I want to talk about a home equity retirement plan. A home equity retirement plan means that you’re separating the equity from the interest in your house. Now, if you’re upside down financially, this plan is not for you. There are many plans out there that may be good for somebody else, but not for you.  Understand that I talk about concepts. I cannot make a wise decision specifically for you until I understand your whole situation. . . until I know your financial life. But see if this makes sense to you. Let me give you an example. . .

I have a daughter and my daughter has an interest-only loan that she got a couple years ago. She pays $2,100 a month for an interest-only loan. If she wanted to take a thirty-year amortized mortgage she’d be paying $3,200. There’s $1,100 difference between those loans. So, now she separates that money. She puts those extra thousand dollars away every month in her side account. She’s able to save that money every month. At the end of 30 years, based upon a rate of return that the S&P 500 has done over the last 25 years, she will have over two million dollars in the bank. This is a lot better than paying that $500,000 dollar mortgage, don’t you think? This is the power of separating home equity. This is not a short-term plan, It’s a long-term plan, and If done properly you will have a tax free income for the rest of your life. For a first time home buyer this is a no brainer, and everyone should look at this option. The equity is safe, liquid, and has a rate of return.

Do not do this plan on your own or with an unqualified planner. Many planners say they understand this concept but it takes special knowledge and training. To contact a planner in your area email me at aklfinancial.com or on this website. 

Alan

Add to:

Most people believe home equity is a prudent investment.  Most people believe that home equity enhances net worth, that you can make money on your home equity and that mortgages should be eliminated.  Let’s take a closer look at home equity as an investment.

Let’s say, I had an investment. Here are some of the terms of this investment: You can pay more than the minimum monthly contribution, but not less.  If you attempt to pay less, the financial institution keeps all the previous contributions.  The money deposited in the amount is not safe from loss of principal.  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 and your income tax liability increases with each contribution.  When the plan is fully funded, there is no income paid out.  You know what I’m talking about here?  I’m talking about your mortgage.

Home equity has 0% rate of return.  Home equity is not liquid.  And home equity is not safe.  Home appreciation is another story. Home appreciation happens when the prices of houses in the area goes up.  Don’t confuse home appreciation with home equity. If there are 2 homes, each is worth $500,000. and home #1 has $50,000 in equity home and separated the equity and put away this equity in side account earning interest on the $350,000. Home  #2 has $400,000 of equity in a fixed rate 30 year mortgage. Now suppose you lost your job and couldn’t pay this mortgage, and you needed this money to live on. How would home #2 get it out of the home? Mortgages are based upon income. It would be impossible to get this money out without showing an income to pay it back. Lets take a look at home #1 again, they separated the equity, lost their job but have $350,000 plus interest to tide them over until they found another job. Home #2 is now looking at foreclosure, their money is tied up in the house. How will they survive if they can’t make the mortgage payment?

You can make home equity a prudent investment. Its up to you to learn more and seee if this plan can work for you. email me at aklfinancial@mac.com or on this website for more information or a specialist in your area who can show you the way to do this. Don’t let an unqualified friend or person try this for us. 

Alan

Add to: