Money Myth #1: My home mortgage needs to be paid off when I retire to be happy
Article published in Longmeadow Neighbors
(December 2021)
EXPERT CONTRIBUTOR
CHARLIE EPSTEIN
Financial Advisor
Epstein Financial Services
413-478-8580
Yieldofdreams.live
charlie@yieldofdreams.live
In my new one Man Show “Yield of Dreams” I identify 15 Myths People Have about Their Money. A Myth is “a false belief you have about a subject matter…” My Dad had this belief. When he retired at Age 68, he moved to Florida to build the house of his dreams on the golf course of his dreams for $500,000. He was going to pay cash. I told him to take out a mortgage for 30 years instead. “For 30 years, he screamed, “I’ll be dead before it’s paid off.” To which I said, “What do you care you’ll be dead.”
Today, my mother is 94, living In an apartment at Glenmeadow, and she has a mortgage. (All her friends think she’s crazy) “Like a fox,” I say. My mother’s mortgage rate is 2.5%. She is in a 30% tax bracket, so the net cost for her to pay that mortgage is 1.75%! This means that all she needs to do is make more then 1.75% on her money year in and year out using the bank’s money. She has averaged 7-8% on her investments since they retired!
To be successful with your money you need to think like a banker or a mobster. You need to understand how to make money with OPM, USM the VIG and the Spread.
Bankers use OPM, “Other People’s Money”- they borrow from the Federal Reserve At one rate (currently 0%) and sell that money to you and I, at a higher rate 4-18%, pay their overhead (3%) and make money on the “spread” 6-7%. Mobsters do the same thing, only with more charm! They don’t borrow the money- they just take it, and sell it at 20%, they have no overhead, so it’s all “Juice!” (But you get the point). To be successful with your money today- to make real money- you have to act like, preferably, a banker.
First, you want to use OPM- the bank’s money when you invest in real estate. Second, you want to use USM, Uncle Sam’s Money. I told my Dad to take out a 30-year mortgage, because in the first 15 years it’s all interest. When he retired in 1992, President Bill Clinton raised the marginal tax rate to 39.6%, and instead of my Dad being in a lower tax bracket, when he retired, he was in a higher tax bracket. (If you’ve been reading the papers lately, this is what President Biden wants to do as well - history always repeats). The good news is he could deduct his mortgage payments for 15 years and get Uncle Sam to pay 39.6% of his payments. This reduced his monthly cost by 39.6%, thus, my Dad’s 5% 30-year mortgage, really cost him 3% net. Instead of paying $500,000 cash, he put down $100,000, used the banks $400,000 (OPM), deducted his monthly payments by 39.6%(USM) And made money on “the spread”. He averaged 7-8% on that $400,000 over his lifetime. Thinking your mortgage needs to be paid off when you retire is a myth! Why wouldn’t you want your money to work as hard as you have for the rest of your life?
To learn more about your Myths About Your Money, head over to www.yieldofdreams.live and start listening to my Myths of Money Course. And if you like podcasts, download my Yield of Dreams Podcast today! And in our next article what you should do now to take advantage of the current real estate boom and pending bust!
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