Dave Says: Interest-only loan not a smart move
Dear Dave,
What do you think about interest-only mortgages? The idea is that you invest what you would normally pay toward principal over time, and your house will increase in value regardless of principal pay-down. Your investment will grow and increase your overall net worth, as well as giving you flexibility in making payments toward the principal.
– Taylor via email
Dear Taylor,
I understand the idea behind interest-only loans, and I think they’re stupid. The best thing you can do is become debt-free on your home as quickly as possible. Live like no one else, so that later you can live like no one else.
This is your HOME. This is where your kids live, and you’re talking about trying to be a day-trader with it and play some kind of shell game. Do NOT monkey around with your house on an interest-only loan. Pay the mortgage off, Taylor, as fast as you can. In all your “sophisticated” analysis you left out the fact that you have exponentially increased risk. And risk can be mathematically entered into the equation, making your supposed gains disappear. Never do an interest-only mortgage!
– Dave
Dear Dave,
We were dummies and bought a timeshare years ago. We paid it off in three years, and always paid the maintenance fee up until about two years ago. Then we got a call recently from a collection agency saying we had a $3,100 balance. He said they’d take $2,000 and call it even. I tried to negotiate with him, but he wouldn’t budge. What can we do now?
– Carmen in Oklahoma City
Dear Carmen,
It’s a valid debt. You signed a contract promising to pay the maintenance fees, and I’m sure the contract is enforceable. I wouldn’t recommend choosing not to pay it, because they could sue you and would probably win.
If I were you I’d call this collections agency back and settle up with the understanding that you’ll be released from any further obligation. Let them know that if they don’t agree that you’ll sue them on the basis of misrepresentation.
Fight them as much as possible over this, but if the agency or timeshare manager will let you go free for $2,000, then under the circumstances you’re getting a bargain. Don’t send them anything, though, until you get, in writing, a statement saying that upon receipt of the $2,000 you will be released from any and all future obligations and past obligations regarding that particular timeshare. Make sure you send the money in a way that will provide you with proof of delivery, such as certified mail, FedEx or UPS.
– Dave
Dear Dave,
My financial counselor is trying to interest me in variable adjustable life insurance for retirement. I’m 47-years old, married, have two teenage girls and own my own business. I was wondering if it’s just as good, or better, than a mutual fund investment?
– Andy via email
Dear Andy,
You don’t have a financial counselor, you have a life insurance agent who’s about to rip you off. Get rid of him. Variable adjustable life insurance is a bad product.
Being self-employed, you’d be much better off to first fund your IRAs and then fund a SEPP or a simple 401(k) – all in good growth stock mutual funds. Variable life has mutual funds inside it, but they take out so many fees that they end up taking away half the returns.
The Consumer Federation of America did a study of “variable life rip-off” and found that the average net yield on the mutual funds involved was about 7.4% when it should have been 12-14%. You’re much better off going straight to mutual funds than going through an insurance product to get there.
Never buy any kind of life insurance that has a savings element built into it.
– Dave