Is the client paying private mortgage insurance?
Most unfortunate souls who have equity in their homes of less than 20 percent of the value are forced to purchase private mortgage insurance — a guarantee that the bank will be made whole if the borrower defaults. The annual payment amount can be anywhere from 0.25 percent to 1 percent of the mortgage balance. Putting any extra money toward the mortgage can rid the client of this nuisance. • Will future mortgage payments have to come from an IRA distribution? If the current payment schedule takes a client well into his golden years, then he is forced to draw from his retirement account to make the payments, the effects could be devastating. First, the extra money taken from the IRA could push him into a higher tax bracket — requiring him to take even more out of the accounts. Second, the withdrawals could also make his Social Security taxable, which would then boost his tax bill and require him to bump up his cost of retirement even more. The ensuing higher withdrawal rate will make it
