Should You Really Pay Off Your Mortgage Faster? Or Is There A Better Option?
We’ve all been told it’s smart to pay off your Mortgage as quickly as possible… and this advice is sometimes good, but not always.
If your advisor only has 1 opinion on this topic, you should think twice before taking more financial advice from that person. There are some great financial options that say to pay your mortgage off as slowly as possible and make your minimum payments as low as possible.
Putting extra money every month on your mortgage may pay off your debt faster and save you thousands on interest – but that doesn’t mean you’ll be better off for it.
This may seem strange as we’ve all been told over and over that the responsible thing to do is pay off your debt as soon as you can. However the super-wealthy do the exact opposite.
You’re likely wondering “Why do the rich only pay their monthly minimum? Why do they get 30-year mortgages at all? Why don’t they just pay in cash if they can afford it and skip the interest altogether?”
These are all valid questions, and are talked about in our video lesson (add your email here to receive it.)
In the lesson Robert and Laurent look at the power of leverage and the strategies using the “Infinite Banking Strategy.”
The infinite banking strategy is an easy, tax deferred way to earn a sure 6-10% annual return on money which you can borrow at a 4-6% interest rate (numbers current at writing in 2013. Numbers will change depending on when you read this post.)
While the average middle class works hard to pay down their mortgage and save himself money on his 4% interest payments, he gives up his chance to leverage that money to earn a conservative 6%-10% return!
With every payment on your mortgage you lose the opportunity to make money.
There is even a term for this made up by the rich: it’s called opportunity cost; they hate it.
There is more to it than just this though!
There is a difference between definitions of two types of interest rates: simple and compounding and this is where the real power lies.
Simple Interest is when you never pay interest on interest that has accumulated. You only pay interest on the principle.
Compounding Interest is when the interest you earn, can then be used to earn more interest. Because of this your initial investment grows exponentially!
So you are paying simple interest and you are MAKING compound interest…. Are you starting to get it?
Even if the interest you earn is lower than the interest you pay!
We can give you an example:
If you borrow a $100,000 at 6% simple interest and ONLY pay the interest each month. Get your calculators out: that means each year you pay $6,000 in interest.
And let’s say you’re leveraging that $100,000 loan to earn 5% compounding interest. That means the first year, you’ll earn $5,000. But in your second year, you’ll earn 5% of $105,000 – that’s $5,250.
It doesn’t sound like much yet… but if you play this scenario out 30 years, the length of an average home loan, your $100,000 loan will turn into $432,194.24.
But that’s with an annual return of 5%…
The infinite banking strategy has a return 6-10% per year!
You can pay down your home faster by investing your money outside of your mortgage instead of just paying it off as quickly as possible. That is to say if you have $400,000 saved and earned outside of your traditional mortgage you have effectively “paid off” your home outside of your mortgage.
That is just one benefit of the infinite banking strategy, in the video we go over:
- Consistent Returns- 5-11% per year for the past 100 years
- Low Risk – Zero chance of losing your money, even if the market drops like a stone.
- Huge Tax benefit – If you play it right, you can avoid all taxes as your money grows.
- Guaranteed Retirement – Can collect $75,000+ annually for 40 years – tax free.
- Ideal For Heirs – Allows you to leave money to heirs 100% tax free.
- Asset Protection – Your money is 100% off-limits to creditors or lawsuits when structured properly.
- Highly Liquid – Access your money at any time for any purpose without restriction.
- More Opportunities – You can use the Infinite banking as collateral for a loan.
This is why Safe Pacific is such a strong supporter of the infinite banking strategy and it is one of a very few strategies they recommend to set up your financial security.
If you haven’t set up your own infinite banking system, I highly recommend checking out the video we sent you on the strategy or contacting us for more information.
If you have any questions or opinions, please leave a Comment below or email somebody at Safe Pacific.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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