The Chicago Tribune cited Dick Van Dyke in July 2011 regarding his opinion on paying off your home.
Keep it
Taking precisely the opposite tack is Dick Van Dyke, president of Dick Van Dyke Financial, Ltd., with offices in Oak Brook, Springfield and St. Louis.
“From a financial planning standpoint, it rarely makes sense to pay off a home early,” he says, noting that if you can pursue “interest rate arbitrage,” earning 1 to 3 percent more on money than you’d pay in interest on a mortgage, that difference can add up to a considerable sum over 10 to 15 years.
If you take, say, $100,000, and earn 2 percent on it over 10 years, your gains are 31 percent when compounding is factored. In an average mortgage of perhaps $300,000, you’ll come out approximately $90,000 ahead with just a 2 percent interest rate arbitrage over the course of a decade, Van Dyke asserts.
The catch is that that interest rate arbitrage must be achieved in very secure investments, he says. Banks don’t pay enough, and stocks expose investors to too much risk. “So I use a modified endowment contract with an A+ rated insurer, and it’s completely liquid and it’s safe,” he says.
Over the past two years, he’s used a modified endowment contract (MEC) strategy to earn in excess of 6 percent. The gains on the principal are tax deferred, and funds can transfer tax free to heirs, he adds. “It really comes down to what the individual or couple is comfortable with,” Van Dyke says. “If they’re open to the advice of a financial manager, and willing to override the emotional aspect of paying off the home, they can benefit from having a mortgage.”
The full article is available online at The Chicago Tribune.
