please advise on financial planning....

[HumanNetwork]

Hi ladies/Gentlements...

i really need some advise about pros and cons on what I'm trying to do here...

1. Currently I'm on 15yrs loan for my mortgage.. and im 2 years in the loan right now.

2. I want to refinance to either a 30years fix or
3. refy to 10 interest only

4. cash out as much as i can.
5. take half of it put into a Side fund. and other half put into a money market.

one thing i'm not sure about the side fund, i've talk to one of the agent.. and he explain to me about the side fund what it is is a Life Insurance.
let say.. if i buy a insurance policy 50K the face vaule is 445K. now let say if i dont die and let that money grow till im 65, i can cash that money as a retirement fun so much in a year with tax free.
that 50K policy can be slit to 11 years to contribute. and they take that money put into S&P 500 the garranteed is 1% and cap @ 15%

thanks in advance
HN

[Francesca R]

Erm, don't decide on this type of thing on the strength of posts on an internet forum. Really.

[The Central Scrutinizer]

Hi ladies/Gentlements...

i really need some advise about pros and cons on what I'm trying to do here...

1. Currently I'm on 15yrs loan for my mortgage.. and im 2 years in the loan right now.

2. I want to refinance to either a 30years fix or

Re-fi to 30 years. You can always pay it off quicker, if you want.


3. refy to 10 interest only

No, no, no, no! Stupid, stupid, stupid, stupid.



one thing i'm not sure about the side fund, i've talk to one of the agent.. and he explain to me about the side fund what it is is a Life Insurance.
let say.. if i buy a insurance policy 50K the face vaule is 445K. now let say if i dont die and let that money grow till im 65, i can cash that money as a retirement fun so much in a year with tax free.
that 50K policy can be slit to 11 years to contribute. and they take that money put into S&P 500 the garranteed is 1% and cap @ 15%

thanks in advance
HN

Never, never, never buy insurance as an investment. The returns are terrible.

On a side note - if you are single, don't buy life insurance. Period.

[bigred]

Hi ladies/Gentlements...

i really need some advise about pros and cons on what I'm trying to do here...

1. Currently I'm on 15yrs loan for my mortgage.. and im 2 years in the loan right now.

2. I want to refinance to either a 30years fix or
3. refy to 10 interest only

4. cash out as much as i can.
5. take half of it put into a Side fund. and other half put into a money market.

one thing i'm not sure about the side fund, i've talk to one of the agent.. and he explain to me about the side fund what it is is a Life Insurance.
let say.. if i buy a insurance policy 50K the face vaule is 445K. now let say if i dont die and let that money grow till im 65, i can cash that money as a retirement fun so much in a year with tax free.
that 50K policy can be slit to 11 years to contribute. and they take that money put into S&P 500 the garranteed is 1% and cap @ 15%

thanks in advance
HN

First, 2 things:

1 - I agree w/the above post; take whatever any of us say here with a grain of salt and consult a professional financial advisor - or at least someone you know who is knowledgeable about such things and you trust

2 - Although not totally ignorant, I am no financial whiz

OK that said....

If I read you correctly, this makes no sense to me, ie if you can reasonably afford to do a 15 yr mortgage vs a 30, do it. Rate is cheaper (I assume) and you save a bundle in interest.

Further, about the worst way to invest is via life insurance. And the way things are going right now, money markets aren't much better (PS I say this having quite a sizable chunk in a money mkt myself right now). You'd most likely be far better off either sticking with the 15 yr mortgage or if you refinance, taking the extra money and putting it in some mutual funds of varying types. Of couse how long you plan to invest has to be taken into account as well.

Remember this if nothing else: the 2 most important aspects of investing are
- diversifying
- time (ie investing as much as possible as soon as possible)

I frankly didn't get what you were trying to say at the end.

Hope this helps -

[SoBitter]

An interest only mortgage is ridiculous. If that is an option then try to sell your house and rent an apartment or house. At least you won't have to pay taxes on it or do repairs.

It seems that your main goal is to free up some money to invest, however you have the home, why not let it be your investment? Of course now is a good time to refinance. Maybe wait another month or two and see if interest rates drop even further. They sure aren't going to go up.

I don't know what kind of agent is trying to talk you into Life Insurance as an investment. Life insurance is to provide for you and your family in case you die or are disabled. That is all, in my opinion.

Don't get so caught up in the fact that you don't have a lot of investments. Refinance and use whatever money you save to start an IRA. Don't try to play around with safe bets just so you can look at 50k sitting in an account. Diversifying is important, but not if you're diversifying into risky and sketchy investments.

Find a better "agent" like an actual financial consultant who works for a reputable firm.

[Francesca R]

An interest only mortgage is ridiculous. If that is an option then try to sell your house and rent an apartment or house. At least you won't have to pay taxes on it or do repairs.[This isn't financial advice but . . .]

I had an interest only mortgage. I am in the UK and there was a time when discounted mortgages were being offered (don't know if they still are) where the rate was reduced by, say, 2% for the first year, or 1.5% for the first two years, or (what I remember I bought) 0.9% for the first four years. And there was no penalty for early redemption. It suited my circumstances very well since I could pay down the loan from earnings and I ended up clearing it completely in the four years. All other types of loan I examined at the time involved worse terms and/or fees/penalties. So it isn't always ridiculous. It depends on your plans for repayment, and how likely you think you will be able to realise those plans.

It seems that your main goal is to free up some money to invest, however you have the home, why not let it be your investment?Your home is a very big, undiversified investment and an illiquid one.

I don't know what kind of agent is trying to talk you into Life Insurance as an investment. Life insurance is to provide for you and your family in case you die or are disabled. That is all, in my opinion.I don't know the context here, but it is/was common for a mortgage lender to require an insurance policy to be built into a loan in the UK, because (presumably) the ability to repossess and sell the property itself was not seen as "safe enough".

Don't get so caught up in the fact that you don't have a lot of investments. Refinance and use whatever money you save to start an IRA. Don't try to play around with safe bets just so you can look at 50k sitting in an account. Diversifying is important, but not if you're diversifying into risky and sketchy investments.Just to add to what I said above, property is a risky investment and not diverse. It was only the mantra that house prices always rise (which has been shattered now in the US as it was in the UK in the early 1990s) that convinced people otherwise.

[bigred]

I think the insurance remark was meant as a possible investment seperate from the house itself.

Also property is not a risky investment, at least if we are only talking the property you live in. Yes things are bad now, but this is an exceedingly rare situation and will not be a long-term status quo. Over the long haul, property values go up. Plus you have to keep in mind the considerable tax break and equity that builds up (again long term).

And NO single investment is "diverse" by itself; that's my point. If we're talking about investing for long-term security (ie retirement), true diverstification minimizes risk.

[The Central Scrutinizer]

And NO single investment is "diverse" by itself; that's my point. If we're talking about investing for long-term security (ie retirement), true diverstification minimizes risk.

It can also minimize returns.

[HumanNetwork]

Ok guys.. thanks for the advise...
obviously.. im VERY new and immature about financial, i have 0.001% knowledge about investment...

let me see if i can make it a bit clearer...
right now im 31. and im planning for 65.
i want to refinance the house take some cash out, then take that money into some thought of investment. one plan im looking at is Life Insurance. garranteed at 1% cap at 15%.
in the insurance contract that im looking at. let say after i bought the policy and if i drop dead in any given year, my family will be garranted for $450K.
now let say if im live till 65 the estimate return will be ~$540K with average 9.6% interest return each year. and this money will be tax free.

the reason i want to refinance back to 30yrs because i rath want to take that couple hundred $$ each month and put it in the investment instead of give it to the bank. and i also want to utilize the Home Equity.

i felt that Life Insurance is pretty safe and secure, i dont want to risk that money if i put somewhere else.. since i have very little or no knowledge about stock market.

any further Pros/Cons suggestion is greatly appreciated....

[The Central Scrutinizer]

any further Pros/Cons suggestion is greatly appreciated....

I would strongly, strongly, strongly advise you to skip the annuity. Buying life insurance is fine, but not as an investment.

Guaranteed 1%? The bank will guarantee you about 3 times that amount now. And why would you want to cap your returns at 15%?

[bigred]

Just this: don't let fear of investing steer to you something which will give you a tiny return - essentially , lose you money - anyway. You can do much better and also with only modest to minimal risk. Again, life insurance as an investment is simply a poor choice. I suspect this life insurance guy is pushing something long on sales pitch and short on guarantees.

At the very least, investigate other options and get other opinions. You'd be crazy not to. In fact, speaking of banks, go to your bank and ask if they have any financial advisors you could see. Many do, and will do it for free. Nothing to lose.

PS you could also grab a "Retirement for Dummies" or some similar book and start learning. You don't have to be an investment whiz to at least pick up the basics and have a general idea what's what....and the more you know, there's less chance of making a bad decision or letting someone else railroad you into one.

Good luck!

[bobdroege7]

i agree with scut, and would like to add that the annuity is investing in the stock market only you are giving away a cut.

if you want insurance buy term.

Are you fully taking advantage of available tax deferred investments? Are you american?
Taking money out of your house and investing it might cause you to pay higher taxes.

Careful of using that home equity, do you pay PMI? If you do, having 20% equity in your house and not paying PMI is a pretty good return on the money(the 20%)

I would advise the 30 year fixed and invest the savings by monthly investments in 401K, or IRA or Roth IRA, depending on your tax situation.

and lastly, don't take my advice, I am not a financial expert by any means, but I do all of the above. Take a trip to the library and check out a book or two. Buy spyders and diamonds or at least find out what they are and compare to the s&p 500 1% guaranteed and 15% max that you are talking about, which sounds suspiciously like an insurance company offering, smells funny.

Learn about loads and fees as they relate to mutual funds. Check out index funds vs spyders.

learn

[HumanNetwork]

thank you all..
actually the word "ADVISE" i was using on the title is a wrong choice of word. i should use a word "opinion"
i do appreciated all your PROs and CONs opinion. i haven't make my move yet.. but i did sit down with the insurance company b4 i posted this thread, and it didnt sound right too me.. espcially when he keep talking about "MMA" software.. and everything i read so far, i have seen any PROs about that software.. and it cost $3500.
and when he show me the statistic average 9.6%, that average wasn't caps. if he showed me the caps average return i bet it will be much lower than that.

i also finish reading the first financial book called "Stop Sitting on Your Assets" by Mariel Snow. have anyone of you read that book? what is ur feed back on that book?

thanks
HN

[Loss Leader]

Hi ladies/Gentlements...

i really need some advise about pros and cons on what I'm trying to do here...

1. Currently I'm on 15yrs loan for my mortgage.. and im 2 years in the loan right now.

2. I want to refinance to either a 30years fix or
3. refy to 10 interest only

4. cash out as much as i can.
5. take half of it put into a Side fund. and other half put into a money market.

one thing i'm not sure about the side fund, i've talk to one of the agent.. and he explain to me about the side fund what it is is a Life Insurance.
let say.. if i buy a insurance policy 50K the face vaule is 445K. now let say if i dont die and let that money grow till im 65, i can cash that money as a retirement fun so much in a year with tax free.
that 50K policy can be slit to 11 years to contribute. and they take that money put into S&P 500 the garranteed is 1% and cap @ 15%

thanks in advance
HN

Well, you're basically taking just about the most conservative investment possible and transforming it into a much riskier set of investments. There's nothing wrong with that if you have the tolerance for it. A couple notes:

1. Don't invest in a life insurance-based fund of any sort. You're paying money for the right to die young. You can beat a cash-value policy with almost any investment. It's much, much cheaper to invest in whatever moderate-risk (or S&P-tied) fund and then buy ten years worth of term life-insurance. $200,000 worth of term life is dirt cheap for a healthy person below 60. Your fund will grow faster so that you can self-insure when you're older and term life gets more expensive.

2. Don't get hung up on the 30-year fixed. The average home is refinanced once every seven years. So a 5 year fixed, 30 year float or just a plain float will do everything you want. Right now, all of the rates are darn low. Get a good mortgage agent to explain all of your options.

3. If you take out a bunch of money for a long-term investment, you may end up with income that you'd rather not have to deal with every time you buy or sell. Consider putting some of the money into IRAs to reduce your present tax burden (or shift it to later in life).

[Huh-What?]

I don’t know if you have picked up on it yet, but...DO NOT PUT YOUR MONEY IN A WHOLE LIFE PRODUCT!!!!

They talk about 8-9% average returns, but according to The Lies About Money Ric Edelman had his staff review the returns for 13 well known whole life policies over the last twenty years. NOT ONE made over 6.15% on average and most were below 5%. The S&P 500 average was 11.8% in the same time period. Add that to the fact that the majority of your money goes to premiums in the beginning. Ask the salesperson (I wouldn’t call him a financial planner) what your cash value is in the early years. Virtually nothing.

The 1% guarantee seems great on the surface, but it is just playing off of your fear of losing money. At your age you should not be concerned with short term losses.

For the investments you can:
1 – Learn how to invest
2 – or Invest in index funds
3 – or Hire a competent Investment Adviser (a non commissioned one preferably)

As far as the mortgage is concerned it would matter what the rest of your financial picture looks like. If it is healthy and you have little or no revolving debt then you could go the IO route and use the money slated for principal towards investing. If your financial picture is not healthy then go 30 yr fixed and use the extra income from the difference of your 15 year mortgage payment and your new lower 30 yr payment towards paying off revolving debt.

You should avoid using too much of your equity. Avoid paying higher rates and PMI. Cash out refinances carry higher rates above 65% loan-to-value (depending on the lender). Also the IRS caps your mortgage interest tax deduction on non-purchase loans, so consult your tax adviser on the limits. I am always surprised how many “financial planners” do not know this when pushing reinvesting equity.

Yes, I am an Investment Adviser.

[JonnyFive]

I am not an investment advisor, but I am somewhat familiar with the insurance business, and I will reinterate that whole life is a suboptimal investment. It carries a very heavy load in terms of commission and expense, and your effective returns can vary considerably from what the saleperson is trying to sell you.

It's not very clear from your OP what the deal is, but if you post some more detailed information about what the saleperson is offering you and what your situation is (don't need to get too personal, I just want to know where you're coming from), I'd be happy to offer my opinion.

Generally you would get better or comparable average long-term returns from an index fund, or even something like municipal bond investments (which have the benefit of providing tax-free income). The nature of the taxation is also something you should really review with a financial planner. While life insurance proceeds may not be subject to regular income tax, they may very likely be subject to estate taxes. Moreover, taking money out of the cash value of the policy may also very likely trigger tax liability, so it's hardly a "tax-free" investment. It's also highly complex, which makes it hard to understand the actual return and benefit you see.

Given your age, I would suggest buying term life to protect your family until you have enough of an estate to provide for them when you die and then investing in something less complicated and designed more as an actual vehicle for investment.

By the way, the reason the life insurance agent will sell you the moon to get you to buy a whole life policy is because they generally make about 50% of first-year premium in commission, plus residual commission as long as they continue to service the policy.