Everyone knows borrowing money is a lot more expensive these days.
However, there are ways to get more attractive lender rates - we’re getting an effective rate of 2.16%.
No gatekeeping; here is how EFS does it.
First:
Remember, when it becomes more expensive to borrow money, that also means your interest-generating accounts are likely performing better.
Second:
Note how in many cases, interest generated from large sums will offset the interest expense of a loan.
Armed with this knowledge, let’s talk about how we’re using leverage (a loan) to create a more tax-efficient, savings-focused option for our clients.
When people ask me how enhanced funding works, I tend to use mortgages as an example.
Say you have $300k. Do you buy one home and hope it appreciates, so you can sell it down the road for a profit?
Or do you take out a mortgage with the $300k as collateral? With the lump sum, you buy a row of townhomes that - in this hypothetical scenario - generate guaranteed rent.
If the goal is growth:
You take the mortgage, knowing that the loan interest is notably offset by the rental income.
That’s how our Enhanced Tax Advantage works.
We identify instances where we can enhance your assets.
Whether you have:
A retirement account about to get hit with taxes
A life insurance policy with cash value
A student going to college soon
A business, partnership or shareholder scenario with no pension
A requirement to hold disability insurance
or a host of other scenarios…
Here, we will use leverage to cover an expense you’d normally use out of pocket funds to cover.
Why take out a loan when you have the funds now? The answer is very simple:
Interest earned on your full funds (retirement account, life insurance policy, college savings plan, etc.) offsets the interest expense on the loan to cover your expenses (taxes, premiums, cost of college, etc.)
That difference, compounded over time, provides a greater income during retirement.
Conclusion
We know Fed rates have recently been very high due to the economy's strong recovery after COVID, inexpensive capital, and unrelenting inflation.
Taking out a loan with “high” interest for a brand new car might not be as justifiable at this moment in time.
However, borrowing capital at a “high” rate, to earn guaranteed interest on a larger amount of money means your effective lender rate is quite attractive.
When you’re working to enhance your financial position, leverage can work in your favor and it’s an important avenue to understand!
Questions? Call 773-318-9608 or email us to learn more: jeff@enhancedfunding.com