bi-weekly loan payments

From: JT144@aol.com
Subject: bi-weekly loan payments
Date: Sun, 6 Dec 1998 19:31:05 EST

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Bill La Mar writes:

<< An even faster way to own your own home is to invest the extra dollars
 each month into an investment such as Vanguard 500 index fund.Because of
 the magic of compounding it will build up much faster than the increased
 equity in the home. Besides if a person loses a job the equity in the
 home is worthless until such time as the home is sold. If you can get
 mortgage money for 5% after tax and invest money for 10% after tax you
 are using one of the keys to financial security that has worked forever.
 This is successfully using the financial perpetual motion machine.
 People who have used the nine Keys to Financial Security have
 consistently become wealthy.
  >>

Your example sounds great.  Instead of paying off a debt at 5% net, invest at
10% net. Good in theory. Your plan though will force people to overpay for
their homes. A 100,000.00 house with a 30 year loan could easily end up
costing 300,000.00.  Many people are finding out that they cannot sell their
homes for enough to compensate them for the money they spent in interest,
nevertheless make a profit.

A better plan might be to prepay on the house and get the debt paid off.  THEN
invest the money you no longer have to spend to the bank. 

Results: 
1). You are much more likely to profit from your home if you reduce the
interest paid.
2). You are in a better position financially and cash flow wise without a
mortgage. 
3). Prepayments produce savings that are guarranteed and tax free.

The slow growth in the early years of any investment can't offset the high
cost of interest in the early years of a mortgage.  You get more bang for your
buck prepaying a mortgage loan. Frankly, I'd rather not have the risk of
forclosure when the balance of my investments can't pay off the balance.  I'll
stick with prepayments, as i've already saved $110.000.00 in six years time.

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