Mortgages

Did you know years ago, there was a practice called a “Mortgage Burning Party?”  This was done typically around the age of retirement to celebrate you now owning your home free and clear.  So it begs the question, should you be mortgage free at retirement?

Refinance & Retirement Age, Quick Look!

First and this fact is undeniable:  Retirement savings on average falls short of needed living expenses by almost 42%.  So does it make sense to be mortgage free with those statistics?  The truth is, in retirement your most powerful financial tool will be your mortgage.  However, let’s be very clear about the strategy.

Are we speaking of a reverse mortgage?  No. Not that those services don’t have their place in financial portfolios for most Americans at retirement or nearing retirement age.  Let’s look at what cash can be used for.

Refinance & Retirement Age Just the Facts!

  • A refinance of your mortgage, with cashout enables you not to have to touch investments, retirement plans, or insurance policies.
  • A new and emerging issue for retired couples is long-term care.  If the pandemic has taught us anything, it would appear that nursing or assisted living facilities are not the alternative we once thought.  In-home care from a provider is the best care possible.
  • Be debt free otherwise.  Eliminating your credit cards, auto loans, costly timeshares, RV’s, secondary properties all makes perfect sense here.  Consolidate it into one payment.
  • Helping family.  The retirement generation is facing financial pressure from their kids, unlike any other generation.  Many are paying their kids’ bills.  A perfect strategy instead of sending them $2000 or $3000 a month would be to pay off their debt, such as their student loans.  It then becomes more manageable for you without having a serious impact on your cashflow.

Times have changed.  Financial models have changed.  Mortgage burning parties are definitely a thing of the past.  Bear in mind that you don’t want financial issues when you pass for your family.  However, you have worked hard your entire life to enjoy this next phase.  A mortgage is a good debt.  Debt that will give you financial freedom, unlike earlier in life.  You now have options.  Use them.  We have specialists standing by to help you understand this phase of your “mortgage life.”  Let’s put a plan together that makes sense to use this asset for the next 5, 10, 20, or even 30 years.

Money management

Have you ever read the book, The Millionaire Next Door?  In short, it talked about the financial habits of those that are millionaires.  Spending habits, financial risks, where they live and what they do to accumulate wealth.  The surprising element from the book is that there are literal millionaires right next door to you and you would never know it!

The Biggest Takeaway from the Book…

It is all about spending tomorrow’s money today.  Sounds simple.  However, in the analysis, it is far more complex when you actually apply it to your life.  Your personal finances.  Your financial plan, if you have one.  Spending tomorrow’s money today really applies to debt and retirement.

The Millionaire Next Door Spending Tomorrow’s Money!

Although our spending habits are of major concern you know the “Keeping up with the Joneses” we need to talk about trading tomorrow’s money today.  Here are some examples of when we spend tomorrow’s money today:

  1. Balances on our credit cards at massive interest rates. 
  2. When we make just the minimum payments on our student loans. 
  3. When we continue to purchase furniture, electronics, and household goods on “1 year same as cash.”
  4. When we are not fully vested in our 401k or retirement plan.
  5. When we lease and purchase vehicles based on their payment amount in terms of 60, 66, or even 72 months.

The Millionaire Next Door Questions!

The value of today’s money and the value of tomorrow’s is not something that is guaranteed.  We live in a historic time.  When mortgage companies, banks, and credit unions are giving away mortgages, you should never be spending tomorrow’s money today.

Here’s the kicker:  You just don’t need another refinance.  You don’t need another plan.  What you need is a purpose with your plan.  Consider this when thinking of spending tomorrow’s money today:

  1. What does my family look like 5, 10, or 15 years from now?
  2. What does my career look like 5, 10, or 15 years from now?
  3. Can I survive a downturn in the economy?
  4. Can I pay for my kid’s college tuition?
  5. What and why are my spending habits the way they are?
  6. What is my mortgage really doing for me?

The Millionaire Next Door Mortgage!

It is this last one that we focus on: What is your mortgage doing for you?  Did it get you in the home?  Yes, but that is only 25% of a mortgage value.  It is a tool, an instrument, to achieve so much more.

You can immediately stop the cycle of spending tomorrow’s money today by having a plan of purpose to your mortgage.  You can refinance your mortgage with specific objectives in mind. We can help you get there.  We will put the plan together, you just bring the purpose.  By setting it, you can then be the Millionaire Next Door!

Good debt vs. Bad debt

Believe it or not, in this health-conscious world we live in, some people overlook certain dietary items.  There is such a thing as good cholesterol vs. bad cholesterol.  Good fat vs. bad fat.  The extreme of one or the other is not healthy in any way. Well, the same can be said for debt!

In regards to debt, too often we misunderstand what is good and what is bad.  Now as a homeowner you have a unique opportunity to “up” your good debt portfolio and shed your bad debt.

Good Debt vs. Bad Debt Does it Matter?

100% yes is the easy answer.  In fact, let’s look at debt and what it means to our credit score first and foremost.  Do you know the standard rule the credit bureaus use in terms of debt usage?

On credit card debt, the answer is 30% of the credit line.  If your usage goes over that amount, your credit score will decrease.  So from a credit score perspective, your usage of credit and what they deem as potentially bad debt can have a huge impact on future purchases and interest rates.  

Examples of Bad Debt

  • Credit Cards: too many and use too much in carrying a balance.  Plus they are NOT tax-deductible.
  • Student Loans: These work as an inexpensive installment loan.  In some cases, they can be tax-deductible, but typically there is no ability to change the payment amount.  They do not have moving interest rates.  High student loans carry a high cost with no alleviation.
  • 1 Year Same as Cash: on the surface you believe you are doing a good thing.  However, the first negative that the company will not tell you is that they are using a finance company to write the loan.  When a company is viewed as a subprime lender, that decreases your score.  You show immediately as having a full balance — and there’s a ding on your credit score. Plus if you don’t pay it off, massive interest has been occurring.  This is also NOT tax-deductible.
  • Auto Loans: everyone has them right?  Yes, but there is more than one way to buy a car.  With auto loans, paying interest even a small interest rate on a depreciating asset (meaning losing value) is a lose/lose proposition.  As a homeowner, you have the ability to buy a car or cars as a cash buyer and get a tax deduction.

These are just a few examples of bad debt.  We could speak for hours on why you should never have a department store credit card, gas card, personal line of credit at the bank, or 100+ other examples.  It is about choosing your debt wisely. 

Examples of Good Debt

You may have noticed that in this section it is one example, not multiple examples.  The truth of the matter is your home is about the ONLY good debt on the market today.  Here is why:

  • First mortgage interest is tax-deductible (always consult your tax professional).
  • Credit bureaus do not ding you for being at your max LTV!  If you can get 80%, 90%, or 100% you will not be penalized by the three bureaus.
  • Taking cash out of your home is nothing like a cash advance.  You will never pay 19% cashout rates like on a credit card.  Plus the interest is tax-deductible.
  • You can reduce monthly expenditure or payments by 25%, 50%, or more by consolidating debt into a lower monthly payment.  That is a good debt.  By consolidating the debt, you have now improved your credit score.

Debt, like our calorie intake, is all about portion control.  Our financial health short term and long term is equally as important as our physical health.  There are numerous areas of bad debt, and so we encourage people to sit with our professionals and let us do a step-by-step assessment of your good debt vs. your bad debt.  You may be amazed at how the savings impact your bottom line.

Everybody has a credit score—several, in fact. These scores derive from your credit history, which is the full account of your borrowing habits. In most cases, the score is a three-digit number between 300 and 850. But what does that number mean? If you’re considering borrowing money or refinancing, it’s important to learn more about credit scores before you compare loans.

The information on your credit report plays a major role in obtaining a loan, insurance rates, the ability to rent an apartment, and a number of other aspects of your life. As such, it’s important to know what’s on the report. If something is inaccurately reported or someone has accessed and used your personal information fraudulently, you want to alert the credit bureau right away. Fortunately, you don’t have to pay to access this information. You can request one free credit report from each of the three major credit reporting agencies every 12 months. Use these steps to get yours.

There are times when opening a new credit card can be quite beneficial to your overall credit score. If you have a mortgage or car loan, but no credit card, applying for a new card will help to diversify your credit history, which is a good thing. Or, if you have been dutifully paying off a high-interest card, opening a new card after a year is also a great way to build credit. But there are times when you should avoid applying for credit. Here are four to consider.

It can be stressful when you fall behind on your credit card payments because money was tight. But when your credit score drops as a result, you need to take action. FICO uses your payment history as part of how they determine your credit score. In fact, whether you pay your bills on time accounts for 35 percent of that number. While there isn’t an overnight solution, there are ways to fix your credit score.

If you’re up to your eyeballs in credit card debt, you might feel like there’s no way out. You’ve probably heard a lot of advice about all the things you’re supposed to do, but what about tips for things to avoid? Here are some of the things you should not do if you have credit card debt.

Your credit score doesn’t drop overnight, so you can’t fix it overnight either. It’s important to recognize that it will take determination, discipline, and likely some hard decisions as you work to get out of debt and improve your credit score. Here are four things you can do to start right away.

In the past, homeowners who were married filing jointly  could deduct the mortgage interest on up to $1 million of the amount they used to buy or improve their home. For married couples who filed separately, this limit was $500,000. With the new tax laws, these limits have changed when it comes to a home mortgage.