How to reduce the cost of your mortgage to $16/month

“Fear of running out of money before you die” is the biggest fear that Americans face today, behind terrorist attacks and government corruption.[i]  And yet, for pennies on the dollar, you can overcome that fear and gain confidence about your financial future.

More and more people believe the deck is stacked against them, and that access has been limited to gain the capital needed to have any real confidence in the future.  But access isn’t limited to those who really want to overcome the odds and build a financial future in which they can have confidence.  The biggest change is in people’s emotions.

It has been said that “Emotions have more to do with our financial future than economics.”[ii] And that maxim holds true today.  When we stop fearing the future and start dealing with the present, we overcome that which prevents us from taking the necessary action today that will provide the confidence we need for tomorrow.

“In the last fifty years, the ten most extreme days in the financial markets represent half the returns. Ten days in fifty years. Meanwhile, we are mired in chitchat.”[iii]  This bold fact demonstrates that things are NOT stacked against us, because the market is the same for everybody.  But what is important to realize is that during those “10-days” the market can quickly and easily strip everything we have made in the other 18,240 days of those 50 years, away from us.  And that is why we need to be earnestly cautious with our earnings, and our savings.

Few places remain today for us to take advantage of genuine guarantees that will protect our capital.  Bonds, certificates of deposit and whole life insurance policies are some of the secure places left where you can keep your money without facing greater taxation, fees, penalties, market erosion and inflation. Yet of these three, whole life insurance is the only one that provides you the opportunity to avoid lost opportunity costs.

Lost opportunity costs are killing Americans financially along with their retirement savings and investment portfolios.  Think about it.

Consider the purchase of a 30-year mortgage.

Take a $300,000 mortgage.[iv]  With a 4% annual interest rate.  Paying off such a mortgage will end up with you making a monthly payment of $1,432.25 for 30-years.  Total cost over that 30-years will be $515,608.

But let’s assume you have bought into the idea of paying your house off early.  Instead of taking advantage of that 30-year fixed amortization schedule you make extra payments and pay your house off early in 15 years. You accomplish this by increasing your monthly mortgage payment to $2,219.06, which comes to $786.81 more than what you were scheduled to pay on your 30-year amortization.  This means you end up paying $399,430 for your mortgage instead of $515,608.

Undoubtedly, you accept the idea that you’ve saved $116,178.

But let’s look at this a bit closer.

Anyone who understands lost opportunity cost would never lead you to believe that you can save money by paying a mortgage off early.  Here’s why.

  • $786.81 a month for 15-years, used to purchase a participating whole life insurance policy instead of paying off your mortgage early will generate $351,463 of cash value in your policy by year 30.
  • This means that by avoiding the lost opportunity cost associated with paying off your mortgage early your house really only costs you the difference between the cash value, minus premiums of the policy ($209,837), and the cost of the mortgage payments you’ve made for 30-years. The cost of your 30-year mortgage ($515,608) minus ($209,837) comes to $305,771.
  • And that means paying your house off early may not be in your best interest if your desire is to build sustainable wealth.

Wow, that realization can trigger some emotions.  But that’s not the end of your savings!

The $351,463 of cash value in your policy continues to grow every year!  And this growth occurs without you ever having to pay more than those 15-years of $786.81 monthly premiums. And the confidence this provides you is that you get to spend every dime of that money, tax free, before you die.

So, you can choose to pay for your $300,000 mortgage and spend $515,608 over 30-years; or you can pay $399,430 for that same mortgage and retire it in 15-years.  But the better way is to reduce the cost of your $300,000 mortgage to only $305,771 by using participating whole life insurance and, in so doing, eliminate the Lost Opportunity Costs. The relative cost on this option works out to $16.03/month or 0.13%.  In this way you can keep more of the money you make and have the confidence to spend that money on things that matter most in your life.  That can be in retirement or before you retire, which is entirely an emotional decision.

[ii] Jack Bogle, Don’t Count On It
[iii] Nassim Taleb, The Black Swan
[iv] For simplicity we will are not including any down payment but simply the mortgage costs