If you had enough money to pay off your mortgage right now, would you?
T he Answer? If you had enough money to pay your mortgage right now, would you? Many People Would.
In fact the "American Dream" is to own your own home
and to own it outright, with no mortgage. If the American Dream is so wonderful, how can we explain the fact that thousands of financially successful people, who have more than enough money to pay off their mortgage, refuse to do so?
The 10 questions you must ask yourself...
What if the US was made up of only 100 people? Where would you be?
THE ANSWER ?
Most of what we believe about mortgages and home equity, which we learned from our parents and grandparents, is wrong. They taught us to make large down payments, get a fixed rate mortgage, and make extra principal payments in order to pay off the loan as early as you can. Mortgages were considered a "necessary evil' at best. The problem with this rationale is that it is outdated thinking. The rules of money have changed, or become more clear. Unlike our grandparents, we now understand that we will no longer have the same job for 30 years. In many cases people will switch careers five or six times. Also, unlike our grandparents, we can no longer depend on a company pension for a secure retirement. Recent Gallup poll statistics reflect that three out of four workers would like to retire before age 60, but only 1 of four believe they can.
Why people fear mortgage and why you shouldn’t
Common Clause
In order to discover how our parents and grandparents got the idea that a mortgage was a necessary evil at best, we must go back in time to the Great Depression. In the 1920’s a common clause in loan agreements gave banks the right to demand full repayment of a loan at any time. Since this was like asking for the moon ad starts, no one worried about it. When the stock market crashes in 1929, millions of investor lost huge sums of money, much of it on margin. Back then people bought $10 of a stock for a $1. When the value of the stock dropped they were forced to run to the bank and withdraw cash to cover their losses. Then…
Read MoreHomeowners at Risk
Americans typically believe that home equity is a very safe investment. According to a recent study, 67% of Americans have more of their net worth in home equity than in ALL OTHER INVESTMENTS COMBINED. However, if 100 financial planners looked at a client portfolio that was 67% weighted in a single investment, 99 out of the 100 would immediately recommend the client diversify to reduce their risk and increase their safety of principal. Holding large home equity puts homeowners at risk that could be greatly reduced by diversifying into other investments.
Read MoreThey Feared Debt
Fear of losing their homes became ingrained in the thought process of the American people. They feared mortgage debt. In the 1950’s and 60’s families would throw mortgage note burning parties to celebrate when they paid off their homes. For nearly 75 years most people have overlooked the opportunities their mortgage provides to build financial security. Since then the FDIC was created to insure banks and demand clauses that allow mortgage lenders to demand repayment in full for any reason no longer exist.
Read MoreLarge Home Equity can be a Big Disadvantage
By having cash available for emergencies and investment opportunities most homeowners are better off than if their equity is tied up in their residence. Large, idle equity, also called "having all your eggs in one basket," can be risky if the homeowner suddenly needs cash. While employed and in excellent health, accessing equity is easy, but most people, especially retirees, unexpectedly need cash when they become ill, unemployed or have insufficient income. Obtaining a mortgage under these circumstances can be either impossible or very expensive. If you have ever gone to a bank to apply for a loan you have experienced the need to prove you almost don’t need the money before they will loan it to you. The bank wants proof that you have the ability to repay the loan. Imagine this scenario, “I brought your loan application up to the board this morning and explained that you’re going through some hard times, your unemployed, your credit has taken a hit recently, but maybe they could consider taking a chance on you—just to help you through this rough patch.” Their response?
Read MoreWhy Separate Equity From Your Home?
Why ?
There are Three Primary Reasons...
Can I get my money back when I want it?
- How Liquid is it?
- How Safe is it?
- What can I expect for a Rate of Return?
Separating equity to increase safety
home equity rate of return
tax deductible
Create an extra $1M over 30 years
Power of Leverage