Should you change your mortgage accelerator plans? (financial crisis)
In Mortgage Accelerator Blog, Mortgage Accelerator Case Studies by Ken Stone (September 21, 2008 6:45 pm)
Should the recent crisis on Wall Street cause you to change your plans for paying off your mortgage early and getting involved in a mortgage accelerator program?
YES!!
Here’s the quick synopsis (be sure to sign up for my free e-book which reveals ”Two Critical Mortgage Accelerator Mistakes” here):
Liquidity is illusory when it comes to having a home equity line of credit against your home and thinking you’ll be able to borrow when you need the money.
The safety and liquidity of home equity is clearly illusory as the current credit crisis is illustrating.
So why would you take currently liquid and safe dollars and voluntarily “invest” them in your mortgage where they’re not (liquid or safe) and where they have no rate of return (in fact their rate of return is the inverse of the current rate of inflation), and just to top it all off - have an adverse tax impact?
All in the name of no mortgage payment, right?
I was on the phone this past week with a client in Utah. He’s 72 - married - with kids and grand-kids. They have good pensions - and a good monthly income. Plenty of money to make all their bills … except, they have a 10 year mortgage.
Their home was paid off several years ago. Someone talked them into investing in real estate - so they took $90.000 out of their primary residence to buy a new home in a nearby town. Property values were going up rapidly there - and they thought they would move there once their current home sold.
They put the new mortgage on a ten year term even though they planned to move soon. They got a home equity line of credit (HELOC) with a mortgage accelerator program on their new home. They put the $90,000 from their current free and clear home on the new home as a down payment.
Here’s the quick overview of what happened next: The HELOC loan ate all their monthly income and “was a nightmare - I’d never get involved in one of those again.” Their existing home didn’t sell. The real estate market fell apart - and the home they bought as an “investment” lost tremendous value. They ended up selling it - but only after paying on the new mortgage - and losing all the money they put down ($90,000) which they still owed against their primary residence.
This gentleman came to me because he wanted to pay off his home even more quickly (ten years wasn’t fast enough). His problem: he can’t make his bills each month. Doesn’t have enough money for food - or insurance - or medications. Pick one of these - it’s not going to be paid this month.
My advice? Change course! Restructure your loan to a 30 year fixed rate fully amortizing loan. Stop worrying about paying it off and make your bills each month. Get into a positive savings rate again.
It’s too bad there’s a $90,000 debt from an investment gone bad. Paying on that mortgage ahead of time makes sense (he’s 72 years old after all). But not at the expense of monthly obligations!
Please be sure you’re evaluating your plans with a qualified professional who is looking after your best interests before you get involved in a mortgage accelerator program. Folks who buy my DVD get 20 minutes with me on the phone once they’ve watched my program and understand the concepts I teach. The DVD and phone time could be a life changer for you. Get your copy here and make sure you’re making a smart financial move.
To your optimized financial health!
Ken
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