• WisBusiness

Monday, June 22, 2009

Benefits of a new mortgage in today's economy

By Kevin McKinley

Contrary to the belief of some sensible savers and investors, now could be a good time to take out a new, 30-year fixed-rate mortgage on your current home, and then pay the loan off as slowly as possible.

The macroeconomic motivation for this maneuver is that today's unprecedented low interest rates may lead to higher inflation tomorrow, which would bring higher interest rates the day after that (figuratively speaking).

The microeconomic reason for doing this is that the new mortgage could not only help you benefit from higher inflation and interest rates, but free up money that serve you better over both the short- and long-terms.

Conventional uses

Regular readers of this column will recall that last month's version detailed some sensible answer to the question, "What would I do with the money from my mortgage?"

Whether it's a lump sum or a lower monthly payment, any extra money could be used to pay down higher-interest debt, sock it away in savings to wait for higher interest rates, or ramp up contributions to at-work retirement plans.

But there are other less-conventional but still potentially beneficial ways to put your extra savings to work.

Buying off Uncle Sam

If you're eligible, a relatively reliable "investment" idea for your mortgage proceeds would be to use some or all of the money to pay the taxes on converting some or all of your IRA to a Roth IRA.

To do so, your adjusted gross income for 2009 has to be less than $100,000 (but that amount doesn't include what you convert). Next year the income limitation is scheduled to disappear completely.

There is a definite advantage paying taxes on your IRA withdrawal while the balance is low, and the likelihood of higher tax rates in the future is high.

But even if you convert your IRA to a Roth IRA now and it turns out to be too soon, you have at least until April 15th of the next year to undo the conversion, and perhaps October 15th of 2010 if you choose to file an extension.

Investing in long-term care

If you like the idea of getting taxes on your retirement plan out of the way while asset values and tax rates are relatively low, you'll love the idea of paying a little right now for a potentially-devastating expense down the road.

By definition, heading off to a nursing home or assisted living facility isn't "fun." It's even less so if you or a loved one don't have the money to pay for the quality of care you or a loved one want and need.

So using your mortgage proceeds or savings from a new, lower payment to purchase a long-term care insurance policy could protect you and your family from losing your home, not to mention the rest of your hard-earned assets.

However, whether your mortgage savings come via a big lump sum or a little more money each month, due to the ever-changing nature of both long-term care and long-term care insurance, it's probably best to purchase the insurance by paying monthly premiums, rather than forking over a lump sum up front.

Higher education costs

Even if you're comfortable that your savings, retirement, and long-term care needs are covered, if you have a child or grandchild you're well aware that the cost of sending that kid to college is going in one direction (up), while the amount of money available to pay for it is going in another direction (not up).

So it may behoove your family to consider putting your extra cash in a college savings plan, also known as a 529 account. You won't get much of a tax deduction on the deposit, but the earnings left in the plan are sheltered from taxation.

Withdrawals that are used for qualified higher education expenses are tax-free, and the parent or grandparent can maintain control over the account and the withdrawals.

And if the child in question doesn't need the money, it can still be transferred to use for another family member.

The only downside of the 529 account is that you will owe taxes and a small penalty on the earnings portion of the account if you choose to use the proceeds for non-qualified purposes.

For example, cashing it out to pay off your mortgage.

-- McKinley bought his first share of stock at the age of 14, and began working for an investment firm at 17. After graduating from the University of Wisconsin with a degree in economics and history in 1988, he became one of the youngest licensed financial advisors in the country. He is now a Certified Financial Planner practitioner, and owner of McKinley Money LLC, a registered investment advisor in Eau Claire, Wisconsin that provides fee-based financial planning and investment management to individuals and families. Read McKinley's complete bio


Comments: 6

At July 30, 2016 at 6:33 AM, Blogger Kiley Muller said...

Sampling Marketing Research Help
Good event, I think because to have a necessary books is very important for every profession, especially, for writers who make your life easier everywhere.

At July 30, 2016 at 7:13 AM, Blogger Ken Smith said...

Thanks for sharing the info, keep up the good work going.... I really enjoyed exploring your site. good resource. 
Criminology Capstone Project Help

At July 30, 2016 at 7:33 AM, Blogger Eden Alaster said...

Financial Analysis Accounting Help
The postings on your site are always excellent. Thanks for the great share and keep up this great work!

At September 21, 2016 at 8:41 AM, Blogger shahbaz said...

Eggs with the writers Robin Amos Kahn and Gary Richards and director Matthew Penn to discuss the upcoming production, what inspired it and why does Meredith Vieira care?Custom Shirts

At August 14, 2017 at 3:03 AM, Blogger opera mani said...

mobdro download
mobdro for ios
mobdro for blackberry

At July 18, 2019 at 2:41 AM, Blogger wangzha said...

Coach Outlet Usa
Coach Bags Outlet
Coach Sale
Coach Outlet Sale
Coach Bags For Cheap
Coach Bags On Sale At Outlet
Coach Outlet Near Me
Coach Name Change
Coach Store
Coach Tote
Black Coach Purse
Outlet Michael Kors
MK Purses Clearance
Michael Kors Outlet Sale
Michael Kors Bags On Sale Amazon
Amazon Michael Kors Bags
Michael Kors Tote Sale
Cheap MK Bags
MK Handbags Sale
Michael Kors Outlet Online
MK Bags On Sale
Cheap Michael Kors
Cheap Michael Kors Handbags


Post a Comment

Back to BizOpinion main page

: See newer blog items : : See older blog items :

BizOpinion site feed

wisbusiness.com Social News

Follow Us

Site Sponsors


· January 2009
· February 2009
· March 2009
· April 2009
· May 2009
· June 2009
· July 2009
· August 2009
· September 2009
· October 2009
· November 2009
· December 2009
· January 2010
· February 2010
· March 2010
· April 2010
· May 2010
· June 2010
· July 2010
· August 2010
· September 2010
· October 2010
· November 2010
· December 2010
· January 2011
· February 2011
· March 2011
· April 2011
· May 2011
· June 2011
· July 2011
· August 2011
· September 2011
· October 2011
· November 2011
· December 2011
· January 2012
· February 2012
· March 2012
· April 2012
· May 2012
· June 2012
· July 2012
· August 2012
· September 2012
· October 2012
· November 2012
· December 2012
· January 2013
· February 2013
· March 2013
· April 2013
· May 2013
· June 2013
· July 2013
· August 2013
· September 2013
· October 2013
· November 2013
· December 2013
· January 2014
· February 2014
· March 2014
· April 2014
· May 2014
· June 2014
· July 2014
· August 2014
· September 2014
· October 2014
· November 2014
· December 2014
· January 2015
· February 2015
· March 2015
· April 2015
· May 2015
· June 2015
· July 2015
· August 2015
· September 2015
· October 2015
· November 2015
· December 2015
· January 2016
· February 2016
· March 2016
· April 2016
· May 2016
· July 2016
· August 2016
· October 2016
· December 2016
Copyright ©2013 WisBusiness.com All rights reserved. | WisOpinion.com | WisPolitics.com  |  Website development by wisnet.com LLC  | Website design by Makin’ Hey Communications