A Better Strategy

Since the Great Depression, conventional wisdom said you should buy a house for both shelter and investment.  No wonder many Americans store a large portion of their wealth within the walls of their homes.

It’s time to re-visit conventional wisdom. With the real estate-led recession, many Americans are questioning this conventional wisdom.  As well they should.

I’m Tom Tousignant, a Certified Mortgage Planning Specialist.  I believe the right mortgage should help you:

• Build and conserve wealth
• Become debt free as quickly as possible
• Achieve financial freedom

Your mortgage strategy is the key to turning your home into a castle.

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Home as Castle

It may be cliche to think of your home as a castle, but it’s a good starting point.

Monarchs built castles with layers of defense, starting with a moat on the outer perimeter.  Next, they dug tunnels for supplies and spies.  The castle’s ring of walls withstood enemy attacks while knights played defensive and offensive roles to advance the welfare of the kingdom.  Stay with me as we explore this analogy.

I encourage homeowners to think of defending their lifestyles in a multi-layered manner, too, starting with the moat of emergency cash. It’s easier to get that money from a checking account or certificate of deposit than from your home.

Lesson One: Don’t put all your money within your castle walls. Your highest Financial Priority is to fill your moat with liquid, emergency cash.

Let’s put it all together.

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Secure the Tunnels

Let’s say you’re behind the castle walls fending off an enemy that intends to starve you out.  That’s where your tunnels come in handy. If the tunnels stay hidden, your suppliers can bring rations and your spies can bring intelligence.  But if your tunnels are discovered by the enemy you’re in trouble.

Since castle tunnels can bring both redemption and doom, they remind me of  debt.  The proper use of debt can improve your finances. Used wrongly, debt will drain you moat and ruin your protection.  When you get rid of short term debt, you will have more money each month – to fill your moat, invest, or use elsewhere.  Don’t finance yesterday’s memories and prevent tomorrow’s dreams.

Lesson Two: Create a mortgage plan that reduces bad debt, and leaves you with money for more important things.   Keep you credit score high and learn how to improve your credit score.   This Borrow Smart Interview will help you uncover priorities for how to structure your mortgage strategy.

Let’s put it all together.

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Fortify the Walls

If the enemy breaches your moat you’ll be glad you built a series of walls to halt their advance.  When you consider the threats to your financial safety, protecting yourself from lawsuits, income loss, or loss of life are three critical needs.  I think of Liability, Disability and Life insurance as the modern means to fortify the walls of your financial life.

I find too many people are not considering the threats to their lifestyle, or using inadequate rules of thumb to protect themselves.  Of course, you want to insure your life so that the balance of the mortgage would be paid.  But, also consider the impact that an illness or injury that kept you out of work for a while, or a lawsuit, would have on your finances.

Lesson Three: Think of disability insurance as the first stout wall around your castle and life insurance as the second wall.  You need both. The right mortgage allows you to fund both.  Access an insurance planning calculator to start getting an idea of your needs for protecting what you have.   Let’s put it all together.

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Deploy Your Knights

The  sovereign sent knights into strategic foreign lands for gain, which is the same reason you place money into strategic investments. Experienced investors use three criteria to evaluate investment opportunities:

1. How liquid is it?  (Can I get my money back when I need it?)
2. How safe is it?  (Is it guaranteed or insured?)
3. What rate of return can I expect?  (How hard is my money working?)

Home equity falls short in all three criteria.  Until you sell your home, the equity is just a number.  Too many people are trying to pay off their mortgage early, while giving up more important opportunities. Often, there are more important priorities than paying off the mortgage – so decide what goals are most important and achieve them first.

Lesson Four: Paying off mortgage debt is not the same as accumulating assets.  Paying off your mortgage is a goal, but not the most important goal.  Prioritize your goals to achieve the most important ones first. Let’s put it all together.

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A Prosperous Kingdom

By determining the right priorities for you, you house can become your castle in a prosperous kingdom. With the proper mortgage strategy you’ll have:

• Emergency cash – to protect you from small threats
• No bad debts wasting your money and access to credit when needed
• Proper protection against major threats, such as lawsuits, illness, or death
• Balanced and diversified savings that are liquid, safe a growing, rather than just equity frozen in your house.

Final Lesson: Home equity is not cash in the bank; only cash in the bank is cash in the bank. The right sized and structured mortgage will make you more prosperous because your money will be aligned with your life’s priorities. Check to see if your current mortgage aligns with your long-term prosperity goals.

Let’s put it all together.

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