| What if I were to tell you that almost everything you | | | | outcomes of paying off your mortgage versus |
| have been told about what to do with your home has | | | | keeping it.You no longer have to make a mortgage |
| been absolutely wrong and that one of the worst | | | | payment to the bank every month.You might have |
| ways to build wealth is through your home? And what | | | | less to pay at retirement.And that's about it. Now, |
| if I further went on to show you that anyone who | | | | notice I didn't say anything about the myth that you |
| perpetuates this myth probably is not your best source | | | | finally "own" your home. In truth you never do, you |
| for accurate financial information?Most of you right | | | | always have to pay taxes on it and it is always at risk |
| now are looking at the byline a couple of times to see | | | | of loss through various means including but not limited |
| if this article is REALLY being written by a mortgage | | | | to:TaxesCreditorsCasualty LossIn just about any |
| person. Some of you have taken this as final, | | | | analysis where someone is using the money that they |
| unequivocal proof that all mortgage people really do sit | | | | would otherwise use to pay down the principal of their |
| around a big table of tea cups wearing hats with | | | | mortgage for other means of wealth creation, the |
| fractions on them! No you are not in Wonderland but if | | | | other 'means' come out ahead every time. The |
| you keep reading you might find many of you have | | | | requirement here is to spurn our human instinct to |
| been for a long time now.One of the buzzwords or | | | | consume and to use this money effectively.Notice that |
| catch phrases floating around the financial circles is | | | | this is the key to wealth creation. If you can't conquer |
| "wealth creation." This has gained prominence due to | | | | that human instinct nothing else matters. What this |
| the ability of the planner or agent to broaden their | | | | allows you to do is to use dollars you are already |
| focus on overall wealth with their clients instead of just | | | | spending and inject them into the system to your |
| return on a particular investment. While a holistic | | | | advantage.The simple truth is that paying off your |
| approach is a very good one, what wealth creation | | | | mortgage is purely an emotional decision that we have |
| strategies often lack are a defined strategy for | | | | been trained to believe is what we are supposed to |
| accomplishing well, wealth creation! These plans often | | | | do, but if you understand the implications of the |
| fail or vastly under perform because they don't | | | | decision and can act accordingly, that choice is usually |
| properly account for one of the biggest parts of the | | | | incorrect.DON'T PAY ATTENTION TO THE MAN |
| wealth picture and that's the home!WHAT DID HE | | | | BEHIND THE CURTAINNow you say, this is just a |
| SAY?Now that's not a typo and I didn't contradict | | | | clever trick by another mortgage guy trying to make |
| myself from the first paragraph. You see, most people | | | | money off of me. Well, typically consumers refinance |
| believe their home is something completely separate | | | | every 3 years and many times that is because they |
| from the rest of their financial planning. It's this sacred | | | | need money . But clients who have invested that |
| cow that's over in the green grass munching away | | | | money into the other elements of their financial plan |
| while everything else in their financial life is trying to | | | | are much less likely to refinance for need |
| figure out how to grow without the food it needs. The | | | | reasons.People borrow for car expenditures, home |
| sooner people realize that EVERYTHING they do is | | | | improvements, college expenses, trips or to pay off |
| an investment decision , the better off they will be. The | | | | that credit card debt they said they would never run |
| implication of your decision is not simply what you | | | | up again. People who are planning for these expenses |
| obtain by your action but what opportunity you give | | | | and finding tax preferred or tax free ways to fund |
| up.So, back to wealth creation and mortgage planning. | | | | them with the money tied up in their home have little |
| In borrowing some thoughts from a great financial | | | | need to make decisions based on these "needs".OK, |
| partner of mine, Brent Gilmore, we can summarize | | | | GREAT . NOW WHATThere are all kinds of different |
| what we typically look for as far as characteristics of | | | | mortgage products and programs that can make a |
| a good investment as:something that earns us a good | | | | consumer's head spin. The important thing to keep in |
| return based on our riskis liquid if we need itis not | | | | mind is that most of them are wrong on almost all |
| subject to additional restriction to access it once we | | | | levels. If you are looking for wealth creation a home is |
| have itis not at risk of loss.The reality is your home is | | | | a great part of that plan if used correctly. That does |
| absolutely not the definition of a good investment. The | | | | NOT mean you go out a get an interest only ARM so |
| reasons are fairly clear if we break them down. What | | | | you can buy a $400,000 house when you otherwise |
| if I told you the MAXIMUM return you could make on | | | | could only afford a $200,000 house.For many families |
| the purchase of your home was 0%?Here's where | | | | they want to invest in the college savings. They want |
| we hit the rabbit hole.First we must explain the | | | | to have more than $50,000 in life insurance that their |
| difference between return of investment and return on | | | | employer gives them. They want to protect against |
| investment. Return OF investment is simply getting | | | | disability or job loss. They want so many things but |
| back the money that you put in. Return ON investment | | | | don't know how to find it in the pool of money that |
| is difference between the end value of your | | | | they currently have available. Does it mean they give |
| investment and the amount you invested.Whether you | | | | up? Often, that is the case but it doesn't have to be.It |
| pay cash for your home or pay nothing down, your | | | | means that you look at opportunities in the equity that |
| home mortgage will be worth the exact same in 1 | | | | isn't doing anything for you now and put it to use along |
| year, 5 years, 10 years or 30 years. It is true that if | | | | with reallocating dollars you are already spending. The |
| values keep going up you will make a positive return | | | | mortgage vehicle you use is independent of this choice |
| ON investment but that is independent of the return | | | | and only your situation will determine which one is best |
| OF your investment. Even that fact has some doubt | | | | for you. For most this is all that is necessary to see a |
| clouding it, but that's another article.PAGING CHICKEN | | | | million dollar or more difference at retirement. For |
| LITTLENow let's step back from all of the sky is falling | | | | others who are closer to an age where you will cease |
| stuff and clear some things up. Your house may well | | | | to earn income it is necessary to change current |
| continue to appreciate in value, especially in a strong | | | | spending habits along with these measures.These |
| local economy like Columbus . But appreciation as I | | | | ideas that I have very briefly touched on are ones that |
| showed you above has absolutely nothing to do with | | | | need to be explored on an individual and ongoing basis |
| return OF capital . Remember that if you bought a | | | | with a team of financial professionals who understand |
| $300,000 house today, paid cash for it and turned | | | | how to help make this work for you. This is not one of |
| around in 1 year and sold it for $350,000 you would | | | | those "plans" with steps that you can follow from a |
| have experienced the same appreciation as if you had | | | | book on your own and in 20 years a golden goose |
| put $0 down to buy the house. Your $300,000 was | | | | lays you some precious eggs. Coordinating 401(k), |
| invested in an asset that yielded 0% during its use.The | | | | Roth IRA, investments, permanent life insurance, wills |
| key to this is that when you pay your mortgage you | | | | and trusts is something that needs much more |
| "choose" to invest the money in your home instead of | | | | discussion than is prudent here and frankly with people |
| in other options that could return you more . Lets | | | | who are much more qualified to tell you than me.It is |
| Consider the consequences of not being able to pay | | | | time to think of your mortgage and your home as |
| that mortgage one day:Will the bank give you back the | | | | more than the place where you and your family make |
| money you paid on the mortgage and all of the | | | | great memories. If you allow it to work as part of a |
| appreciation when they sell your house in | | | | total responsible financial philosophy it can be an |
| foreclosure?Will they lend you more to help you get | | | | incredible wealth booster. With so many choices in all |
| back on your feet at terms as good or better then | | | | areas of finance it is imperative that you find a group |
| you have now?And will they do it without asking you | | | | of professionals that hold those same beliefs and |
| to prove your ability to repay the new loan when you | | | | values. Easier said than done, I know. I know because |
| couldn't pay the old one?Sounds silly, but this is what | | | | that is exactly what we have been doing for over a |
| happens all the time.Now wait, you say, I have a paper | | | | year in Columbus exclusively for our clients.This, |
| that shows me that if I pay twice per month I will pay | | | | admittedly, is not for everyone and some of you might |
| off my mortgage 8 years sooner and save $84,000 in | | | | have even stopped reading by now because you think |
| interest! You are right, you will. BUT is it a good choice | | | | I am obviously out of my mind. That's ok, because |
| if that money that you borrowed at 4% (After | | | | changing that human instinct to hurry up and pay down |
| factoring in tax savings on the interest) could be | | | | a mortgage is difficult. But for those of you who have |
| returning you more, guaranteed , elsewhere? Consider | | | | had their eyes opened, hopefully I have provided you |
| other factors as well:Are you making those payments | | | | with enough food for thought that you're starting to |
| and carrying "bad" debt like credit cards at 15%?Are | | | | reconsider how your mortgage is working for you.For |
| you finding it hard to put in enough in your 401k to even | | | | more on home financing and personal financial |
| get the match your employer offers?Are you funding | | | | information go to: Articles, calculators, newsletters, |
| the Roth IRA or the kids 529 college savings plan?We | | | | glossaries and more for your personal financial |
| aren't even touching on the implications of eliminating or | | | | information needs.by Jeff Blovits , Franklin Bank SSBp. |
| reducing your tax deduction and increasing your overall | | | | 898-5656 - Personal Financial Information resource for |
| tax burden.TO PAY OFF OR NOT TO PAY OFF , | | | | consumers. |
| THAT IS THE QUESTIONLet's look at the positive | | | | |