Mortgage Interest – A Powerful Allie In Building Wealth

Are you like most American’s who have been unable to devote any funds to a retirement plan? I understand the demands on income today! In this present economy salaries are not keeping up with rising costs – costs of everything!

Because of the need to get more out of less, it is increasingly necessary to take maximum advantage of every financial strategy that holds the possibility of increasing your wealth – safely. Real estate has long been considered one of the best investments for retirement and investment portfolio funding. Real estate is still a fantastic investment, if you are willing to explore different strategies for wealth building. Let’s take a look at how you can create FAR greater wealth. which will mean you have a significantly improved piece of mind.

Assets – Is what you consider an asset really an asset?

Equity in a house is no longer the best wealth-building tool. It is no longer considered an asset, but more of a liability. Housing values are going down currently and it is now being predicted that the decreasing value trend will continue into 2009 (Reuter’s prediction). When you separate your equity from your loan amount you are now creating an asset. Let’s look at how to turn your equity into an earnings powerhouse.

Interest Earnings – Make sure it’s you earning interest and not someone else!

You don’t earn interest on a down payment or extra monies applied to principle. The lender is earning the interest. You can take the equity in your home and convert it into a passive revenue stream for you instead. The interest you are earning is now considered a passive revenue stream, meaning your money works for you with no effort on your part. A conservative estimate of interest earnings is 6-8%. Increased earnings from being able to earn more interest than you are paying out is one way to benefit from taking the equity out of your house; the other way to gain is by keeping more of Uncle Sam’s money.

Double Bonus Earnings

Perhaps I should say double bonus savings. The interest you are paying out is completely tax deductible. For example, if you are paying $10,000 a year in interest payments on your home, you can then deduct that $10,000 from your taxable earnings. I don’t know about you, but I’d like $10,000 in deductions so I can keep a lot more of my earnings in my pocket!

If the idea of making money with your current equity sounds good then you will want to pay attention to what I’m about to present to you. Yes, it’s a different way to look at mortgages than you may be used to, but bear with me while I unfold the concept of using your equity to create greater wealth for you.

The Plan

A homeowner can safely borrow money at today’s interest rate of approximately 6 to 7%. You, the homeowner, can then invest your now liquid (spendable) equity money in an investment vehicle earning 6% or higher. There are two ways to win here. One, you could actually earn higher than 6% interest. Two, you will be able to now deduct the interest payments on your taxes.

Example – You have $100,000 in equity in your home and you owe $100,000 in principle. You could refinance your home for the $200,000, which will enable you to take out the $100,000 in equity. The new mortgage is at 6% and you invest the $100,000 in something yielding 6% or higher. Let’s say you are paying $12,000 a year in interest on the loan you now have. You now have a $12,000 deduction on your taxes. If you are in the 33.3% tax bracket that, equates to $3960 in tax savings per year. You can clearly see how you can be working smarter not harder.

Learning to maximize what you already have is easier than having to constantly worry about earning more money. Now that is the stuff stress is made of.

What if you are Renting Now?

Many times individuals are paying as much in rent as they would be in an interest-only loan. What makes the most sense- the renter if paying equal rent versus a mortgage and is actually losing significant money in tax savings – or – buying a property, pay the same in a mortgage as rent, gain the tax advantage and also gain the appreciation on the property? The person paying rent could be saving thousands of dollars!

Taking the Fear out of the Method

Your home can be considered paid for if you have sufficient money in your investment portfolio to pay off the mortgage. You can see that your investments have the distinct possibility of earning much more than you are paying out. Your mortgage consultant/advisor can educate you on the pros and cons of available mortgage options. Like the healthcare industry, the financial industry is creating new and innovative solutions at a rapid rate. If you haven’t consulted with your lending agent within the last year you very well may significantly benefit by having a phone or coffee meeting with him or her.

Alleviating the fear of a financial setback can also happen by having investments that are liquid (assessable). You will now be able to weather a financial setback if needed.

Just as you would go for a physical check-up each year to safeguard your physical health, you should also see your financial consultant/lending agent to make sure you have strong financial health.