“”"Leverage is a good thing when it’s used wisely. Using it to buy a house when it’s a fixed payment you can afford today is a good use of leverage. I know what my payment will be in 2015, if I even have a payment by then.”"”

You will have a payment by then, unless you can come up with the money in some other investment vehicle (without using the probably 100’s of thousands of capital in your house) or suddenly make a great deal more at your job than you previously did (because if you could afford more, you would already be dumping that into your house with no benefit (because unless you refinance and start your amortization schedule all over again your payment doesn’t change even though you pay down your principle in a 15 or 30 year fixed)

On top of that, you don’t know what your payment will be unless you commit 100% to not refinancing.

you must know 100% that you will not be tempted to refinance by a lower interest rate (which in most cases will not save you much money, even in the long run, and again, resets your amortization schedule) or to cash money out of your house for any reason.

and if you really believe that you can’t earn more that you pay in interest, then leverage is never a good idea. It just means, by your way of thought, that people who can’t buy a car or house for cash, shouldn’t have one. if you wanted to argue that the leverage and payment allows someone to own a house or a car, you could make the same argument for leverage allowing someone to OWN anything, even a retirement vehicle. Oh, right, so you might say that the leverage gets the ownership of the property so the appreciation on the home is profit, and therefore makes sense. than take your conservative attitude and build a conservative plan with a minimum GUARANTEE of 4.5% appreciation on your life insurance policy and death benefit. can you guarantee 4.5% on your housE? no, and you still like it beacuse it averages 7%, just like a whole life policy. (there is a strategy for someone ultra conservative)

and that house that you so wonderfully plan to have payed off by some miracle of an influx of money (maybe from a life insurance policy a family member still had on the books because it was a permanent policy, not term) is probably where you are going to look when you find your 401K and pension are not enough for your retirement.

you also clearly do not have a full understanding of the concept in a life insurance investment VEHICLE, because it isn’t like a stock or a bond, its a vehicle that you can put your money through and invest in other things. you could overfund a policy with $100,000 over 5 years, and in year 5, use 100,000 for a real estate investment. you WILL make money on the arbitrage of borrowing even before you consider what you make on your investment, and that 100,000 is going to grow as if it were present in the policy.

In any case, you don’t need to worry too much about having life insurance because with your attitude towards finance, you will never have an estate so large as to really worry about passing it on to anyone. you will simply re-leverage your house in retirement to make up for the plan you didn’t make for yourself, and pass on your house with a large debt and taxes to your heirs, who will have to sell the home they grew up in, to pay those taxes.

I’ll be here all week, im a financial professional, and this isn’t the strategy i use for all my clients, but it is almost always a key item included in a responsible financial plan.

(your 401K is invested in the stock market. risky. not only that, but I constantly see returns of less than 1% on these accounts because the people who coordinate them are the HR departments. The fund managers only have to convince a captive audience of employer and employees that the account they have always been taught to use is the best one, and they have the worst fund managers in the world, because they don’t need to perform to keep a CAPTIVE audience. all they have to do is sell the HR department.

if you are in a 30 year fixed and refinance even every 15 years, you are never paying a significant portion of your principle. go to bloomberg.com and read the amortization schedule.

good day

So I stand corrected! Thought I’d better report.

a) IRS currently disallows mortgage interest deductions for loans used to fund single premium annuities or single premium life insurance policies, folks. OK so they don’t check too closely *except* in an audit. Want to rerun the calculations including back taxes and penalties owed upon audit? Or count on having paid premiums in over a few years so it won’t *look* like a single premium intent? Hmmmmmm indeed! This scheme fails on the “Z” factor… being able to sleep at night. Sorry, but my clients are old fashioned… they prefer their nights sleep, and so do I!

b) One of the great investment tests is, “If things go south, how bad is it?” Life insurance is marvelous at what it does, but being an investment is not one of those things. If things go south in the early years, one could cash in the policy to pay off the additional mortgage, more or less. In the middle (accumulation) years, cashing in the policy is accompanied by an income tax bill on the gain. In the later years… don’t even think about it; the only prudent way out of the total policy loan interest due is to die so the death benefit makes you whole… which works, if your life in 30 years fits what you plan today.

c) How many of us could have predicted our circumstancees today, 30 years ago? Better not make that bet with your house!

Don’t I have a $100,000 debt hanging over my head? There is a crossover, but I still owe the $100k! When does that get paid back? How?

Lets talk concept. I don’t think you quite get that if you pay 6% simple interest and earn 4% compound interest that you will cross over in year 23. 23 years on 100,000 at 6% it will cost you $138,000 in interst but if you earn 4% compounded you will have earned $146,472. Now if you happen to get a tax deduction for mortgage interest expense it will be better. If you are in a 25% marginal baracket and have enough other deductions to get the full deduction you will have only had $108,000 in cost. the crossover is actually in 12 years.
This assumes that you only earn the 4% which is probably a little low over this period of time.

About the idea of depending on a lot of things going right–doesn’t every other retirement plan out there depend on the same things going right? If interest rates on mortgages fluctuate, at the same time, interest rates on investments will also fluctuate. Mr. Andrews teaches that the rates are relative. You mention knowing what your payment will be–this plan can work with a fixed rate, 30 year mortgage. I can know what my payment will be in 2015 as well. And on top of that, I can know that I will also have the minimum growth of the policy, and likely a great deal more by 2015!