Andrew W. Conner, CMPS ®, CRMS ®
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What is the “Right” Mortgage Strategy?
Since everyone’s financial situation is different, how do you know you’re getting the right mortgage strategy? Here is an example of various strategies that might be right for you and some of the factors that should be considered when deciding what strategy is best for you.
Most people that have some form of investment or retirement account understand the need to manage their account differently throughout their lives. When you’re younger you invest less conservatively, when you’re older you invest with short term goals in mind, and when your somewhere in between you may employ a different strategy altogether. Modifying your investment portfolio throughout your life is very important.
You need to look at your mortgage the same way. Your mortgage is the financial tool that is tied to one, if not your largest asset. Having the same mortgage strategy your entire life is not always the best financial decision. At different stages of life, you may want or need to have a mortgage, at other times you may want to pay aggressively on the principle to get it paid off, while at other times in your life you may benefit from a Reverse Mortgage, which has no mortgage payment at all.
Applying different mortgage strategies at different stages of your life, just like you would your other investments can lead to the financial wealth and independence you’re looking for. Strategic re-balancing of your investments throughout your life is very important. This also includes the equity in your home. Do you manage your mortgage? Do you manage your equity? Or do you just treat it like the investor that leaves their account sit there for 30 years hoping it will still be there for them when they need it. Recent history has proven this is not the best strategy. We can all agree that we all need to manage our investments. The equity in your home is also an investment and needs to be managed as well; you should look at your mortgage like any other investment or retirement account. Your mortgage strategy should be different throughout your life depending on your individual financial situation. The same factors you consider when and how you invest are some of the same factors that need to be considered when deciding on the right mortgage strategy.
Your home is part of your retirement assets and for most of us is one of if not our largest asset. Obtaining a mortgage is the largest financial transaction most of us will do in our lifetime. Instead of focusing solely on interest rate, it is important to consider various strategies you can employ with your mortgage. Your mortgage is the financial tool, your house is the asset, and your home is where you live.
Some of the things that a true mortgage professional will consider when developing the right mortgage strategy will be:
It’s also important to consider your age, your current income, future income, your assets, your credit, your overall household blended debt ratio, and the rest of your overall financial situation, as well as your loan to value, which is the amount or percent of money borrowed verses the value of the home, just to name a few.
Did you get the best strategy? When refinancing we consider your total household blended debt ratio to determine what debts are right to consolidate into the mortgage, if any. Some people can save hundreds, even thousands of dollars per month, but for others, refinancing is not the right solution due to the current market as well as the overall savings and recoup time sometimes it’s necessary to wait to obtain a better loan due to personal credit or financial issues. Many people are persuaded to refinance only to find out later that they really weren’t saving any money.
When purchasing, these same principles apply to help you decide how much money you should put down and ultimately what loan strategy would be right for you.
Deciding whether to pay extra on the principle or not is part of the overall mortgage strategy. For some, paying extra on the principle and developing strategies to become debt free is best. While for others utilizing the equity in their home as a financial tool is best. Understanding that paying off your mortgage early reduces your liquidity. You also need to consider various market conditions. Having a mortgage actually protects your asset against inflation. Of course, the equity needs to be used wisely so you don’t jeopardize your hard earned equity in your home.
For some paying extra on your mortgage is right but you should never invest as long as you have debt, because you’ll never earn a rate of return high enough on your investment to offset the cost of the interest on the debt. Your house is your asset. As long as you have other debt, paying extra on your mortgage might not be right for you.
Utilizing your mortgage as a financial tool; whether you decide to pay off your mortgage early or keep your hard earned money liquid at certain times of your life, can help you achieve retirement the way you planned.
I have dedicated the past decade to helping people achieve the right mortgage strategy for their individual financial needs.
Phone: 573-302-0600 Andrew W. Conner NMLS # 245474 Copyright © 2008-2015 Financial Planning Tools & Services, LLC
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