Time is on your side …
(and why getting the biggest mortgage possible may be the best choice)
-Renowned investment guru Roland Manarin lays bare the truth about your mortgage
While discussion about why homeowners should reconsider trying to payoff their mortgage as quickly as possible is not necessarily new, investment and finance guru Roland Manarin, President of nationally-renowned Manarin Investment Counsel, Ltd. and Lifetime Achievement Fund, promotes and explains this message like no other. In fact, his advice goes so far as to sometimes recommend keeping the largest mortgage possible.
He breaks his advice down into what people should do in good economic times and bad.
In good economic times:
“The crazy thing is, most people are thrilled to pay off their home ahead of schedule – doubling up payments, making lump sum payments; when in fact, they’re hurting themselves financially,” says Manarin. “In reality, by paying off the house they eliminate a good tax write-off throwing themselves into higher tax brackets.”
His explanation is simple:
You buy a home for $100,000, and are shocked to realize that by the time you’ll pay off the house you’ll be paying a total of $239,000.
Because real estate inevitably increases in value, by the time the home is paid off in 30 years, it will likely be worth $239,000.
If you pay the loan over 30 years, $139,000 of that was a tax write-off, which you saved on federal and state income taxes.
Rather than putting the ‘extra’ money you used to pay your mortgage off faster, putting it into conservative, diversified investments which over the long-term have averaged 10% returns, provides you with a ‘win-win’ scenario.
In bad economic times:
“Most people want to pay off their mortgage because they feel they will be safe if bad economic times hit and they won’t have a mortgage payment to worry about,” notes Manarin. “Savvy people know that if bad times are coming, they want the biggest mortgage they can get.”
A depression hits and a house with a purchase price of $131,000 house could now be worth $10,000. A person has paid their mortgage off early and now lost $121,000.
Someone with a large mortgage could have diversified the difference and owned assets that could have appreciated such as gold and gold-mining shares.
Many people would lose their house in a depression because they would not be able to pay their taxes. With the money I have saved by not paying off my mortgage and diversifying part of it into depression hedges, I can now buy other pieces of real estate for taxes owed.
“People believe their home is a financial asset, but it isn’t an investment,” adds Manarin. “Investment assets make money for you, but a house is actually a liability because you have to pay taxes, insurance, upkeep, etc. The only way that I can turn my house into an asset is to take the money out of the house with a loan and own something that pays me more money than what the taxes, insurance and upkeep cost.”
“For people who’ve paid their houses off, I ask them if they could borrow at 4% to earn 10% would they do it? If they answer yes, I tell them to borrow 80% of the market value of the house, take the money out, and own a diversified portfolio of good companies with a 5-10 year minimum time horizon.”
“It’s actually a fairly simple principle called OPM “Other People’s Money” and one I have used 14 times over the last 28 years: You have to learn how to make money work for you. Having money is one thing, making it work for you is the key.”
Roland Manarin is president of Manarin Investment Counsel, Ltd. and Lifetime Achievement fund. He has hosted his own radio show since 1986, and is a nationally recognized expert on a variety of financial and investment issues, and routinely presents free lectures on investment subjects.
In 2004 he was named as one of America’s top wealth Advisors by Barron’s Magazine.
Contact: Sandy Diaz
856-489-8654, ext. 117