Fred Kreger, American Family Funding Mortgage Advisor, has written a helpful guide to making the equity in your home work for you.
I have always been told that if you help the people around you to get the most out of life, you’re bound to get the most out of your own life. This is true in almost all aspects of life. My expertise is in showing you how to structure your home mortgage in order to achieve your short- and long- term goals.
Some of these goals may be to: – Buy a 2nd Home or Investment Property – Fund College Education – Improve or add onto your existing home Federal Reserve Chairman Ben Bernanke recently stated that sharpening Americans' financial know-how and skills is crucial to consumers' ability to make smart money choices and is also good for the overall economy. The Chairman was quoted as saying: "Clearly to choose wisely from the variety of products and providers available, consumers must have the financial knowledge to navigate today's increasingly complex financial services marketplace."
I have consulted with members that need to fund college education for their children. We have structured their mortgages to address the shortfall of savings. For instance, there are fixed rate mortgages with an “Interest Only” option that allows home owners to place what would have been a principal reduction into an investment account which grows and is liquid, enabling them to pay for upcoming college expenses and tuitions. See the following example: Monthly Amount Invested
Average Rate of Return
on Investment
Accumulation of money earned
after 10 years
Mortgage Pay down
after 10 years
| $452
6.589%*
(10 year rate of return on the S&P 500)
$76,490
$50,239 | $452
7.375%**
(5 year rate of return on a Diversified Portfolio)
$79,869
$50,239
| $452
10.00%
(Aggressive Rate of Return)
$92,589
$50,239
|  | | | |
* 10 year rate of return on the S&P 500 is approximately 6.589%. Amount difference is based on a $350,000 Loan at 6.5%. ** Average Diversified portfolio consisting of 70% Equities, 28% Fixed income and 2% Cash. The $452/month invested represents the post-tax investment of the additional principal payment invested rather than paying down the current mortgage. If the money invested was put into a Tax Free Plan (401K, IRA, etc.), then the savings could be much greater because of the tax implications.
The example points out that you would be better off investing the amount in a “Liquid” investment rather than pay down your principal balance every month. This is just one of many types of examples that maximize your home’s equity in order to achieve your life goals.
If you have any questions or need more information, please contact me at American Family Funding, and I'll be happy to help. |
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