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The biggest asset most of us have at any point in our lifetime is our home, yet most do not leverage that asset to its fullest extent. It would be considered foolish to have your savings in an account that did not earn interest. But many of us are happy to leave our equity just sitting there, lazy and not working.
Please ask yourself the question; how much would you deposit in the following investment account?
· The customer determines the amount and length of time for monthly contributions to continue.
· The customer can pay more than the minimum monthly contribution, but not less.
· If the customer attempts to pay less, the financial institution keeps all of the previous contributions.
· The money deposited in the account is not safe from loss of principle.
· Each contribution made to the account results in less safety.
· The money in the account is not liquid.
· The money in the account earns a 0% rate of return.
· The customer’s income tax liability increases with each contribution.
· When the plan is fully funded, there is no income paid out.
If you haven’t already guessed, the above investment account is your mortgage/equity account in your home.
But doesn’t equity in my home provide me safety?
Equity in your home does provides safety, for the lender! As a homeowner I don’t want to lose my home if I cannot afford to make a mortgage payment. Therefore, I may believe that more equity, the lower the mortgage, and the lower the payment, the safer I am. Here is the flaw in that argument. Equity cannot make a mortgage payment, ever! Mortgage payments are made with cash, not equity.
On the other hand, if I am a bank, and you cannot make your mortgage payment, you have lots of equity parked in your home, and you can count on me (the bank) going after it. You see the irony here is that the safety the homeowner feels he or she has in their equity is actually safety for the lender in the event of foreclosure and it provides no safety for you. The more equity you have in your home the safer the lender and the less safe you are!
Important points about equity repositioning:
1. Freeing equity gives you liquidity in case of a disaster – think Katrina
2. Freeing equity secures equity even if home values go down
3. Executing proper equity management using maximum tax advantaged insurance contracts allows you to invest in stocks, bonds and real estate while protecting principle
4. Regardless of interest rates, using tax-free equity and outing it to work in compounded earning investments will out accelerate your mortgage interest payments
5. Baby boomers are particularly in need of leveraging their home equity into sources for retirement income.
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