The origin of the word ‘mortgage’: ‘mortuus’ (‘dead’ – Latin) —> ‘mort’ (‘dead’ old French) + ‘gage’ (‘pledge’ old French) = ‘Mortgage’ (‘Dead Pledge’ old French) —> ‘Mortgage’ (late Middle English)
So basically, ‘death pledge’. And ain’t it apt? Yes…yes it is.
What Does Your Mortgage Cost You?
This is the math that nobody except the bank wants to do. You may have actually worked it out when you got your first or most recent mortgage, but most people don’t want to because they know it’s scary. Very, very scary.
Let’s look at a $500,000 mortgage with an interest rate of 4.2%, an amortization of 25 years and a 40% marginal tax rate for you, the homeowner. What is the cost to you? Well, first thing that comes to mind is that you need to pay back the $500,000. And equally obvious is that you need to pay the bank their interest – you are borrowing from them and it comes at a cost that you accept. At an interest rate of 4.2%% over 25 years the total amount of interest you will pay to the bank for the privilege of borrowing that $500,000 is $305,368. So now we’re up to $805,368. Ouch. Do you want to stop there? Sorry, wish we could, but can’t. The fact is that before you have the money in the bank to make that mortgage payment, you first need to pay tax on your income. And over the course of this 25 year mortgage, based on your 40% marginal tax rate, you are going to pay $536,912 in taxes before you can even make those principal-plus-interest mortgage payments. So what’s the grand total? How much do you have to earn over 25 years in order to pay off that $500,000 mortgage?
$1,342,280! That’s almost three times the amount you borrowed in the first place!
This very thing that got you into a home where you can live and raise a family in peace and serenity, is the very thing that now seems to threaten your peace and serenity. Because of this mortgage you aren’t able to put near enough away for your retirement – if anything at all. When the size of your mortgage payments are tacked on to the the bills of life and taxes you must pay (almost half of your total income!), how is one supposed to even dare think about retirement?
There is a Fix!
It may sound counter-intuitive, but this very thing that is keeping you at night is the very thing that can help you sleep at night IF you restructure your finances to make that mortgage work for you. With a simple, one-time restructuring, implementing The Smith Manoeuvre ™️ can cause an increase in your net worth by over $510,000 over that 25 year period. You could be $514,108* better off compared to paying off your mortgage the way everybody else is – that being one month at a time. You CAN improve your financial future! *taxable investment portfolio growth rate estimate 8%
