Dave Ramsey Plan

[Kobe Bryant]

"American household debt hit a record $13.21 trillion in 2018. If you had to write that check it would read $13,210,000,000,000." Debt.org

Personal finances is something that unfortunately isn't taught as part of the basic curriculum in schools, and as such many are financially illiterate.
Whether or not one agrees with the entire Dave Ramsey Plan (DRP), we should all be able to agree on the simple principle of "living within one’s means." Comments like "I know many people that spend within their means no matter what. To each their own." remind me how it isn't just common sense but rather financial education that will change the way we look at personal finances.

[moko]

"American household debt hit a record $13.21 trillion in 2018. If you had to write that check it would read $13,210,000,000,000." Debt.org

Personal finances is something that unfortunately isn't taught as part of the basic curriculum in schools, and as such many are financially illiterate.
Whether or not one agrees with the entire Dave Ramsey Plan (DRP), we should all be able to agree on the simple principle of "living within one’s means." Comments like "I know many people that spend within their means no matter what. To each their own." remind me how it isn't just common sense but rather financial education that will change the way we look at personal finances.

I don't think you want to be bantering about DR around these forums.
Also, in our circles you need an education fund way before college.

[Euclid]

Why is prepaying a mortgage a good thing with today's mortgage rates? Seems like a dumb thing to do, just take the excess money and invest it - all you need to make is more than ~4% (if not less).

[Kobe Bryant]

Why is prepaying a mortgage a good thing with today's mortgage rates? Seems like a dumb thing to do, just take the excess money and invest it - all you need to make is more than ~4% (if not less).

That isn't the point. I would love to know how many people in our community are even in the position to prepay their mortgage or invest that extra money.

[Euclid]

That isn't the point. I would love to know how many people in our community are even in the position to prepay their mortgage or invest that extra money.

Oops sorry for taking it off topic. The choices are a little confusing for me because I don't necessarily agree with the ordering.

[gozalim]

Why is prepaying a mortgage a good thing with today's mortgage rates? Seems like a dumb thing to do, just take the excess money and invest it - all you need to make is more than ~4% (if not less).

and where are you earning a safe %4 ?

[aygart]

and where are you earning a safe %4 ?

my whole life policy

@ExGingi

[ExGingi]

my whole life policy

@ExGingi

Indeed. My Whole Life policies give me anywhere between a 3% to 5% safe rate of return (besides for providing a death benefit and not generating a 1099).

[gozalim]

and -in context of this discussion- you can 'prepay' it?

[ExGingi]

Why is prepaying a mortgage a good thing with today's mortgage rates? Seems like a dumb thing to do, just take the excess money and invest it - all you need to make is more than ~4% (if not less).

Here is another way to look at this:

Prepaying a (presumably fixed rate) mortgage converts a guaranteed CASH LIQUID asset into non-guaranteed, illiquid HOME EQUITY.

Now I know that when home prices are rising and banks are easily giving HELOCs, many people might not realize the risks involved. But remember that HELOCs can be frozen, shut down, or simply not offerred at any time the banks don't want to lend. Also, while we've seen an outstanding increase in home values (especially in BKLN and LKWD), prices don't always go up (they are possibly a little down from their peak). And here's something many people miss - prepaying a mortgage is irrelevant to your net worth, I actually know people that were kicking themselves for not having larger mortgage balances during the Making Home Affordable loan modification days.

Also, don't forget tax ramifications.

[ExGingi]

and -in context of this discussion- you can 'prepay' it?

The Whole Life? Yes! If set up correctly and with the right companies.

[gozalim]

Here is another way to look at this:

Prepaying a (presumably fixed rate) mortgage converts a guaranteed CASH LIQUID asset into non-guaranteed, illiquid HOME EQUITY.

Now I know that when home prices are rising and banks are easily giving HELOCs, many people might not realize the risks involved. But remember that HELOCs can be frozen, shut down, or simply not offerred at any time the banks don't want to lend. Also, while we've seen an outstanding increase in home values (especially in BKLN and LKWD), prices don't always go up (they are possibly a little down from their peak). And here's something many people miss - prepaying a mortgage is irrelevant to your net worth, I actually know people that were kicking themselves for not having larger mortgage balances during the Making Home Affordable loan modification days.

Also, don't forget tax ramifications.

speaking of liquid, how liquid is the cash in a whole life policy?
Easier /more reliably available to access than a HELOC?

[aygart]

Indeed. My Whole Life policies give me anywhere between a 3% to 5% safe rate of return (besides for providing a death benefit and not generating a 1099).

Before or after leveraging?

[CountValentine]

and where are you earning a safe %4 ?

US Saving Bonds

[CountValentine]

my whole life policy

@ExGingi

More than 4%. 

[ExGingi]

speaking of liquid, how liquid is the cash in a whole life policy?
Easier /more reliably available to access than a HELOC?

There's a reason banks will give 95% LTV against the Cash Value of a Whole Life policy (I know of one bank that will actually go to 100% LTV with credit scores of 750+.

I've seen HELOCs being shut down for people with perfect credit. The cannot happen with the Cash Value of Whole Life. If banks won't lend, the insurance company gladly will.

[CountValentine]

I've seen HELOCs being shut down for people with perfect credit.

Home value falls?

[12HRS]

What happens when you lose your job and cant make payments towards your WL policy?

[ExGingi]

What happens when you lose your job and cant make payments towards your WL policy?

What happens to all other payments when you lose your job? Housing? Medical insurance? Utility Bills, etc.?

If the policy was properly overfunded, and especially if the policy is (even partially) seasoned, the policy will have enough to self support itself through the hard time. Also, if policy was set up with regular overfunding, it's easier to dial down the premium amount while keeping the coverage unaffected.

[12HRS]

What happens to all other payments when you lose your job? Housing? Medical insurance? Utility Bills, etc.?

If the policy was properly overfunded, and especially if the policy is (even partially) seasoned, the policy will have enough to self support itself through the hard time. Also, if policy was set up with regular overfunding, it's easier to dial down the premium amount while keeping the coverage unaffected.

whole point of paying off house was to not have the risk..So now this WL policy is the emergency fund? One can also borrow from their retirement accounts but its not generally smart to do that.