To Pay or Not To Pay Off Your Mortgages Part II


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To Pay or Not To Pay Off Your Mortgages Part II

  1. 1. ==== ====For more tips on Safe Mortgage Investing go ====In Part I of this article, I mentioned that weve all been taught by our parents, grandparents andconventional wisdom that we should pay off our home mortgage in order to own our home freeand clear so that the bank can never take our home from us. I explained why that thinking isoutdated. In this article, Im going to present some ideas on using mortgages as a tool to increasewealth.I want to say up front that Im not advising you to go out and do the things Im talking about withoutfirst getting educated as well as consulting with a trained and licensed professional. While I firmlybelieve that what Im going to tell you is a great strategy for increasing wealth, theres also no onestrategy that is right for every person since we all have different goals which require different plansof action. Also, it would be very easy for a dishonest or unskilled financial advisor (loan officer,CPA, financial planner, etc.) to take advantage of you or mistakenly put you into a product thatcosts you time and money instead of helping you to become financially independent.Before we start talking about liberating your equity and investing, lets make sure you have yourfinancial house in order. It wont do any good to take equity out of your house to start investing ifyoure burdened by a massive debt load and forced to use your credit cards every time anemergency comes up. I recommend a three-step model to my clients that conservatively builds asolid financial foundation before leveraging equity to increase net worth. This three-step model hasthe following parts, in order of priority: develop a cushion, get rid of "bad" debt and create andmaintain liquidity.I believe its absolutely essential for everyone to have a small cushion in a savings account tocover lifes little emergencies and make sure they dont automatically reach for a credit card orborrow money. Were not talking about a lot of money here - usually around half of a familysmonthly income. If the familys combined income is $8,000 a month then $4,000 should cover it. Ifthe income is commission-based or somewhat irregular, its a good idea to increase the cushion toa months income.Next, get rid of all "bad" debts - debts without tax advantages which means everything except themortgage and maybe student loans (car payments, credit card debt, etc.). These should be paidoff before moving on to the next step. If youre investing in the market instead of paying down acredit card thats charging you 20% interest, then you would have to make over 20% on yourinvestment in order to come out ahead! Youre much better off eliminating the credit card debt firstso that you can invest your extra cash flow. This can be accomplished by using the equity in thehome, but there are also different methods to pay it down month by month. My favorite is thesnowball method, which involves making the minimum payments on all debt while paying as muchas possible each month toward the debt with the highest interest rate. Once that debt is paid off,keep paying the same amount each month but pay the extra toward the next-highest interest rate.
  2. 2. Youll be free of "bad" debts before you know it and will have the little rewards of paying off debtsalong the way to keep you motivated and focused on your ultimate goals.The final step before beginning to invest is creating and maintaining liquidity. I advise you to havesix months salary in a safe, liquid place such as a certificate of deposit, money market fund orother conservative liquid investments. This allows you to be prepared and have cash available forthings like business opportunities, helping out friends in need or taking some time off for avacation. It might be needed for extenuating circumstances like a job loss, health issues or majorunexpected expenses. You will have a significant safety net and will sleep better at night!After these three steps are accomplished we can then consider investing. Depending on yourfinancial goals and tolerance for risk, I advise looking at a mix of stocks, bonds and real estate.You should always take some time to educate yourself before jumping into any type ofinvestments. There are plenty of resources available to learn about investing in stocks and bonds.I also recommend working closely with a financial planner to help you navigate the financialmarkets. At January Financial we are very passionate about investing in real estate and are hereto be a resource to you in that area.Generally speaking I believe people should be financially diversified, which means your assetsshouldnt be tied up in any one asset - especially your house! By liberating the equity from yourhome and investing in different asset classes and areas, you reduce risk while increasing yourpotential return. Investing in stocks allows you to take part in great businesses and share in theirsuccess, without the time and energy of actually working on the business. Investing in bondsprovides steady income while lowering the overall risk of your portfolio. Finally, real estate in myopinion offers the most accessible, least risky, most exciting way to get rich slowly.In Part III Im going to cover a few of these reasons as well as why I think everyone should haveinvestment real estate as a significant portion of their portfolio.Carey Pott has been a licensed mortgage broker for over four years and built a successfulmortgage company, January Financial. For more information, go tohttp://www.januaryfinancial.comCarey has also partnered with a real estate attorney, Rand Rodman, to create a fantastic ebookcalled the Home Buying Codex. For more information on this exciting new ebook, check out[]Article Source:
  3. 3. ==== ====For more tips on Safe Mortgage Investing go ====