The Mortgage Game:
How to Use Your Home Equity to Build
Maximum Wealth and Retirement Income
If you are like most people, the largest investment you will make is either your personal residence or another piece of real estate.
If you are like most people, when you bought your first home, you went into “sticker shock” when you read the full disclosure forms revealing the final cost of your home, once 360 months’ worth of interest and principal payments were added up.
With that massive debt looming over you, you might look for ways to pay off your home fast. Many affluent home owners choose 15-year mortgages to own their homes free and clear within that short period of time.
And, depending on your goals, that may be a shame. Because smart use of various mortgage vehicles, and strategic use of the wealth built up in home equity, may potentially make the difference between you entering retirement with a paid-off home, or you enjoying retirement with a hefty sum coming in from life insurance investments and a home which is paid off.
To maximize your wealth, there are three mortgage options that are worth your consideration. Not all of them are for everyone, but even if they aren’t right for you right now, you’ll want to tuck them into the back of your mind for when they do make good sense as means to build your wealth safely.
1. The Little Known 40-year Mortgage
Shocked? When everyone wants to pay off their home early, why would we recommend getting an even longer length mortgage — and paying more interest?
Answer: For the same reason that you want to pay off your home early — security. Getting a 40-year mortgage gives you more options and more flexibility. All the 40-year mortgage does is set your minimum required payment to a lower number.
There is nothing to stop you, in most cases, from paying off your 40-year mortgage in 15 years or 30 years if you want, by making higher payments.
Because your required payment is lower, you are less likely to lose your house or damage your credit rating because of a sudden financial shortfall. And who hasn’t seen a friend or love one face financial problems due to job loss, or disability, or divorce or natural disaster?
When you have the money, go ahead and make the higher payments and pay off your house sooner if you like. It’s far easier to pay more than the required payment than to pay less.
2. Home Equity Line of Credit for Equity Harvesting “Done Right”
When housing prices were increasing, many people took out equity from their houses with an equity line of credit. They then, unwisely, used that that money to buy vacations, recreational vehicles and more. Needless to say, that money didn’t help them to build their wealth.
But some took it out with the thought that they could make more in the stock market in the late 1990s, only to see it evaporate in the dot com bomb. So we don’t recommend taking out equity from your house to put it into questionable and uncertain investments.
There are, however, investments that would make taking money out of your house worthwhile. Investments that will build your wealth.
Imagine, if you could take money out of your house and put it in a vehicle that would pay off handsomely. Hard to believe? This is made possible by buying into a vehicle such as an equity indexed insurance policy (EIUL). The benefit to you can literally be hundreds of thousands of dollars extra tax-free income in your retirement years.
This concept has been popularized by a few books, such as Missed Fortune 101. CAUTION: There are a few tricks to using this method correctly. If done incorrectly, you could run into issues with the IRS, and with the tax-deductibility of the money you harvested from your home equity to pay the premiums.
So don’t use the method as described in Missed Fortune 101 or similar books - which are written to make advisors wealthy whether the method is right for you or not. It could be disastrous to your wealth.
Instead, read How to Achieve Maximum Wealth with Maximum Security: The Home Equity Management Guidebook, which explains what is wrong with these other books, and most importantly, how to do the strategy the right way. This is the book that ethical advisors use to help their clients build wealth through equity harvesting.
3. Interest Only Mortgage Loans
There are mortgages that require only that the borrower pay the monthly interest charge rather than interest plus amounts paid to the principal balance (called amortization). Interest only payments will be lower than payments that amortize the loan thereby keeping more money outside of the property and into wealth building strategies.
Give us a call at 727-588-1540 or sign up for our free consultation if you would like to learn how to harvest equity from your home to safely build your retirement wealth.
