How to Set Up and Use a 1% Mortgage Loan to Maximize Your
Savings and Tax Benefits.
Ready to discover the secret to winning with a 1% mortgage
loan? Look no further! While there are various types of 1% mortgage loans, only
two keys truly matter when it comes to maximizing the benefits of this type of
loan.
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First, it's essential to ensure that your loan is set up
correctly from the start. Secondly, using the loan in the right way will allow
you to gain the most benefit. Let's dive deeper into the workings of the loan
and the correct setup to help you reap the financial rewards these mortgage
loans offer.
1% mortgage loans come with payment options, including a
30-year fixed payment, a 15-year fixed payment, an interest-only payment, and a
minimum payment of 1%. While you might be tempted to choose a different payment
option, don't be fooled! You should always select the 1% minimum payment
option.
Why? By selecting the 1% minimum payment, you'll experience
a significant reduction in your monthly payments. Your mortgage payment could
be cut in half, which is a pretty attractive benefit for most homeowners.
To maximize the effectiveness of selecting the 1% minimum
payment, be sure to save what you save. For instance, let's say you refinance
your home with a 1% mortgage loan and pay off all your credit cards. If you
keep the $1,000 you'll have left over each month for yourself instead of giving
it to your creditors, you'll have $60,000 in cash at the end of five years -
with zero percent return.
The second benefit of selecting the 1% minimum payment
option is tax savings.
If you make an interest-only payment, your mortgage balance
will remain the same. However, if you make a 1% minimum payment, you'll pay
less than interest only, creating deferred interest that will increase your
mortgage balance monthly. Don't fret; deferred interest is mortgage interest
and is therefore tax-deductible.
Let's say your home value is increasing by $2,000 a month.
With a 1% mortgage loan, you can take a small piece of that appreciation - say,
$500 a month - and turn it into a tax deduction. This way, you're taking a
small piece of your equity each month and turning it into a tax deduction. By
doing so, you'll still have plenty of equity but with a 1% mortgage loan,
you'll have cash AND equity.
If you make bi-weekly payments, you can reduce or even
eliminate the deferred interest. So don't let deferred interest be a concern!
Now that we've covered the benefits, let's discuss how to
set up the loan correctly:
The 1% payment option is only available for the first five
years, but you can keep the loan for 30 or 40 years. If you opt for a 40-year
loan, your monthly payment will be lower, but the payment options will not last
for five years. The name of the game is to keep the 1% payment for as long as
possible. So, get a 30-year amortization.
The 30-year, 15-year, and interest-only payments are tied to
an index. It's better to select a slower-moving index like the MTA (Monthly
Treasury Average) instead of a faster-moving index like the Libor (London
Inter-Bank Offered Rate).
So what's the catch? Depreciation. If homes in your area are
rapidly decreasing in value, the deferred interest could cause you to become
upside down on your home. However, if your area is experiencing a 3% to 5% rate
of appreciation and you save what you save by making the minimum payment, a 1%
mortgage loan can have an incredibly positive impact on
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