant hand sanitizer. If you are unable to wash your hands, rub them together very hard for a minute or so. This helps break up most of the germs. Don't touch your face - Viruses enter the body through the eyes, nose or mouth. Drink plenty of fluids, especially water - Water flushes your system, getting rid of the poisons as it re-hydrates you. Typically, adults need 64 ounces of fluid each day - not counting caffeinated or alcoholic beverages. Get fresh air - Regular doses of fresh air are important. Central heating dries you out, making your body more vulnerable to viruses. Also, in cold weather, people spend more time indoors, which means more germs are circulating in crowded dry rooms. Get regular aerobic exercise - Aerobic exercise speeds up the heart to pump larger amounts of blood, makes you breathe faster, helps transfer oxygen from your lungs to your blood, and makes you sweat once your body heats up. This helps increase the body's natural virus-killing cells. Eat yogurt - Some studies show that eating a daily cup of low-fat yogurt can reduce your susceptibility to colds by 25%. Researchers think the beneficial bacteria in yogurt may stimulate production of immune system substances that fight disease. Relax!
- If you can teach yourself to relax, you can activate your
immune system on demand. Evidence shows that when you put your
relaxation skills to use, your interleukins - leaders in the immune
systemís response against viruses - increase in the
bloodstream. |
If you know anyone who is looking to buy,
sell or refinance a home, please forward their name and telephone
number to us. We will happily provide the same high level of service
that we have provided to you. The greatest compliment you could
possibly give us is the referral of your friends and
family.
A Mean French
NiÁoise Salad
1 head of red-leaf lettuce or 1 bag of
mixed Baby Romaine Leaves
The flu season normally runs from December to
March, and one of the best ways to prevent the flu is by getting a
flu shot. But it was recently announced that nearly