Use Critical Illness Insurance to Pay Off your Mortgage Early
Let’s look at an example of a typical mortgage:
| |
Mortgage amount: |
$200,000 |
| |
Mortgage amortization: |
25 years |
| |
Mortgage interest rate: |
7% |
| |
Mortgage payment: |
$1,400.83 monthly |
| |
Total interest paid: |
$220,250.42 |
The chart below illustrates the way the mortgage balance would reduce over a 25 year payment schedule.
Year
|
Total
Payments
|
Principal
Paid
|
Interest
Paid
|
Ending
Principal
Balance |
|
|
|
|
$200,000.00 |
1 |
$16,809.96 |
$ 3,106.87 |
$13,703.09 |
$196,893.13 |
2 |
$16,809.96 |
$ 3,328.20 |
$13,481.76 |
$193,564.93 |
3 |
$16,809.96 |
$ 3,565.23 |
$13,244.73 |
$189,999.70 |
4 |
$16,809.96 |
$ 3,819.18 |
$12,990.78 |
$186,180.52 |
5 |
$16,809.96 |
$ 4,091.19 |
$12,718.77 |
$182,089.33 |
6 |
$16,809.96 |
$ 4,382.60 |
$12,427.36 |
$177,706.73 |
7 |
$16,809.96 |
$ 4,694.73 |
$12,115.23 |
$173,012.00 |
8 |
$16,809.96 |
$ 5,029.11 |
$11,780.85 |
$167,982.89 |
9 |
$16,809.96 |
$ 5,387.32 |
$11,422.64 |
$162,595.57 |
10 |
$16,809.96 |
$ 5,771.04 |
$11,038.92 |
$156,824.53 |
11 |
$16,809.96 |
$ 6,182.06 |
$10,627.90 |
$150,642.47 |
12 |
$16,809.96 |
$ 6,622.38 |
$10,187.58 |
$144,020.09 |
13 |
$16,809.96 |
$ 7,094.05 |
$ 9,715.91 |
$136,926.04 |
14 |
$16,809.96 |
$ 7,599.34 |
$ 9,210.62 |
$129,326.70 |
15 |
$16,809.96 |
$ 8,140.62 |
$ 8,669.34 |
$121,186.08 |
16 |
$16,809.96 |
$ 8,720.44 |
$ 8,089.52 |
$112,465.64 |
17 |
$16,809.96 |
$ 9,341.53 |
$ 7,468.43 |
$103,124.11 |
18 |
$16,809.96 |
$10,006.89 |
$ 6,803.07 |
$ 93,117.22 |
19 |
$16,809.96 |
$10,719.62 |
$ 6,090.34 |
$ 82,397.60 |
20 |
$16,809.96 |
$11,483.12 |
$ 5,326.84 |
$ 70,914.48 |
21 |
$16,809.96 |
$12,301.03 |
$ 4,508.93 |
$ 58,613.45 |
22 |
$16,809.96 |
$13,177.16 |
$ 3,632.80 |
$ 45,436.29 |
23 |
$16,809.96 |
$14,115.71 |
$ 2,694.25 |
$ 31,320.58 |
24 |
$16,809.96 |
$15,121.09 |
$ 1,688.87 |
$ 16,199.49 |
25 |
$16,811.38 |
$16,199.49 |
$ 611.89 |
$ 0.00 |
By purchasing a critical illness policy on each person, this couple would enjoy the benefit of having the security of an individually owned policy that would pay them $200,000 “tax free” if either of them were stricken with any of the 24 eligible covered illnesses.
In addition, because they chose to purchase the “return of premium” (ROP) rider, they would have access to the entire premium paid after 15 years under most policies if they had not incurred a critical illness claim.
In this case, they could cancel the policy in 17 years and use all the premiums paid to date to pay off their mortgage.
Let’s look at the example again using the Critical Illness policy to pay off the mortgage early:
Male & Female both age 40 (non smokers) |
| |
Mortgage amount: |
$200,000 |
| |
Mortgage amortization: |
25 years |
| |
Mortgage interest rate: |
7% |
| |
Mortgage payment: |
$1400.83 monthly |
| |
Total interest paid over 25yrs: |
$220,250.42 |
| |
Insurance coverage purchased: |
$200,000 CI policy on both life’s |
| |
Annual Premium:
|
$6,250 approx. annually
|
| |
Total premiums paid over 17 yrs: |
$106,250 |
| |
Total ROP available: |
$106,250 |
| |
Mortgage balance in 17 yrs |
$103,124.11 |
| |
Net return of premium after paying off the mortgage |
$3,125.89 |
| |
Interest saved on paying off the mortgage early |
$30,745.51 |
This is one example of how you can protect yourself and your family and ultimately benefit financially at the same time.
To arrange for an individual Critical Illness protection policy that can help you pay your mortgage off early, contact Barrons today.
This example is for illustration purposes only, while every attempt has been made to ensure the accuracy of this information Barrons or its affiliated companies cannot be held liable for errors or omissions. Actual numbers at time of illustration may vary.
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