EIULs and Missed Fortune

[pfg1]

To be brutally honest about the strategy. I have never encountered it in the field when it was pitched in an appropriate manner. I have seen it and been asked about it many times. It was almost always pitched to someone who could not afford the premiums needed/desired in the first place.

It is by far one of the most abusive & damaging sales practices within the life insurance industry.

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Imo that is just crazy. I will take a 10 or 15 year over a 30 all day long. A 30 year mortgage is great for the bank and terrible for your net worth. I do realize the point (the original point) of them is to free up cash flow.

But paying 70% over value for your house is not a smart move imo.

With a 30 year mortgage you are not buying a $500k home... you are buying an $850k home that is valued at $500k.

With a 15 year mortgage you are buying a $650k home that is valued at $500k.

But I am also very anti-debt. I dont even believe in car loans.

I'm with DHK. Right now, a 30yr fixed locks in a rate for 30yrs in the low 3's.
Why dump all the extra money into paying a 10 or 15.... you can use that extra to leverage it and build long term wealth, all the while having the interest deduction for mortgage (at least for now) for the next 30yrs. That gives you an effective rate in the 2's.

There are many ways to look at the mortgage...and not saying I am right and you are wrong - but given today's super low interest rate environment, I'll take a 30 all day long and do other things with my $ rather than pay my house off.

Although I would love to not have to make a mortgage payment each month... if I could only snap my fingers and it was gone...

I could really do good things with that payment $!

 

[DHK]

If one can afford a 15-year mortgage, get a 30-year and "invest the difference" so you can have liquidity, use, and control of that difference.

Two major problems of accelerating a mortgage:
1) If you need the money, you have to qualify to borrow against the value of your home. Not so to borrow against life insurance cash values... or any other account to withdraw it.

2) The value of a home goes up and down regardless of the amount of loans against it. If the value of the house declines due to real estate market fluctuations, your home equity could vanish - for a few years at a time waiting for the market to 'bounce back'. It's just not a secure place to save money where you can be guaranteed to access it if and when you need it.

 

[scagnt83]

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Although I would love to not have to make a mortgage payment each month... if I could only snap my fingers and it was gone...

I could really do good things with that payment $!

Its all situation specific. But in general, the longer you finance something the more your getting screwed by the bank. Banks love 30 year mortgages.

Sure you can do stuff with the extra cash flow. But you also are losing a significant amount of wealth unless you are investing that extra money.

And if you are investing it... then is it really beating the return you get on your house? If it is, then is that return worth the risk of owning less of your home? There is a certain security aspect to having a significant amount of equity in your home.


And are you really going to live in your house for 30 years?? Most people move every 13-15 years during their working years. At that rate, most people might as well lease vs. a 30y mortgage.



I am 5 years away on my 15 year. I will be early 40s with a completely paid off house. And the house has almost doubled in value over the past 10 years.

I could have bought twice the size house if I had a 30 year.... but I can very easily upgrade in 5 years if I want. And my new mortgage will be less than half of what it would be if I had opted with the 30y.

So during my highest earning years in life, I will have extremely low living expenses.


My biggest gripe with the use of 30y mortgages is that it has become a "cheap" way into home ownership. People who cant afford a 20 year get a 30 year because its 25% less per month. But are those people honestly in a position to own a home? The banks have used it as a quasi sub-prime loan and it is a HUGE money maker for them.... and consumers just love paying 70% extra for their home because most have no clue that they are doing it.... they just see it as extra spending money.


But to each their own. Obviously there are situations where a 30y makes perfect sense without a doubt. But imo that is not ( or should not be) a large segment of people who are honestly in a financial position to own a home.

 

[Norwayguy]

Its all situation specific. But in general, the longer you finance something the more your getting screwed by the bank. Banks love 30 year mortgages.

Sure you can do stuff with the extra cash flow. But you also are losing a significant amount of wealth unless you are investing that extra money.

And if you are investing it... then is it really beating the return you get on your house? If it is, then is that return worth the risk of owning less of your home? There is a certain security aspect to having a significant amount of equity in your home.

And are you really going to live in your house for 30 years?? Most people move every 13-15 years during their working years. At that rate, most people might as well lease vs. a 30y mortgage.

I am 5 years away on my 15 year. I will be early 40s with a completely paid off house. And the house has almost doubled in value over the past 10 years.

I could have bought twice the size house if I had a 30 year.... but I can very easily upgrade in 5 years if I want. And my new mortgage will be less than half of what it would be if I had opted with the 30y.

So during my highest earning years in life, I will have extremely low living expenses.

My biggest gripe with the use of 30y mortgages is that it has become a "cheap" way into home ownership. People who cant afford a 20 year get a 30 year because its 25% less per month. But are those people honestly in a position to own a home? The banks have used it as a quasi sub-prime loan and it is a HUGE money maker for them.... and consumers just love paying 70% extra for their home because most have no clue that they are doing it.... they just see it as extra spending money.

But to each their own. Obviously there are situations where a 30y makes perfect sense without a doubt. But imo that is not ( or should not be) a large segment of people who are honestly in a financial position to own a home.

They have 45 & 50 year mortgages for some programs now....I cam only imagine what the amortization schedule looks like.

 

[scagnt83]

They have 45 & 50 year mortgages for some programs now....I cam only imagine what the amortization schedule looks like.

Not much different than leasing a house really....might be able to get a lower monthly payment than leasing I guess. Is that a fixed rate with that 50 year???

Its the whole subprime debacle all over again.... just a different flavor / version. Find a way to get people paying money for houses who cant actually afford a house.



Dont get me wrong, those mortgages could probably be used in a very cunning financial strategy of some sort by someone with means and acumen. Unfortunately those are not the people they market to.

 

[scottstreet]

I have long been a believer in taking the longest term available if it's at a decent rate and paying ahead this accomplishes the 10/15/20 yr. mortgage objective without obligating the increased payment should times get tough. It's easy enough to print your own amort schedule to your specs and attack it with no prepayment penalty it seems the best of both worlds.

 

[danerlavigne]

Patrick Kelly has lots of great information on EIULs