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Posted on November 3, 2009 by articles@homeofficeteam.com | Posted under Debt Consolidation
Your Mortgage Banker Wants You to Invest in Your IRA ( Because It Makes Him Rich )
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There's definitely no lack of investment guidance. In addition to Dave Ramsey, there's lots of info about investing your money and with which brokerage firm. Everywhere you look, TV, web, and print, the talk is about money and how to make it grow. What's your favorite investment: stocks? Bonds? Mutual funds? How about futures; you know, pork bellies, gold, frozen concentrated orange juice? You may even have seen ads that tout "the excitement of Forex trading", where you are lured by prospect of speculating in foreign currencies. Besides brokerage firms, other financial institutions offer investment accounts. Many banks that sell mortgages also offer investment accounts. It's likely that the bank where you got your mortgage is among them. Remember, we're talking about saving for the future - for retirement. Certainly, a big attraction of retirement accounts is that most are tax-deferred. So, you pay no tax on the money you contribute to the account, and no tax on on the account's earnings. You only pay tax upon withdrawing funds. This sounds like a great deal to most people since they don't plan to take money out until they retire, and then they will be in a lower tax bracket. It all is appealing, and squares with most people's idea of success. There's no surprise that you've bought into this logic. The trouble is, it's all wrong! In spite of the recommedations telling you to invest for retirement, doing so may be the biggest mistake you will ever make. Furthermore, following this course may curtail your retirement - perhaps forever. If you follow Dave Ramsey, you know that he advises the importance of reducing your debts. First, those who sell investment "products" are doing so to make money. Secondly, they are spending lots of money to assure you that it's in your best interest to save for the future and to start early. What they don't tell you is that for homeowners with a high mortgage, you're mortgage interest cost will be much higher than any earnings of a retirement account. For illustration, a homeowner with a 6%, $250,000 mortgage will pay $15,000 in interest in the very first year. Let's compare that to your IRA. If you contribute $2,000, and your account earns 8% (a high number by today's standards) your first year earnings will be a whopping $120. On the other hand, let's see the results if you listen to what Dave Ramsey and others advise. You use that money to accelerate your mortgage instead. After four years, your IRA will earn $1,730. But assume you pay the tax on the $2,000 each year and use that money (about $1,600) to accelerate your mortgage, your mortgage balance will be reduced by $6,400. It's actually more, since the reduced principal each year causes more of your monthly check to reduce it further. Here's the result: after four years, the difference in balance will save you $30,000 of additional payments. $30,000! Compare that to the $1,730 your IRA will earn. The results aren't even close. And since interest saved = interest earned, you'll have earned yourself $30,000 tax free! You'll also have cut the time to pay off your mortgage by years. It's not surprising that Dave Ramsey has so many followers. Mortgage acceleration is the better choice for homeowners than any investment, especially in the early years of the mortgage. Find out how you can use mortgage acceleration and debt reduction at http://iounomore.wordpress.com . About The Author: Mortgage accelerator saves homeowners thousands |
Tags: DAVE RAMSEY, MORTGAGE, MORTGAGE ACCELERATION, MORTGAGE ACCELERATOR, PAY OFF MORTGAGE, MORTGAGE LOAN, REDUCE MORTGAGE
