How Much Interest is Your Home Equity Earning?

How much interest are you earning on your home equity? If you answered nothing, zero, zilch, zip you are correct. What would you do if you could get triple compounding on your equity? Would you take action and build a fortune that would allow you to pay off the mortgage and create a retirement fund?

We use a strategy called Early Mortgage Pay Off System or EMPOS?. The strategy involves using common knowledge that is applied uncommonly. In other words, we have been told for years that a fixed mortgage is the way to the American Dream of having our homes paid off free and clear. But is that really a dream, when all along the way you struggle to make those large payments? What if you could reduce your monthly mortgage payments and increase your cash flow?

By using the right mortgage product you can keep your monthly payments low and redirect some of that cash back to yourself in an investment that gets triple compounding because it is tax deferred.

First, you examine to see if a Pick-a-payment Mortgage is applicable to your situation. This type of mortgage product allows you to choose between four options each month. The options are a 30-year payment, a 15-year payment, interest only or minimum monthly payment, which has a low start rate (currently 1.95% to 4.95% depending on the investor's, credit, income and other market factors). You can match your loan payments to your variable or seasonal income and begin using the saved income to create wealth.

This mortgage product uses a monthly Adjustable Rate concept to determine the actual rate of interest charged. The loan is linked to one of various indexes like the Cost of Funds Index (COFI), the Monthly Treasury Average (MTA), Certificate of Deposit Index (CODI), Cost of Savings Index (COSI) or the London Interbank Offered Rate (LIBOR). A loan consultant can determine the index and program that best fits your individual financial situation. Fixed percentage points (the "Margin") are added to the index and establishes your effective interest rate and monthly payment

Many of the super elite and very wealthy use this type of mortgage on their homes when they could afford to pay their mortgages off today. Why? Because they leverage their mortgage as a tool to create wealth. Even Alan Greenspan has an ARM mortgage on his home when he could afford to pay it off. History shows the ARM mortgage consistently outperforms a fixed rate.

What do I do with all my monthly savings you ask? We like to see it go into an environment where the money can earn triple compounding. Triple compounding is where you earn interest on your principal, interest on the interest and interest on the amount that would have gone to taxes. One of the best places to get tax deferral that creates a triple compound is with life insurance. In addition, there are equity indexed life insurance products that allow you to participate in the stock market while it is up and lock in the gains when the market falters. It is the best of both worlds because it earns at better than traditional fixed and is safer than a variable insurance product.

You may have sold yourself on life insurance being a useless product. Well, consider the following example of life insurance compared to a ROTH IRA.

The IRA offers no creditor protection if you get sued, the equity in your home is always on the table for a creditor to take. Additionally, your contributions to an IRA are limited, there is no death benefit if you prematurely pass away, and there is no disability aspect among other features.

After the Tax Reform Act of 1986, the Wall Street Journal had an article that said there were only five tax-advantaged investments left:

? Your personal mortgage

? Qualified retirement plans (i.e., EP, 401K, IRA, Pension, Profit Sharing, etc.)

? Tax Free Bonds

? Live Insurance

? Annuities.

The reason that life insurance was listed is because life insurance offers you the opportunity to have tax-deferred growth/compounding on your money as well as access on a tax advantaged basis.

What if we took the power of tax-deductible borrowing and invested the money tax-free? This is done by refinancing or using a Home Equity Line of Credit (HELOC). A client could take out money and fund the maximum in their equity-indexed universal life product to the extent they do not violate tax law and create a Modified Endowment Contract (MEC). Too, the client who is 59 ½ could place some proceeds into an single premium immediate annuity (SPIA) and fund the life insurance over the next couple of years directly. If the client were at least 55 years of age their situation could be appraised under the substantially equal payment exclusion to the 10% excise tax penalty on distributions prior to 59 ½ . There are other planning opportunities and the client would have the proceeds to invest, assuming their financials line up with the requirements of the lender.

Like any type of investing, there are pros and cons. The pro is that you can create significant wealth and is safer than playing the stock market. The con is that you would tap out equity from your home and by using one of many strategies; you might not pay your home off under the thirty years unless you choose to. However, you would likely build enough to pay off the mortgage in a lump sum if you cared to, or continue to use the mortgage interest deductions when you need them ? as a retiree. Also, the amount of estate tax can be reduced since you only pay estate tax on what you own. There are numerous pros that outweigh the cons and you can find a savant on either side of the pro and con. Ultimately, a person must make up their own mind and begin to think outside of the box or join the masses that play it safe and will have to sweep floors in a retail store during their retirement years.

In closing, remember, equity can only be tapped two ways (1) selling the property or (2) an equity loan, but when you need it most the loan is not always that easy to get. If you want to create a significant amount of wealth and have a few years to still pay on your mortgage, you might want to examine to see if utilizing your equity to provide for your future is appropriate.

James Burns

Law Office of James Burns

18662 MacArthur Blvd, 2nd Floor

Irvine, CA. 92612

(949) 440-3243

© James Burns, Esq.

James Burns is an attorney with two law degrees and helps individuals and small businesses with Life Planning Solutions, a trademark concept he created.

---

Home Loans and Mortgages ? The Selection Can Be Bewildering

For years, when someone wanted to purchase or refinance a... Read More

How to Save Money by Using an Independent Commercial Mortgage Broker

Being a creature of habit can cost you plenty when... Read More

Home Equity Loan Improvements

There's more Regulation Z compliance on the way, courtesy of... Read More

Mortgage After Bankruptcy

Most people probably assume that obtaining a mortgage to purchase... Read More

The Debt Test: Are You Making Out a Mountain Out of Your Mortgage?

According to the Council of Mortgage Lenders, first-time buyers are... Read More

How To Save Hundreds A Month On Your Mortgage

When it comes to American spending habits, the sad truth... Read More

Homeowner Loans - Whats Available?

It isn't difficult to get a homeowner loan if you... Read More

No Fee Mortgages Coming Soon

Buying a home, especially for the first time, can be... Read More

Low Home Mortgage Interest Rate - Finding the Best Mortgage Rate

Interest rates are at an all time low, making now... Read More

Be Prepared when Seeking a Mortgage

When you're looking for a mortgage, whether it's a first... Read More

Cardinal Principle of Homeowner Personal Loans ? It is a Solution for Any Sort of Financial Funding

You bought a house and you were promoted to the... Read More

Mortgage Brokers or Banks: Which is Right For You?

When you're looking for a home loan, you might work... Read More

Mortgage and Credit Card Companies Under the Spotlight on Consumer Charging

For the first time since May 1996 reports have indicated... Read More

How a Commercial Mortgage Can Help Your Business

A commercial mortgage or commercial remortgage is a business loan... Read More

Uk House Price Increases Take A Summer Holiday

Property website Rightmove has released its latest house price index... Read More

Free Home Equity Loan Information

Home equity loan information can sometimes be confusing and misleading.... Read More

Biweekly Mortgage

The biweekly mortgage has been around for years but with... Read More

Refinance Your Home Mortgage Online

The largest financial obligation most people ever take on couldn't... Read More

Poor Credit? Get a Sub-Prime Mortgage Now, and Refinance to a Conventional Mortgage Later

There are great mortgage loans for people with poor credit,... Read More

Bankers Dont Want You to Know That You Pay for Your No Cost Home Loan Forever

With mortgage rates continuing on a downward trend, the competition... Read More

Sorting through mortgage elimination programs

Mortgage elimination programs are all the rage these days. In... Read More

Why Choose a Home Equity Loan?

There are many reasons for choosing a home equity loan.... Read More

How to Find a Good Online Homeowner Loan

A quickly growing trend in lending is the online homeowner... Read More

Home Loans -- The Hot New Product? The 30-year, Fixed-rate Mortgage

In recent years, the mortgage industry has introduced dozens of... Read More

Financial Rebirth Through Remortgage

Seldom in ones life do we get a chance to... Read More

Home Equity Loans Can Provide Cash in a Hurry

Think About the Long Term. Estimate how long you expect... Read More

Home Equity Line of Credit - Finding The Best Home Equity Lender

Borrowing against the value of your home using a revolving... Read More

Home Equity Line of Credit ? Great Idea for Rainy Day Emergencies

Most Americans tend to live on a paycheck-to-paycheck basis, and... Read More

What is a Remortgage?

A remortgage is changing your mortgage without moving your home.... Read More

What is an Interest Only Mortgage?

An Interest Only Mortgage is one where the repayments are... Read More

Thought Fixed Rate Will Give You a Respite from the Perils of Variable Rates! Think Again

Slight increases in the interest rates raise your hackles. Tension... Read More

Mortgage: For Those Twilight Years

Tracing back, the concept of reverse mortgages began when one... Read More

Mortgage Advice To Make Mortgages A Really Smooth Ride

Mortgages are easy as long as you understand them well.... Read More