Chapter 9: What is Mortgage Optimization?

Episode 9 November 18, 2020 00:15:00
Chapter 9: What is Mortgage Optimization?
LifeTyme Financial Freedom Fighters
Chapter 9: What is Mortgage Optimization?

Hosted By

Vincent Del Franco

Show Notes

Welcome back to LifeTyme Financial Freedom Fighters Podcast! Today, Vincent goes over Chapter 9 of his book which covers Mortgage Optimization and why you want to die with a big, fat mortgage!

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Episode Transcript

Speaker 0 00:00:00 The views expressed on this program are not necessarily the views expressed by this platform. This content is for educational purposes only. Please consult a financial advisor or conduct your own due diligence prior to investing. Vincent Del Franco is the owner and CEO of lifetime financial LLC and lifetime financial advisors. And is the investment advisor that furnishes this program for your consumption future performance of financial vehicles are not guaranteed. <inaudible> Speaker 1 00:00:41 Welcome to the lifetime financial freedom fighters podcast. My name is Vincent Del Franco. I'm the founder and CEO of lifetime financial man. I'll tell you, we're getting close. We are on chapter nine. We're going to go ahead and talk about mortgage optimization. What I want you to do is I want you to take a moment to just consider this type of an investment, right? Is this the kind of vehicle that you would consider an investment? Number one, in this investment, you can determine the amount and the time for the monthly contributions. That's number one. Number two, you can pay more in, but not less. Number three, if you failed to pay the financial institution, they can keep all of your previous contributions. Speaker 1 00:01:39 Number four, your added deposits are not safe from principal loss. Number five, each contribution amounts to less safety. Number six, the funds invested are not liquid. Number seven, you earned 0% interest on your investment. Number eight, your tax liability may increase with each contribution that you make. And number nine, when and when your investment is fully funded, no income is paid out. Now this doesn't look like a very good investment. Does it? Well, believe it or not. You have one of these. It's called the mortgage. And so folks tonight, what I want to talk to you about is why it's so important that you die. Well, you don't have to, but I, I know I will. Um, I'm telling you right now, I'm going to die with a big fat mortgage. Let me explain why would I take my hard earned dollars and try to stuff as much money as I possibly can into my mortgage to pay it off early? Speaker 1 00:02:59 Why? What are the real benefits of paying off my house early? So I don't have a mortgage payment. Is that, is that true? Well, think about it folks. I mean, if you hate writing a check to your mortgage company, why not have it automatically pay out from your account? They do that where you could do it automatically and you don't have to worry about you don't have to write a check or anything. You just have it automatically come out of your account. Now, why do I say those types of things? In fact, some of you may think, Oh God, this guy, Vincent he's he's over the top. He's a little bit crazy. What's wrong with this guy? You know, all my life I've been taught to pay off my mortgage as fast as I possibly can. What can this guy tell me that would make sense regarding not paying off my mortgage? Speaker 1 00:03:47 Well, there's a few points that I want to make about mortgages. Number one, and this is a big one. Mortgages are very confusing. Why? Because you have arms, you, I mean, you don't know whether to have a, you know, an arm of 15 year, a 30 year loan, whether to have a negative amortization loan balloon payment, you know, whether you should be paying by monthly, Oh, you know, all of those things are what you have to consider when getting a loan. And so you have to kind of decide which one is best. Well, you may agree or you may disagree. But what I would share with you is I'd get the lowest interest rate I possibly can. And I drag out the loan as long as I possibly can. Why there are some advantages to that that you may find a little hard to believe, but they are advantages. Speaker 1 00:04:44 I'll give you a couple of examples. Number one, when you put down money on a house, that money is gone forever. In other words, if you put 20, 30, 40, 50, a hundred thousand dollars down on the house that a hundred thousand dollars has lost the opportunity to earn you money. It's going to sit in your home is equity. Yes. But does that equity earn you any interest? No, because he, most of time people, they confuse equity with appreciation. Your house will appreciate whether you have equity or not. That's an important thing to consider. So don't confuse those two things. You or your equity earned you zero interest. I would always recommend putting down as little as possible now as a vet. And for those of you, are there veterans out there, first of all, I want to thank you for serving our country and thank your spouses because they're serving just as well. But you veterans out there. We have an opportunity to put zero down and we could finance the entire thing over 30 year period. I just refinanced my home. Now, look, I had equity in the house. I pulled out everything I possibly could. I was able to refinance my home at 2.375, where in the world am I going to get that high of an interest rate? Or where can I borrow money at that rate? Speaker 1 00:06:15 So why would I stick? My higher-ed earned dollars into my home. That earns me zero interest. Even if I had a hundred to $200,000 into my home, right? Even if I had that and I needed the money, how hard is it? Or how easy is it for me to get not very easy. I'd have to go through all the paperwork. I have to do all these things. I have to jump through all these hoops to get to that money. What if I lost my job? What if I couldn't make a mortgage payment? But if I have that money set aside, earning interest, I could always pull money off of that to pay off my monthly mortgage payment. Now folks, listen, I could literally write a check to pay off my house today, but why wouldn't I, it doesn't make sense. Let me give you an example. Speaker 1 00:07:10 If you have, let's say six or $700,000 sitting in an account and you buy a half a million dollar house, right? And you decided I'm going to take 500,000 of my money to pay off my mortgage so that I don't have a mortgage payment that how you, that $500,000 now loses the opportunity to earn you interest. Even if you only made 5%, let's say you were able to get 7.2 in 10 years, that half a million dollars would be worth a million using the rule of 72, which we covered in previous chapters. That's in 10 years in 20 years, that million now becomes 2 million. You made you tell me your house in 20 years could be worth $2 million. Speaker 1 00:08:04 Think about that. So I would rather take him, make that monthly payment as off a, you know, as often as I can, if I lose my job or if I stop working or if I di I can still have that payment be made to the mortgage, plus I get the tax benefits. If that's there. Sometimes we consider that the cherry on top, if it's not there, it's not, but you know what I'll tell you, the advantage is you have to get a low interest rate loan to have a roof over your head. And by the way, most people look at their home as an investment. It really isn't that example that I gave you when we first opened, here's a clear example that it is not a good investment. It's a great place to have a roof over your head, to raise a family, to create memories, to do all those amazing things. Speaker 1 00:08:57 But as an investment vehicle, I absolutely to not recommend it as an investment vehicle. A lot of times people say, well, Vincent, what about if I got a 15 year mortgage and paid it off sooner? That way? Well, I can tell you this. Let's say you were to double up on your mortgage. If you had a 30 year note and let's say it was a thousand dollars and you decided, Hey, let me put a, an extra thousand dollars on my loan. You'd be better off taking that thousand and putting it into an investment. And you could probably pay off your home in less than 15 years, but hopefully you'll come to your senses before that and decided to leave all the money growing and working to your advantage. Speaker 1 00:09:39 So I'm not a proponent for 15 year mortgages now. And again, that's why I wouldn't make extra principal payments. I wouldn't, I wouldn't pay no more than I'm required to period. End of story. Just the way it is. In fact, folks will tell you, I am, you could ask my wife, you could ask anyone that works with me. I will, I won't use my money that I have invested. I always try to use other people's money for as little or no interest as possible, or if I'm going to buy something that I want, I use the money that I I'll buy with the income that I'm earning. If I can't do that, then I don't do it. It really is that simple. Now, a lot of times, you know, we think that extra principal payments will save you money. It really doesn't in the long run or interest rate is the main factor in the cost of a mortgage that isn't even it. Sometimes you feel a little more secure. If the house has paid off. Let me tell you what folks, if you have a million dollar saved, you have a half, a million dollar house. Are you really in debt? Isn't your house paid off with a stroke of a check. Could you just pay off your house? Anytime you want to. Who's in control when you have all the money, you are the bank. Speaker 1 00:11:07 So folks, I mean, I can't stay as strong enough. I can't say strong enough, but it's important that you understand having yous in control of your money is really important. Especially if you decide that you want to be wealthy. Okay? Now, most of the time people, you know, they wonder why, you know, why have a mortgage in the first place? Well, you may not have enough expendable cash, or you may want the tax deduction. You may even desire a potentially beneficial spread, may the difference between the cost of borrow and what you can earn. See if you can borrow at three, 4% and you're, and you have the opportunity to earn four and 5% on your money. That may be that spread that you want to consider. Speaker 1 00:12:04 You may ask me, well, is my house a place, a good place to park my money? Not no, but heck no. I can tell you if a lot of other places that as good to park your money, you know, we, we talked about appreciation versus equity, you know, so that's a moot point. Can you compare the cost of financing with investment opportunities? Well, look, if in fact you're paying 4% interest and you're earning 4% interest with the tax benefits. You're actually paying less than 4%, right? Plus you have access to some control of the money. So when it comes to, when it comes to tax, you know, you have to think about cumulative tax savings. So you want to put your money in areas that you have tax efficiency so that your money can grow on a tax deferred and tax per basis. We're going to cover that in chapter 10. Speaker 1 00:13:04 And so folks, listen, I, like I said before, I can't stress enough. It's important that you understand these mortgage concepts as you move forward. Thank you very much for listening today. I want to go ahead and encourage you to check out our website at www dot LTF, again, www dot LTF, Sign up for our newsletter. Check out. We have a lot of great short videos, calculators. If you want, you know, for buying houses, cars or whatever, is it better to buy or is it better to lease lots of great calculators calculators in there? I take advantage of it. In fact, you can actually download the app to your phone. So if ever you have any questions too, you're sitting someplace and your, you have nothing to do. Just jump on the app and really start to do some homework guys. Again, no one is going to care more about your money than you do so again, You can reach [email protected] again, [email protected] Or you could give us a call at our office. (602) 774-4735 again, (602) 774-4735. Thank you very much. It was a pleasure. And I'll see you on chapter 10. Speaker 0 00:14:41 <inaudible>.

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