The Work, Travel and Everyday Life Newsletter

  from Randy Lewis

 

Cash and more cash! Who doesn’t need a little extra cash?
This is part two of a multipart series around the general topic of money management as it relates to home loans. This is NOT Facebook. You won’t be able to just scroll through this in a few seconds. Cash doesn’t come your way that easily. As a matter of fact, this discussion will not fit in everyone’s “wheelhouse”. If that’s true for you maybe you will want to pass this message on to a friend or advisor to see what they think.

Specifically, we’re talking about home appraisals, refinancing mortgages and working with the people who can make that happen. In Part 3 I’ll be explaining why I think many people can benefit from having a home mortgage. You won’t want to miss Part 3!

I believe there is one recipe for success in order for you to benefit from what I am sharing. At the end of all of this, you will need to understand why I think this is a good idea. If you don’t understand that you might not have the motivation to figure out why this might be a good idea for you.

Don’t worry about my numbers. Think about your numbers.
As we go through this exercise I will use my numbers by way of example. I think it will make everything seem more real…because it is real. I don’t want you to get caught up in my numbers. That won’t help you a bit.

What does success look like today?
Here’s what I see as a success from today’s exercise. I hope you get a good understanding of what I am doing and why I am doing it. Then you will be in a much better position to decide if you can take elements of my plan and implement it into your own financial planning strategy.

There are people reading this that own houses and that don’t own houses. There are people who are close in age to being either 20, 40, 60, 80 or 100. What I will be describing applies to some age groups more than others.

To get a different result you have to make changes.
In order to improve your financial situation or any situation that you would like to see improvement in you have to make changes. It’s important to note that people are very resistant to change. There’s a concept called “confirmation bias”. What’s that? It’s the idea that lots of people are looking for information to confirm what they already believe. People who are receiving this message have been screened for superior intelligence! No one would consciously sign on for confirmation bias, would they?

Finally, a second reminder, don’t get caught up in my numbers. I recommend you take the strategies I am using and try to apply them to your own situation. If you can do that I think you’re going to see some potential benefit. Now let’s get started.

I’ll take you through the numbers below.
At the very bottom of this message, you can view all of the numbers that make this plan work. With a 10-year plan, lots of things can happen. Heck, we could have a pandemic. The best I can do is make reasonable assumptions on what will happen over a 10-year period.

How was I able to make all of this happen?
Remember don’t succumb to the temptation to get caught up in my numbers. That won’t help you at all. Be thinking about how you can work my plan with YOUR numbers.

The terms of my current home loan are these. I have a balance of $2,220,000 at an interest rate of 3.1%. This is an interest-only loan. It was originally scheduled for a term of 10 years of which about seven years remain on the loan.

You might be thinking that a home mortgage loan of $2,220,000 is a pretty big friggin loan. I guess everything is relative. We paid $40,000 for our very first home in Phoenix, Arizona. Did I ever think I would have a loan that was 55 times what we paid for our first house? Er….no.

When I got our loan three years ago I was as thrilled as anyone could be who was signing papers that said I would pay someone else more than $2 million.

I’ve probably had 20 home loans since we bought our first home in 1974. I don’t think I’ve ever had an interest rate as low as 3.1%. I know I’ve never had a loan as big as $2,220,000. I thought all of this was excellent.

However, times change. What was good three years ago might not be as good as what I could get today. It just turned out that with interest rates decreasing and home values increasing I might be able to get a better deal today. Maybe if I was really lucky I could put myself in a position to owe even more money!

Please. Let me borrow even more money.
It was true! Today I could get an interest rate of just 2.75%. I could also get the bank to loan me $2,553,000. That’s right. I could lower my interest rate by 35 basis points (.35%) and increase my mortgage amount by $333,000.

I know what some folks might be thinking. Isn’t it better as you get older to have your home completely paid for? Is it better to have your mortgage balance going down rather than up? Yes, that is what some folks think of as conventional wisdom. It’s not mine. I’ll cover more about that in the next episode, Part 3, of this discussion.

Before I could get a loan of $2,553,000 at 2.75% interest on an interest-only basis for 10 years I needed to QUALIFY for the loan. What does “qualify” mean? The bank wanted to convince themselves that I was good for the money. The monthly payment on a loan like this would be $5,850.

Son, can you pay this money back?
In order to get a loan like this a couple of things needed to happen. I needed to prove to the bank that I could pay back $5,850 every month for the next 10 years. No, not just some months…every month. Additionally, I had to prove that my house was worth enough to justify a loan of $2,553,000. Yes, I know what you must be thinking about a bank with these requirements. Picky, picky, picky.

First, let’s go with trying to answer the question of how in the heck was I going to pay this mortgage every month. Normally, the bank wants you to have a steady job and enough income to prove that you can make the monthly mortgage payment. Pretty simple huh?

Exactly how WAS I going to be able to pay for this? You see I submitted my retirement papers 19 years ago. I haven’t earned a dime of work income in all of those years. Carol hasn’t worked outside of the house for more than 40 years. I don’t get a company pension. We don’t have any inheritance.

Randy, you are a financial failure!
I know what you might be thinking. “Randy, you are a financial failure! This complete lack of income says two things about you. First you shouldn’t waste your time even filling out a mortgage loan application. Secondly, you don’t have any business writing a blog about money management”. Wow! That’s a harsh assessment.

I did tell you not to worry about my numbers right? Just for the fun of it where would your financial situation be if you hadn’t worked in 19 years, your spouse hadn’t worked for money in decades, you had no company pension and no inheritance?

Yes, some might be thinking I am a financial dreamer. Others might be saying, “I know Randy. He’s a little strange but he seems like a pretty honest and straightforward fellow. Maybe he’s got an ace up his sleeve. I don’t know about you but I want to continue to hear what he has to say”.

We have no income!
Thank you! No, I don’t have any history of income. I don’t have a pension. My wife’s parents weren’t rich. As a matter of fact, for the first 15 years of my life I lived in a house that had 660 ft.². My indoor basketball court has more square footage than my boyhood home! By the way, if you’d like to check out that house (above) on Zillow.com the address is 411 Doering, East Peoria Illinois. Zillow says that in today’s market my old house will fetch all of $41,000. I might just go back and buy that place someday.

I don’t have any income. Why would the bank even consider loaning me any money at all? When you go to a restaurant or some entertainment venue do you ever get a, “senior discount”? The bank was offering sort of a senior discount.

Although I haven’t worked for money in nearly 2 decades I have been able to make some profitable investments along the line. When I was working they paid me pretty well too.

Asset annuitization to the rescue.
So here’s the key for you oldsters who are reading this and have no recent income history. The bank I am working with, which lends only in California, will annuitize my current assets. Don’t try to weasel out of this opportunity by saying, “Well yes your bank does this in California but I don’t live in California”. If they annuitize loans in California they probably do it where you live.

I’m 71 years of age. I know I act like I’m 35. Nevertheless, my bank thinks of me as being 71. They will annuitize my assets based upon the age of 85. What does that mean?

It’s sort of goes like this. They’ll take whatever money I have in investments and divide that balance by 14. They get the result of 14 by taking the number 85 and subtracting my current age 71. Why did they pick the magical number 85? Because people don’t live forever!

The bank is willing to give an older person who no longer works some “credit” for the assets they have accumulated over a lifetime. The bank knows that a retiree probably wouldn’t have any job income. Nevertheless, the retiree might have enough money set aside to cover the loan balance that is being created.

You’re approved. You’ve convinced us you can repay the loan.
Wouldn’t you know it? After I sent in a large batch of electronic asset balance PDF forms in the folks at the bank concluded I could pay them $5,850 every month for 10 years. Who was I to question them? They’re the bank!

So now I had convinced the bank that I could make the monthly payment. However, what if something crazy like a pandemic came along and knocked down the value of my investments? I guess that could happen right? Wouldn’t you know it? Just to make things a bit more challenging I did all of this financial work in the middle of the COVID-19 pandemic.

What if things “go south”?
Next, the bank wanted me to have some collateral just in case everything went south. What could I use as collateral for this loan? The house! I could use the house as collateral. Then if everything did go south and I couldn’t make the payment the bank would simply take my house. They wouldn’t kill me. They would just take the house. No more gardener bill, no more unexpected maintenance expense. They would just take the house. This sounded like a very good plan to me.

I know what you’re thinking. OK, I’m really imagining what you’re thinking. I’m guessing that you think losing your house would be a pretty bad deal. Well, losing your house is the pure definition of things, “going south” isn’t it?

If I couldn’t pay the monthly mortgage the bank would take my house and then sell it. They would hope to sell the house for more than what I owed them. If they could do that they got to keep whatever was left over.

I know you knew this.
Just as a reminder, I was attempting to borrow $2,553,000. If I still lived back in East Peoria, Illinois and my home was worth $41,000 the bank wouldn’t loan me that much money. I know you knew that.

Remember “ratios” from back in grade school?
When a bank considers someone for a home loan they have a number of “ratios” that need to be met. One of those ratios is something called “loan to value”. You can compute the loan to value ratio on any property by dividing the amount of the loan by the value of the property.

Let’s say you had a $200,000 house. Let’s say the bank would allow a loan to value ratio of 60%. That means that you could borrow as much as 60% of the $200,000 home’s value or $120,000. You would still need to qualify on an income basis to prove that you could pay the monthly payment for a $120,000 loan but on a collateral basis you would be in good shape.

OK, I wanted to borrow $2,553,000. How much would my home need to be worth in order to meet the 60% loan to value ratio requirement? Here’s the computation on that. You simply divide the loan amount of 2,553,000 by 0.6 (60%). I’ll do the math for you on this one. The appraised value of my home would need to be $4,255,000 before the bank would lend me $2,553,000.

We’ve only got a little cottage but it’s our little cottage.
I describe our home as a “modest seaside cottage”. However, even a modest seaside cottage in Southern California can be expensive. When we got our loan three years ago the cottage appraised for $4,500,000.

The next step in this entire process would be getting a home appraisal, a favorable home appraisal. With the financial crisis of 2008 the government has stepped in to regulate the home lending business. The government has as much interest as the banks do in making sure that people can repay whatever home loan they take out.

This ain’t the 70s. Snookering is no longer tolerated.
For our loan, the bank would select a home appraiser for us. That was so much different when in 1973 a buddy of mine was getting a corporate transfer. The company would buy his house from him based upon the average of two appraisals. Mike I., I’m using “Mike I.” because that’s his real name got two of his buddies to appraise his house. As you might imagine they came in with two separate HIGH appraisals. The company paid Mike I. the average of those two appraisals. Mike took the money. Then the company tried to sell Mike’s house at the appraisal price. They couldn’t. That house sat on the market for two years. The company doesn’t let the seller pick the appraisers anymore!

Today by law the bank cannot discuss values or have any other direct influence with the home appraiser. The relationship between the appraiser and the bank needs to be a fully independent one.

Enter the home appraiser.
You can imagine that the home appraiser is a very key person in whatever financial success I personally hoped to achieve. Remember I am expecting the bank to give me $7,764 in cash every year for 10 years in the form of reduced monthly payments. I am also expecting them to lend me an additional $333,000 at a very low interest loan for eight years above and beyond the $2,220,000 I already owe. Who stands between me and that money? The home appraiser!

The person who comes out to appraise our home is going to tell the bank what they think our home is worth. They will do their best to quantify that assessment but even then the entire process is somewhat subjective.

It’s all about the “comps”.
The home appraiser is going to try to determine the value of our home based upon “comparable sales”. Here’s how it might work. We have a modest seaside cottage. The appraiser is going to try to find other modest seaside cottages that are about the same age, same condition, same location and same everything as our little cottage.

Our cottage is custom build. Most other cottages in San Clemente are custom built. That means that unlike with tract housing comparing one cottage to the next is not an exact science. Every custom-built cottage is a little bit different than the next.

The appraiser goes out and checks homes that are somewhat similar to ours and have sold in the last six months to a year or so. Let’s say a cottage five blocks from ours sold for $4 million. Then let’s say that cottage has two bedrooms and ours only has one. The appraiser would subtract the value of that extra bedroom that we didn’t have from the base price of the $4 million comp.

The appraiser would then go through a series of subtractions and additions comparing our home and the home that sold for $4 million as an example. Maybe we had three bathrooms and they had two. They had a three-car garage and we only had a one-car garage. Our home was newer than the comparable etc. etc.

The appraiser would compare our property to three or four other properties that have sold recently. They might even compare our property to some other properties that were listed but hadn’t sold yet. In the end the home appraiser would run the numbers and come up with an appraised price.

Additionally, the appraiser might consider the overall market conditions of the comparable sale of a few months ago and the market when today’s appraisal would happen. Maybe the home sale of six months ago took place in a roaring economy with low-interest rates, lots of buyers and limited supply. Maybe the market conditions today were in the middle of a novel coronavirus, once in a lifetime pandemic that had completely shut down our economy. OMG. This didn’t sound good.

Let’s take a pause. You deserve a reward.
Let’s pause for just a moment. I would like to give a reward in terms of some very specific advice to those who have read this far. You deserve such a reward.

I want to meet and greet the appraiser.
I would never ever be traveling on the day the home appraiser came to appraise our home. I want to be there. I want to be there with a big smile on my face. I want to use every aspect of salesmanship that I’ve ever learned in my entire life to build a personal bond with the appraiser.

I definitely don’t want to come off as a “Eddie Haskell“ type of character with the appraiser. I recommend youngsters Google that particular reference. I simply want to be as helpful and informative with the appraiser as I possibly can be. They have a job to do. If I can provide measurements or any kind of background information about the quality of the workmanship and materials used in our home I’m there to do that.

We don’t have no stinkin’ blueprints.
It is common for the home appraiser to ask for the blueprints for the home they are appraising. Long ago we lost our blueprints and for whatever reason can’t find them anywhere.

An appraiser is always going to ask you for the measurements of your home. They’ll do their own measuring but just as a doublecheck they would love to have blueprint measurements or any other accurate measurements that may be available. If the homeowner can help them with this information it makes the job of the appraiser that much easier.

We have refinanced our mortgage every two or three years since we moved into this particular cottage 20 years ago. About 15 years ago when our home was probably worth $3 million or so we refinanced the mortgage.

$5 million bucks!
For some unknown reason, the home appraiser valued our home for that particular loan at $5 million. This was an ungodly high appraisal. I always like to say that when the sun shines try to share the warmth.

For the next 10 years, every time we refinanced the home appraiser would ask me if I had any measurements. Yes, I did have some measurements. They were attached to the home appraisal that gave us a $5 million value even though our home was worth much less than that. I always shared those measurements and of course, it would have been impossible for the appraiser not to have seen the $5 million appraisal result. Like I say when the sun shines I try to share the warmth!

There’s a joke that when a home appraiser comes into your home if they can smell freshly baked chocolate chip cookies that’s going to help the appraisal. Do you think I would really have Carol bake chocolate chip cookies to influence an appraiser? O.K. that was not meant to be a sexist comment. It’s just that Carol bakes the cookies and I normally lay on the couch. I don’t see anything sexist about laying on a couch or baking chocolate chip cookies.

I don’t bribe people. I encourage people. Is there a difference? Er…maybe not.
I don’t bribe people. I encourage people. I wouldn’t bribe anyone but I would simply try to “move them in the right direction” if I had that opportunity. Are we good on that?

Don’t miss this.
Now I’m gonna be sharing a couple of really important points. You can apply these in your everyday life not only with home mortgages but with just about any concept where you need a favorable response. Are you ready?

When the home appraiser has wrapped up their in-house inspection I like to meet with them privately and ask them one simple question. The question is this. “Would it be OK if I told you the number we need in order to make our loan happen?” I have asked this question of virtually every home appraiser I have ever met.

The home appraiser is there to make as accurate of an estimate of the value of the home they are appraising as they possibly can. They want the home owner to get their loan. Is the home appraisal process an exact science? No, it is not.

Three years ago our home appraised for $4,500,000. Could the appraiser just as easily have said it was $4.7 million or $4.2 million? Yes they could have. As I recall three years ago we needed a $4.5 million appraisal to get our loan.

I remember telling the appraiser back then that the number we needed was $4.5 million. If we didn’t get $4.5 million we wouldn’t get the loan. What was the appraiser thinking when I told her that? I don’t know. Maybe she was thinking $4.3 million. Maybe $4.7 million. We needed $4.5 million. I told her that.

What did our home appraise for three years ago? $4.5 million. We got the loan. Did my telling her that we needed a minimum of $4.5 million influence the decision in the right direction? I don’t know. It might have.

COVID-19 hasn’t been good for very many people and we didn’t need it to happen when we were refinancing.
It certainly didn’t help that we were refinancing this year in the middle of the COVID-19 pandemic. First, our investments took a hit when the stock market dropped at the onset of COVID-19. That wasn’t helpful.

Say what?
Then, after Carol and I had done a lot of work getting our house in tiptop shape for the appraisal inspection the home appraiser called us. She wouldn’t be coming inside our home. The bank wouldn’t allow it because of the virus. She would do a drive-by appraisal and use the photos and measurements from our last appraisal of three years ago.

We got lucky with one aspect of this entire process. The woman who did the appraisal three years ago would be doing our appraisal this time as well. Out of all of our refinance opportunities I have never had the same appraiser from one appraisal to the next.

Ring. Ring.
How was I going to “influence” the home appraiser if I wasn’t going to get a chance for some face-to-face time? The only option I had was to talk to her on the phone.

As mentioned above the drop-dead appraisal price we needed in order to meet a 60% loan to value ratio based upon our loan of $2,553,000 was $4,255,000. Was the pandemic and all of the economic turmoil and job loss going to negatively affect the housing market in the short term? I sort of thought it was.

I made the phone call to the home appraiser. From three years ago she remembered me and our house. She said something to the effect of, “That was such a cute cottage. The construction materials were so far above average. Is it still in as good a shape as it was three years ago?“. I was born at night but not last night. My immediate answer was, “Yes! We go out of our way to make sure we keep the cottage in outstanding condition”.

We talked a little more. I knew the home appraised at $4.5 million three years ago. I sensed that the home appraiser might not have remembered that number since she has probably appraised 1,000 homes since then.

There are times when saying nothing is best.
She said to me, “I’m trying to remember what your house appraised for last time. I think I’ve got it right here. Hold on and I’ll tell you”. I held on. I learned from 30 years in sales that there are times to say absolutely nothing.

She came back on the phone and said, “Yep. I’ve got it right here. Three years ago your house appraised for $4.5 million. I know the prices have gone up since then. I think your little seaside cottage is going to be worth more now than it was back then”. Jackpot!

This was another good time to bite my tongue.
Do people ever say things to you that you disagree with? When that happens do you tell them that they’re crazy and whatever they just said doesn’t make any sense to you? Sometimes I do that. Sometimes that’s not a good idea.

Did I think in the middle of a pandemic that was absolutely killing the economy that the value of our home today was worth more than it was three years ago? No, I did not. Was I going to mention my thinking to the home appraiser? No, I was not.

If she thought the home was more valuable than the $4.5 million appraisal from three years ago then more power to her. I might add that I did give her the sales details of a home that sold last month for $5.1 million. Maybe she didn’t have those details. I am nothing if not helpful.

Come on appraisal. Don’t fail me now.
We only needed an appraisal of $4,255,000. The appraiser told me she thought the house was more valuable than it was three years ago when it appraised at $4.5 million.

So what appraisal price were we given? $4,650,000.
As the boys back in the Caterpillar Tractor factory (where I worked summers to pay for college) used to say when they were headed out on a three-day weekend, “we were golden”.

We’re going to Disneyland…when it re-opens!
We were approved for the loan. We were going to Disneyland! The bank was going to give us $7,764 in cash for each and every one of the next 10 years. They were going to give me an extra $333,000 in cold hard cash after a two-year waiting period locked in at a fixed rate of 2.75% interest for the next eight years.

We’re at the end of Part 2 now. I hope you made it this far. Again, I know what you might be thinking.

I don’t want no friggin’ mortgage.
“OK, Randy you’ve proved to me that you can get a big loan. However, I don’t have a mortgage. I don’t wanna mortgage. I don’t see any value in having a mortgage. I would never ever want to have a mortgage.” Hmmm. You sound pretty convinced.

You are not going to want to miss Part 3!
Remember, there is no value in getting hung up about my numbers. It is your numbers that are what’s important to you. However, if I can do this with these numbers during a pandemic maybe there is some value here for you and your loved ones. Maybe there is enough value to read Part 3 when it shows up.

Well… Part 3 of this multi-part series will be here before you know it. I’ll be telling you why I believe you need a mortgage. I’ll be telling you that you need as big of a mortgage as you can possibly afford. In the meantime you can be thinking of all of the reasons why you’re not going to ever get a new mortgage. However, one or two people or maybe more are going to see the value in what I am saying. Which of you are going to be those one or two people? I don’t know. But you’ll know.

This stuff might be a little too “numbers-oriented” for some. You think? No problem. Pass this on to your “numbers” person to get their take. Just make sure you’re not practicing “confirmation bias”.

Randy Lewis
San Clemente California

The numbers!

What did I expect from this idea?
What do I expect to get out of a mortgage refinance?
It’s pretty simple. I’m looking for someone to give me $7,764 a year in cash every year for 10 years. Secondly, I’m expecting someone to give me $333,000 of my “own” money at a low-interest rate for eight years.

When was the last time you asked anyone to do any of the above for you? Never? Well, there’s a first time for everything. I’m trying to do exactly what I described above.

On a single day a single bank….said yes!
I have a house. My house has a mortgage. Currently, my mortgage balance is $2,220,000. Don’t be alarmed. This doesn’t mean that I have $2 million. This only means that a single bank on a single day thought I could pay them back $2,220,000. I know. It sounds crazy, doesn’t it?

Lowering our interest rate.
First, I will be lowering the interest rate on my $2.22MM loan from 3.1% to 2.75%. This interest rate reduction will lower our monthly payment from $5,735 to $5,088. That’s an annual savings of 7,764. The loan will last for 10 years. If we have the loan for the full term out savings will $77,640.

Giving the bank cash so they can give it back to me.
Secondly, I am “buying down” the interest rate of our loan to 2.75%. That means I give the bank some money now and they give me a lower interest rate. Hold on! There’s a reason this is a good idea.

I have to give the bank 15% of our current loan balance of 2.22MM. That comes to $333,000. Whoa! I don’t have $333,000 that I want to give to the bank to get a new loan. No problem. The bank will add the $333,000 to my current $2,220,000 loan. This makes the new loan balance $2,533,000.

I know what you might be thinking? “Randy, you’re going in the wrong direction with this idea”. Stick with me. There’s a reason this can be a good idea.

I only have to give the bank the $333,000 for two years. During those two years, I will have to pay them 2.75% interest on those funds. Then at the end of two years, the bank gives me the $333,000 BACK. I can do anything I want with that money at that point. Our current home loan worked exactly the same way.

Here’s the big advantage to financing the extra $333,000 with the bank in what they call “relationship banking”. From the beginning of year three through the end of the loan in year ten I can invest that money.

This is very similar to locking in $333,000 as kind of a home equity loan. However, virtually every H.E.L. is tied to a variable interest rate. If general interest rates go up the rate for your H.E.L. goes up. My rate of 2.75% is locked for a term of ten years. I give the bank the money for two years and pay them 2.75% in interest. I can’t use that money during that two-year time frame. Then for the remaining eight years, the bank gives me the money back. I still pay them 2.75% to get that money. I can use the $333,000 for anything I want. This procedure allows me to get at some of the home equity I have accrued.

For the first two years borrowing $333,000 at 2.75% costs me $18,314 in interest expense. However, I can then invest that money for the next eight years.

My retirement assets have earned an annual rate of return of 8.1% over an 18-year time frame. Will I get more or less of a return over the next ten years? I have no idea. I might get more and I might get less. I’m going to assume I will earn the same 8.1% in the future as I have in the past.

So…if I earn 8.1%/year on the $333,000 and it costs me 2.75% to borrow that money the difference is 5.35%. I’ll be able to invest the $333,000 for eight years earning 5.35%. My $333,000 will be worth $505,266 in eight years for a $172,266 gain. Remember I’m paying 2.75% interest on that $333,000 for two years before I can invest the money. That 2-year expense is $18,314. My net ($172,266-$18,314) is $153,952.

Let’s recap.
To recap…I’ll earn $77,640 by reducing our current monthly payment for 10 years. I’ll earn $153,952 by investing the relationship banking funds for eight years. That’s a grand total of $231,592 in savings/earnings. Folks, for this one mental exercise I think I am being properly compensated!

Assumptions/Benefits.
– I’ll borrow $2,553,000 at 2.75% on a 10-year interest-only loan
– I will earn 8.1% (the same rate of return I’ve earned in 18 years of retirement investing) on $333,000 of “relationship banking” money for eight years. My borrowing costs on those funds will be 2.75% for a net gain of 5.35%. This gives me a net return of $153,952.
– Having an additional $333,000 available in two years will delay taxable IRA withdrawals.
– By refinancing now our loan term will be extended from seven years to ten years
– By having a large home loan we will be able to continue to itemize our tax deductions meaning the federal government is reducing our income taxes and partially subsidizing the cost of our home. I don’t write the tax law. I only follow the tax law.
– There is a fee of approximately $7,000 to “close” the loan which includes title insurance and a number of other miscellaneous fees. So this isn’t really a “$231,000 idea” but more like a $224,000 idea”!
– If we were to move from our home before the 10-year term of the loan expires our savings would be less.
– Our loan is assumable. Maybe someday that assumability feature will help us sell our home a little easier.
– I haven’t spent a lot of time focusing on taxes. I figure tax savings and tax spending will be going both ways but won’t materially effect the overall outcome.
– Will you get $231,000 from this idea in your own situation? I don’t know. You might get more and you might get less. However, just about anything is better than nothing!

P.S.
Maybe you missed one of my previous “Finance, Travel and Everyday Life” messages? No problem. Check this out.

History of my Finance, Travel and Everyday Life messages