What is your Freedom Point?

by Tom Tousignant

in Blog, Financial Safety, Mortgages, Wealth Building

A lot of people dream about the day when they make their last mortgage payment and they finally own their house “Free and Clear”.  Sounds nice, doesn’t it? Unfortunatley, there are two problems with this dream – that can turn into a nightmare if not planned for.

Even with no mortgage, you can still lose your house.

Try not paying the property tax bill for a few years and see how good it was to pay off the mortgage.  Or, consider what happened to the thousands of homeowners who lost houses when hurricanes pass through town at 100+ miles per hour.  Last time I checked, Hurricanes don’t care if you have a mortgage or not.

Paying off your house each month with extra principal payments is the riskiest way to pay off your house.

Consider your friends or family members in places like Florida, Michigan, or California. If they sent in extra principal payments to their mortgage servicer, what happened to that money as home prices declined?  I know someone with a 15 year mortgage that sent in $2,000 per month to watch their house decline in value by $3,000 every month.  When you send in extra mortgage payments, your lender transfer the risk of the mortgage right back to you.  Put another way, each time you send in extra principle payments, your lender has less risk, and more of your money is now in a place where it can disappear or be destroyed.

If you send in extra principal payments, and then find you need the money back, you may not be able to get it.  It could have disappeared, like it has in some parts of the country, or the mortgage rules or your circumstances may have changed to where you can no longer get your money back.

Another way to be Free of your Mortgage:

If you had wnough money to write one check and pay off your mortgage, isn’t that the same as not having a mortgage?  Strictly from an accounting perspective, it is.  On a balance sheet, if the cash assets were greater than the mortgage balance, you are debt free. Now it just becomes a matter of deciding if you should pay off the mortgage, or keep things the way they are.  Think about it – what if you had a $300,000 mortgage, and $300,000 in investments that were targeted as ‘mortgage payoff funds’. You could write one check whenever you wanted to and eliminate that mortgage.  Or, you might recognize some benefits of having both investments and  a mortgage.

  • Grow your savings over time, and after a while, the compound interest you earn will be much greater than the interest you pay.
  • Mortgage Interest is Tax Deductible – having the mortgage may allow you to pay less in income taxes and keep more for yourself.
  • Your mortgage (if it’s not interest only) will pay itself off over time – just let it do that.
  • You have more freedom where to store your money – rather than putting it into the walls of your house, choose where it should best be stored for safety.
  • If something happens to your house, you still have your money – separate the house and the wealth to keep both safe.
  • Your money can earn Compound Interest if it is working for you.  Inside your house, it is just sitting still doing nothing.

Reaching the Freedom Point

You are debt free when you have enough money to pay off your mortgage.  You could still lose your house even if you have no mortgage, so don’t kid yourself into thinking a mortgage payment is your only threat.

A better goal in today’s economy is to plan to reach your Freedom Point as soon as possible.  Just be sure to plan ot do it the fastest, safest, way possible – store your money where it can be accessed if needed and where it grows for you.  You will be able to decide if you want to pay off your mortgage much faster and safer this way.

If you haven’t developed a plan to reach your Freedom Point by a certain day, give us a call – we can help you create a home ownership plan with a path to pay off your mortgage in the fastest and safest way possible.

Reblog this post [with Zemanta]

Comments on this entry are closed.

Previous post:

Next post: