Home Equity Loans And Retirement Planning: What You Should Know
Whether your goal is to use your equity as a source of retirement income or you simply want to have a house free and clear of any mortgage debt to leave behind to your heirs, the one strategy you need to implement is home equity separation.
The home equity separation strategy allows you to manage one of your biggest assets, your home equity, in the most efficient way possible. There are two approaches you can take in managing your equity through this strategy.
You can implement the home equity separation simply to accelerate the payoff of your mortgage in less than half the time it would otherwise take you. You can also implement the strategy to leverage your equity and have it work for you in order to build wealth for retirement income or your family estate.
Whatever approach you decide to take, mortgage payoff acceleration or wealth building for retirement income or both, your mortgage loans should be structured such that you have as much control over your equity as possible at all times(especially when you're thinking about retirement).
In addition to striving for complete control over your equity, you should always seek to increase your liquidity.
You can gain control of your equity in one of several ways:
You can work with a strategic mortgage planner who will place you into the right home equity loans, or you can use specially designed software to help you manage your accounts from the comfort of your home.
Regardless of the route you take, the full service mortgage planner or the do-it-yourself way, at the end of the day, you may still decide to work with a financial planner who will help you increase the rate of return on your equity dollars.
The ultimate goal is to conserve and manage the equity in a way that allows to you pay off your mortgage in the minimum amount of time or whenever you feel like it.
Here is what equity management should NOT mean:
Instead, home equity loans for retirement planning should:
One little-known home equity loan program I recommend to my clients works like this. It has a line of credit combined with a checking account. Unlike other home equity loans that require interest to be paid first, this program allows you to pay down your principal first (not bad so far, right?).
As a result, you end up owing significantly less interest on the loan (since interest is always calculated on the balance of your principle). Of course, as your loan balance is reduced, your equity increases. And, you have immediate access to such equity without ever having to refinance or pay additional closing costs.
The program requires you to make a little shift in the way you bank. My sense is if you're like most, you have separate banking and investment accounts opened with one or various financial institutions.
Instead of having separate checking, savings accounts etc...the program allows you to consolidate all of your accounts into your home equity loan. This way all the money is combined to sit in the loan in order to accelerate the pay down of your principal, thereby saving a substantial amount of interest on your mortgage.
If you're thinking to yourself, this doesn't sound like rocket science, you're right. But then the question becomes why isn't this common practice?
First of all, banks are in the business to make money on your loan. As such, they want all their interest up front. And they want as much as they can get (which depends on the balance of your loan). So it is not in their best interest to allow you to pay down that principal right away.
Secondly, everyone knows that mortgages are closed-ended instruments. This means once your money goes in your mortgage account, you'll never see it again unless you refinance or sell.
Since you need cashflow, it just wouldn't make sense to dump every available dollar in the mortgage account despite the advantages in saving interest, paying off the debt faster, etc.
This special program allows for cashflow. What you do is you run all income and expenses through the home equity loan account. Whether it is your direct deposit payment, excess cash from a small business, you can deposit income conveniently without the fear that you'll lose access and control over your funds.
All you're doing is creating a lower daily balance (on which your interest is calculated) with funds you don't yet need. But as soon as you need to pay for something or withdraw funds, the money is available. It acts just like a checking account.
In addition to the flexibility of having immediate access to your equity, you save thousands of dollars in unnecessary interest, pay off your loan much faster without changing your spending habits. For many clients, this program has meant a way out of the daily grind of a 9-5 job years sooner, and into early retirement in maximum financial security.
I encourage you and/or your financial advisor to
contact me today
to see how this program fits into your retirement planning wealth building strategy. Depending on your goals, a home equity loan program such as this can also be used to maximize the return on your equity.
A No Cost, No Obligation mortgage planning session is the first step in determining which option works best for your particular circumstances. But you must take action. After all, this could very well be the last home equity loan you will ever want or need.
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