Insurance: What the Fr*ck!

[CVP33]

The lowest a 30 year mortgage has be 30 years is 2.65%. That would mean you would have to be making 4.65% at you bank. No way, what FDIC Insured investment gets you a 2% spread?

I like municipal bonds, I bonds and index funds. Individual stocks scare the hell out of
me.

 

[smurfslayer]

Another advantage of paying off the mortgage is that you are no longer subject to the whims of insurance carriers. Many places are seeing ridiculous policy increases, especially Florida. I like the option to tell them You're Fired if I choose.

These two things are not the same.

1) Auto insurance (ab)uses metrics that are wholly unrelated to driving risk. They do this by associating --for example-- people in certain zip codes, with certain economic qualifiers in general, and then applying a credit score test, and so on and so on. I’ve known plenty of folks with solid credit but couldn’t drive without colliding for shít. And don’t get me started on “males take more risks than females” - you know like, sipping coffee while applying makeup :-/ Auto insurance is mandated by most state governments and largely unregulated. It’s basically a state endorsed protection racket that discriminates based on sometimes largely irrelevant criteria.

2) Home insurance policies not being renewed in Floriduh is from homes getting REPEATEDLY flattened, claimed, rebuilt and flattened AGAIN. Wash, rinse repeat.
When you build in a flood plain, or on the coast in Hurricane Alley, you should be paying exorbitant rates compared to inland folks because the risk is SUBSTANTIALLY greater to the carrier that they will have an enormous payout on a regional scale. Same with Mississippi river flood plains, earthquake zones, tornado alley, etc.

And I will concede that Home insurance is also an industry with a reputation for shįtty behavior. Like cancelling policies for calling to check coverage or asking about flood insurance or having a name that “sounded black”. But not renewing home insurance policies in some parts of Floriduh is just smart business.

 

[MDJAK]

That's one of my biggest issues with Ramsey. I make more money by not paying off my mortgage then I would paying it off. If you're willing to save and invest, you'll almost certainly be richer in 30 years *not* paying it off. I could pay it off today if it benefited me to do so, but it doesn't.

Even on something as safe as FDIC insured savings, I've got a 2% spread on what I pay the bank vs what the bank pays me. Add in tax benefits (including property tax in my state, where I get a deduction for having a mortgage) and the spread is wider. I'm not sure who's buying who's furniture in that case. Some sort of secret Santa arrangement?

Now if instead of saving that money you'd put it in strippers, blow, and jetski rentals for the strippers while on the blow...pay off your mortgage.

Are you nuts? Pay off the mortgage instead of spending on strippers? Perish the thought.

 

[TomDirt]

But not renewing home insurance policies in some parts of Floriduh is just smart business.

Not renewing insurance isn't an option, unless the mortgage is paid off.

Once the final principal is paid this year, I've got options..
my property taxes will be about $7-8/day. Water & natural gas is another $4-5/day. Auto insurance about $3/day.
Solar panels eliminated the electric bill 8yrs ago. No sewer, cable, or trash bill. (This area is all on septic and we get a free dump card). There sure aren't any HOA's in the Hi Dez . When the system collapses I won't be fighting the dogs for Alpo for awhile if I don't have a mortgage or car payment. To me, at 64, that security is worth more than knowing my money is sitting in a stranger's bank.

 

[CruiserClass]

The lowest a 30 year mortgage has be 30 years is 2.65%. That would mean you would have to be making 4.65% at you bank. No way, what FDIC Insured investment gets you a 2% spread?

What I'm currently using:

Interest Savings Account | Bask Bank

Saving more with Bask means earning more rewards — without monthly fees.

www.baskbank.com

Currently at 5.1%, FDIC insured.

Navy Federal CDs (not FDIC insured, but NCUA which is the equivalent for credit unions) : 5.2% if you can hit $20k minimum. *edit: I renewed at 4.8%, so I'm not personally getting this rate)*

I-bonds: rates vary depending on when you bought them, I've got them from 2003 to current. Current rate is 5.27%+

 

[CruiserClass]

Marcus (Goldman Sachs) has 4.5% on savings and 5.5% 12-month CDs with $500 minimum. Also FDIC insured.

 

[CVP33]

What I'm currently using:

Interest Savings Account | Bask Bank

Saving more with Bask means earning more rewards — without monthly fees.

www.baskbank.com

Currently at 5.1%, FDIC insured.

Navy Federal CDs (not FDIC insured, but NCUA which is the equivalent for credit unions) : 5.2% if you can hit $20k minimum. *edit: I renewed at 4.8%, so I'm not personally getting this rate)*

I-bonds: rates vary depending on when you bought them, I've got them from 2003 to current. Current rate is 5.27%+

We got in on the Navy Fed CU deal as well. Just lucky as we had a bunch expiring. RE: the I-bonds, you have to go thru the internet now to get them. There was a $10K limit per person and you could lock in 9% for 6 mos. We gifted money to our 2 sons so we were able to throw $40K into those. You can cash out whenever you want but if you do before 5 years you surrender the previous 3 mos of interest. Hardly a penalty if the market is moving fast. So look for a macro trend of lower rates and other investment opportunities and these are nearly as liquid as cash AND are insured. Max time is 30 years. Last 3 years running was over 6% net.

 

[New recaros]

I think I should have expanded my question. Today’s 30 year 0 points is 6.1%. You need 8.1% plus to break even. Then your interest deduction and taxes on the gain of the invested money would adjust break even point. It hard for most to get a steady 8% investment. When they decide to stimulate the economy, these 6-8% investments will not be found for new buyers.
Those of us that have very low mortgage rates, I totally agree, better to invest.

 

[TomDirt]

It hard for most to get a steady 8% investment. When they decide to stimulate the economy, these 6-8% investments will not be found for new buyers.

There's always somebody with a "special" deal who can get a guaranteed higher rate. LA's Dept of Water & Power used to guarantee 8% on their employee's 457 contributions.... because they have the ability to just raise utility rates when they need to. But in the real world, not so much.

 

[CruiserClass]

I think I should have expanded my question. Today’s 30 year 0 points is 6.1%. You need 8.1% plus to break even. Then your interest deduction and taxes on the gain of the invested money would adjust break even point. It hard for most to get a steady 8% investment. When they decide to stimulate the economy, these 6-8% investments will not be found for new buyers.
Those of us that have very low mortgage rates, I totally agree, better to invest.

If we're expanding the question, then we need to look at long term gains vs FDIC insurance. The need for 'steady' drops dramatically as well, unless you can't stomach the ups and downs. Sleeping at night is more important than max gains, IMO. Assuming you have sufficient funds in an emergency account already:

With all the usual 'past performance doesn't guarantee future results', a 30 year run of S&P 500 index funds would be about 10-11% return over the past 30 years. Pretty solid cushion, even before tax benefits.

IMO, if you're not maxing out your retirement (getting any employer match, getting all tax benefits) then any extra money should go to that before paying an extra dime on your mortgage.