Mortgage Planning 1 On 1 (LinkedIn)


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  • This powerpoint is meant for first client appointment about mortgage planning.
  • What is Mortgage Planning? Go through the 3 bullets on this page.
  • Imagine a new strategy that can double your savings and accelerate wealth accumulation How would you like to learn a strategy that will help you pay off your debts and mortgage sooner, and significantly increase your net worth while maintaining liquidity and safety of your investments the entire time? A Mortgage is not just about home ownership. It is about achieving financial success. There is a major difference between debt/mortgage elimination and wealth accumulation.
  • Up to this point in time the role of a mortgage broker is to match a borrower with a lender to provide the optimal mortgage solution which generally addresses the borrower’s requirements to achieve the goal of “home free faster”. The broker addresses such factors as reducing amortizations, offers weekly/bi-weekly payment options as well as the lowest interest rate. Virtually no consideration is given to managing the overall debt structure with respect to tax deductibility or “managing debt for the creation of wealth”. On the other hand, the Financial Planning Industry is only devoted to managing a client’s money for the preservation of wealth and moving the client to a position of financial independence as they move towards retirement. Nowhere in our system, is there an intermediary who is involved in providing advice and long term solutions on the management and structuring of debt to be optimal for the borrower.
  • With Mortgage Planning, my role is to prepare a customized mortgage plan for you, provide options and choice but most of all, help you design a structure so you can manage your debt for the creation of wealth. My Goal is To help you successfully manage your home equity to increase liquidity, safety (i.e. diversify investments and don’t put all eggs in one basket), and rate of return and maximize wealth accumulation . Before we move further, can you share with me your goals? Is it to build wealth and a comfortable retirement for you and your spouse? Or is it to pay your bills and try to become debt free. If your objective is just to pay bills & become debt free, I can help you as well although the strategy will be very different. NOTE TO PLANNER: Check to make sure client want to build wealth before proceeding to next slide.
  • Saving money is not the same as making money. Do you understand the power of compounding interest?
  • Let me share with you some of the secrets of the Wealthy Multi-Millionaires in Canada – those with high net worth. Their No. 1 secret is: They carry a BIG mortgage on their house even though they can afford to be mortgage free. 2. They all had a choice of shorter amortization but they took the longest amortization possible e.g. 30 year amortization 3. They can afford accelerated payments but decide to pay monthly 4. They elect not to make lump sum prepayments though they can afford it. What are the major assets of a Bank? Loans and mortgages. How do the Banks make the billions of dollars of profits each year? By borrowing money from you (your savings account, RSPs and GICs) at a low interest rate and investing it at much higher interest rates by lending it out to borrowers like you. In other words, our Banks use the debts they owe you to make money and create wealth. In a nut shell, Our banks borrow low and lend it out high by using other people’s money – your money.
  • Ric Edelman, a renowned financial planner in the USA who was inducted into the Financial Advisor Hall of Fame in 2004 and ranked the # 1 advisor in the nation by Research Magazine for his focus on the individual clients have identified 10 great reasons why his wealthy clients carry a Big, long mortgage. 8 of those reasons are applicable to Canadians. If your house is appraised at $400,000, then it is worth $400,000 whether you have a mortgage or you are mortgage free, it does not affect the value of your home. Home value goes up over time any way. If you don’t believe in this theory, why do you want to own a home. You should be a renter. Home ownership is about long term value. A mortgage provides the cheapest money you can borrow. True. If you borrow money against your home for the purpose of investments with an expectation to generate income, then the interest on that portion of the mortgage is tax deductible. See CCRA Bulletin no. IT-533 regarding Interest Deductibility As you continue to improve your job situation and take home salary, mortgage payments will be a smaller % of your total income. When you take out a bigger mortgage, you are eventually taking out equity from your home without selling it. House prices fluctuate with economic cycle. If you are worried your house value might fall, then why not grab the equity while you can? With a lump sum investment through an equity take out mortgage or a line of credit, your mortgage lets you grow your money more quickly and invest earlier than if you have to save $500 each month. The sooner you invest and the more you invest, the faster you grow your wealth. I can show you examples using a simple investment calculator. The most important reason of carrying a big mortgage is that it allows you to be in control of your assets – maintain liquidity and stay liquid.
  • Imagine a new strategy that will improve your cash flow, liquidity and net worth. Why is liquidity important? - It gives you the ability to capture investment opportunities. - It allows you to have access to emergency cash and deal with unexpected situations. 3. “Cash is King” as Donald Trump puts it nicely. “If you owe the Bank money and if you’re short of cash, then the Bank has the problem.” But if you use the cash to pay down or pay off your mortgage and runs short of cash, then you have the problem.”
  • Let me share with you some examples to you how the new thinking is being applied and how you can use your mortgage to accumulate wealth. Susan follows the old way of thinking that leads her to put her entire savings of $105K as down payment so she can carry a conventional mortgage at 65% loan to value. Susan believes in the traditional way of paying off the mortgage as soon as possible and makes an extra $200 per month against her mortgage. Sara believes in Mortgage Planning and carries a big, long term mortgage. She put 20% as down payment and takes an interest only mortgage to minimize her monthly payment. One month after the closing of her mortgage, she uses the remaining $45K to pay down the mortgage and immediately draw down $45K from her LOC to invest. Sara also puts an extra $200 per month plus her savings of $240 in mortgage payment to pay down her mortgage quickly. However, as she pays down her mortgage, she withdraws the same amount each month from her LOC and put it in an investment account that earns 7% per year. Since all the funds from the LOC is for investment purpose with the expectation to earn income; the interest on the LOC balance becomes tax deductible and Sara receives tax refunds at the end of each year – which is also deposited into the investment account. Let’s compare their different financial situation in 5 years and 20 years. Go through the results from the brochure with the clients.
  • What do you need to do to implement mortgage planning? Financial discipline!
  • This list shows some examples only and not meant to be exhaustive. You need to discuss investment options with a qualified investment professional.
  • At this point, go through the Mortgage Planning Process chart.
  • Mortgage Planning 1 On 1 (LinkedIn)

    1. 1. Mortgage Planning How can it work for you?
    2. 2. What is Mortgage Planning? <ul><li>It is the same strategy the wealthy has been using for years to build a comfortable retirement – using existing assets to accumulate even more assets. </li></ul><ul><li>It is a new way of understanding and structuring your debt so you can worry less about liquidity and your long-term financial security. </li></ul><ul><li>Mortgage planning is essentially a long term solution that determines how to best manage your debts for the creation of wealth. </li></ul>
    3. 3. Why Mortgage Planning? <ul><li>Learn how you can manage your home equity to increase liquidity, safety, rate of return and obtain tax deductions. </li></ul><ul><li>You can strategically use your mortgage to safely, conservatively and consistently build wealth for your future. </li></ul><ul><li>When property structured and integrated into your overall financial plan, your mortgage can be a powerful financial tool! </li></ul>
    4. 4. What is a Mortgage Planner? <ul><li>I believe that it is important to integrate your mortgage into your overall financial plan so you can have a more secure future. </li></ul><ul><li>My goal is to help my clients build more wealth through mortgage plans that are a custom fit to them. </li></ul><ul><li>As a financial educator, I will help you understand how your mortgage can help you achieve both your short and long-term financial goals. </li></ul><ul><li>I will provide advice on: </li></ul><ul><ul><li>How to manage your debt </li></ul></ul><ul><ul><li>How to improve your credit </li></ul></ul><ul><ul><li>How to best utilize your home equity. </li></ul></ul>
    5. 5. My Role as your Mortgage Planner <ul><li>I am in this business to help my clients create wealth. </li></ul><ul><li>My goal is to help you successfully manage your home equity to increase liquidity and rate of return, diversify investments and maximize wealth accumulation. </li></ul><ul><li>What are your Goals? </li></ul><ul><ul><li>Create wealth & achieve a comfortable retirement? OR </li></ul></ul><ul><ul><li>Just to pay your bills & try to become debt free? </li></ul></ul>
    6. 6. The Traditional Thinking <ul><li>We learn from our parents and grandparents that homeownership with no mortgage is the ultimate goal because debt is bad. They tell us we will pay more in interest than the cost of the house in the first place. </li></ul><ul><li>BUT…. </li></ul><ul><li>Paying off debt is not the same as accumulating assets that make money. </li></ul><ul><li>Every dollar we give to our bank to pay down the mortgage is a dollar we do not invest. </li></ul><ul><li>Paying off the mortgage saves interest but it denies us the opportunity to earn interest with that money. </li></ul>
    7. 7. The Law of Compound Interest <ul><li>Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest. </li></ul>$10,000 invested at 6% per annum will accumulate to $17,908 at the end of 10 years.
    8. 8. Secrets of the Wealthy <ul><li>Their goal is wealth creation and asset accumulation, not debt elimination. </li></ul><ul><li>They will carry a big mortgage on their house even though they can afford to pay it off. </li></ul><ul><li>They typically take the longest amortization available e.g. 35 years, pay monthly instead of accelerated payments, and do not make lump sum prepayments though they can afford it. </li></ul><ul><li>They are not afraid of debt! </li></ul>
    9. 9. 8 reasons the wealthy will carry a big, long mortgage <ul><li>A mortgage does not affect your home’s value </li></ul><ul><li>You build equity regardless of the size of your mortgage </li></ul><ul><li>A mortgage is the cheapest kind of debt </li></ul><ul><li>Mortgage interest may be tax deductible </li></ul><ul><li>Mortgage payments get easier over time </li></ul><ul><li>A mortgage lets you sell without selling (by taking equity out) </li></ul><ul><li>A mortgage can help you invest quicker than you otherwise can, creating greater wealth </li></ul><ul><li>A mortgage gives you greater liquidity and flexibility *** (This is the biggest reason of all) </li></ul>Source: Ric Edelman, a Registered Investment Advisor with Edelman Financial Services LLC; a #1 New York Times best-selling author.
    10. 10. The New Thinking <ul><li>A mortgage is not just about home ownership. It is about using home equity to achieve financial success. </li></ul><ul><li>The Power of Liquidity: </li></ul><ul><ul><li>Stay liquid and have cash available to capture investment opportunities. </li></ul></ul><ul><ul><li>Provides a security blanket to weather a storm should unexpected things happened in life e.g. loss of job. </li></ul></ul><ul><li>Cash is King: </li></ul><ul><ul><li>If you owe the bank money, they are at risk. </li></ul></ul><ul><ul><li>When you pay down your mortgage, you’re transferring that risk from the bank to yourself. </li></ul></ul>
    11. 11. A Tale of Two Sisters <ul><li>Our story follows two sisters who started with similar financial situations. Please refer to our brochure for details. </li></ul>
    12. 12. What is required to implement Mortgage Planning? <ul><li>Dedication to saving and investing for the future. </li></ul><ul><li>Not cashing out and spending your equity. </li></ul><ul><li>Not spending your tax refunds on personal needs. </li></ul><ul><li>Separating your household spending account from your investment transaction account – This is very important for tax deduction purposes. </li></ul><ul><li>Having qualified advisors overseeing your investment. </li></ul>
    13. 13. How Do You Invest All the Money? <ul><li>Align yourself with a qualified financial planner and realtor to create a diversified investment portfolio. </li></ul><ul><li>Review all investment options and work with financial experts to pick the combination that suit your risk profile and long term goals. </li></ul><ul><li>Investment possibilities include: </li></ul><ul><ul><li>GICs </li></ul></ul><ul><ul><li>Accumulation Annuities </li></ul></ul><ul><ul><li>Blue Chip Stocks </li></ul></ul><ul><ul><li>Bonds </li></ul></ul><ul><ul><li>Segregated Funds </li></ul></ul><ul><ul><li>Rental Properties </li></ul></ul><ul><ul><li>Dividend Stocks </li></ul></ul><ul><ul><li>Universal Life policy </li></ul></ul><ul><ul><li>… .and many more </li></ul></ul>
    14. 14. Our Mortgage Planning Process <ul><li>We’ll understand your long term financial goals using our simple goals worksheet. </li></ul><ul><li>We’ll analyze your debt structure and recommend ways to optimize it for wealth accumulation. </li></ul><ul><li>Customized mortgage plan. </li></ul><ul><li>Annual review. </li></ul><ul><li>No cost to you. </li></ul>