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Why Financially Successful People Still Carry Mortgages

by Samuel N. Asare

Home_Underwater

You hear it preached consistently: pay off your mortgage as quickly as possible to save on interest payments. And yet the wealthiest people – those who could easily follow this advice and pay off their mortgages in a heartbeat – are disinclined to do so. Why? The straight forward answer: Because in most cases it is not financially savvy to pay off your mortgage quickly. Contrary to what most people – sadly, including some who claim to be financial experts – think, feel, or believe, financial security is not obtained by simply eliminating a mortgage debt quickly. In fact, millions of American seniors with free-and-clear homes are dead-broke financially!

Ironically, the same so-called experts turn around and advise these individuals to apply for reverse mortgages on the very same houses they were encouraged to pay off quickly. Does this sound like “reverse logic” to you? The completely emotional, half-baked argument seems to suggest that eliminating a mortgage “saves” the homeowners money on otherwise unnecessary interest payments. But what about the alternative – the missed opportunity when it comes to what those dollars could “earn”? As every savvy financial person knows, financial decisions must be made based on net gain or profit, not just costs. And in most instances, homeowners could judiciously and profitably leverage the equity in their homes, rather than eliminating their mortgages.

Financially successful people also understand three basic facts regarding home equity:

1. Equity in Your House Is NOT Safe

Homeowners have no control over real estate market conditions, hence the values of their homes vis-à-vis equity. As most painfully learned during the recent housing market crisis, equity can be completely decimated orsignificantly reduced – seemingly overnight – when it is trapped in a house.

Mortgage lenders are more likely to quickly foreclose on a house with a lot of equity – low mortgage balance in relation to the value of the house – and vice-versa. Consider this: in the case of an emergency, will your mortgage lender permit you to skip a few payments because you have been making extra principal payments? Of course not. But they will be more likely to foreclose on a house where the homeowners have paid off the majority of the loan, because they’re comfortable enough having received the majority of the money that was owed.

2. Equity in Your House Is NOT Easily Accessible

Any way you look at it, being house rich and cash poor is a very dangerous position to be in. Ask any family who has –unfortunately – lost a house with a lot of equity in a foreclosure or any kind of natural disaster, and they’d likely agree that they now wish their home’s equity were readily accessible. That remains possible only if the equity is in a cash position. Maintaining liquidity – as opposed to equity – enables homeowners to act instead of react to circumstances over which they have no control. Unfortunately, most homeowners are caught unaware when emergencies like job losses and disabilities spring up, and are hamstrung with their equity inside the brick and mortar of their homes, instead of in a cash position.

3. Equity in Your House Has a ZERO Percent Return

Regardless of your equity position, the value of your house will increase or decrease by the exact same percentage as all other comparable homes – based on real estate market conditions. So if values increase by, say, 10 percent, all homes in that market will appreciate by 10 percent. Likewise, if home values decrease by 20 percent, all homes in that market experience the same decline in value. It is impossible to outpace market conditions.

Your Mortgage Lender Cannot Require You to Pay More than Your Contracted Minimum Monthly Payment

And one thing many homeowners fail to realize is that when your mortgage payment disappears, so does one of your most valuable tax deductions under Section 163 of the Internal Revenue Code. This is one of the many reasons why we do not recommend paying off your mortgage early.

If you could safely and conservatively manage your equity and/or extra principal payments – by using a side account to earn more than the interest you’re paying – it is a wise financial move to leverage those dollars as long as possible. Realize that we are recommending a safe, conservative account. You do not want to expose your equity to any market risk associated with the stock market.

Let us be clear: this is an undertaking that requires strategic coordination by savvy financial professionals. We have, in the past, seen instances where folks have tried to implement this strategy without the proper training and expertise. And as you might expect, they ended up creating disasters, instead.

Come in for a complimentary consultation and let`s look into your situation to see your options. Call 877.656.9111 or visit LaserFG.com.


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This website is for informational purposes only. All opinions expressed are solely those of Laser Financial Group, LC., and our editorial staff. The information is not to be construed as any form of professional advice, nor as solicitation for the purchase or sale of any security, whatsoever. No particular outcome is guaranteed. No strategy can guarantee a profit, protect against loses, or ensure peace of mind. Recommendations are based solely on third party insurance products for which we receive compensation. Laser Financial Group, LC, does not provide investment advisory services. This does not constitute an offer to provide services in any jurisdiction in which such offer or solicitation would be unlawful under the laws of such jurisdiction. Any United States tax reference on this website is not intended to be used, and cannot be used for the purpose of avoiding penalties under the Internal Revenue Code, or promoting or recommending to another party anything addressed herein.

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