"basskisser" wrote in message
oups.com...

NOYB wrote:
"basskisser" wrote in message
oups.com...

NOYB wrote:
wrote in message
oups.com...
But, I thought that you had to get an interest only loan?????


The bank was offering me either loan...conventional, or
interest-only.

I chose the interest only loan over the conventional 30-year
fixed,
because
it gives me the option to pay principal on the loan (but only if
*I
*decide
to do so). Right now, it makes more sense for me to put $25-30k
per
year
away in a qualified pension plan than to pay principal on a home
mortgage.
In 4 1/2 years, I'll only be 38...and I'll have an extra $6000/mo
(before
taxes) to put towards principal and/or retirement savings. At
that
time, I
can get a 20 year conventional fixed mortgage, and pay the home
off
before
I'm 60.


Yeah, sure, whatever.......


Boy, you sure put a lot of thought into that reply. Sorry I taxed
your
brain so much.

The mortgage companies PUSH interest only loans to consumers. Care to
venture WHY????


Because they have a non-decreasing revenue stream coming in while the
principal is outstanding. So what. It's good for the bank...but even
better for me.

Are you smart enough to do the math on exactly how much *principle* you're
actually paying in the first 5 years of an $800000 mortgage at 4.25%?

I'll get you started:

Payment (principle+interest)= $3935.52
Payment (interest only)= $2833.33

(Answer= $66,131.20)

So at the end of 5 years, I'd owe $800,000...and the guy who paid principle
owes $733, 868.80.

Keep in mind that I'm putting that $66,131.20 into my wife's and my Simple
IRA's instead of towards the principle of the house. Because it's a
qualified plan, I saved $20k in Federal taxes over the schmuck who used the
money to pay down the principle on his home.

At the end of 5 years, he paid an extra $20k in taxes to the Feds, and owes
$733, 868.80 on the home.

At the end of 5 years, I put $66k into my simple IRA and paid $20k less to
the government. Even if the house doesn't appreciate, and I get *ZERO*
return on my investment in the Simple IRA, my net worth is ahead of his by
$20k. If I get even a nominal 5% return on my Simple IRA per year, I'm even
further ahead of the other guy.

Paying principle on a loan is an opportunity cost.