The Mortgage Game

How to Use Your Home Equity to Build
Maximum Wealth and Retirement Income

(Click Here to Watch a Video Showing You How)

If you are like most people, the largest investment you will make is either for your personal residence or another piece of real estate.

If you are like most people, when you bought your first home, you went into “sticker shock” when you read the full disclosure forms revealing the final cost of your home, once 360 months’ worth of interest and principal payments are added up.

With that massive debt looming over you, you might look for ways to pay off your home fast. Many affluent home owners choose 15 year mortgages to own their homes free and clear within that short period of time.

And that’s a shame. Because smart use of various mortgage vehicles, and strategic use of the the wealth built up in home equity, can make the difference between you entering retirement with a paid off home, or you enjoying retirement with a hefty sum coming in from life insurance investments and a home which is paid off.

To maximize your wealth, there are three mortgage options that are worth your consideration. Not all of them are for everyone, but even if they aren’t right for you right now, you’ll want to tuck them into the back of your mind for when they do make good sense as means to build your wealth safely.

1. The Little Known 40-year Mortgage

Shocked? When everyone wants to pay off their home early, why would we recommend getting an even longer length mortgage — and paying more interest?

Answer: For the same reason that you want to pay off your home early - security. Getting a 40-year mortgage gives you more options and more flexibility. All the 40-year mortgage does is set your minimum required payment to a lower number.

There is nothing to stop you, in most cases, from paying off your 40-year mortgage in 15 years or 30 years if you want, by making higher payments.

Because your required payment is lower, you are less likely to be lose your house or damage your credit rating because of a sudden financial shortfall. And who hasn’t seen a friend or love one face financial problems due to job loss, or disability, or divorce or natural disaster?

When you have the money, go ahead and make the higher payments and pay off your house sooner if you like. It’s far easier to pay more than the required payment than to pay less.

2. Home Equity Line of Credit for Equity Harvesting “Done Right”

When housing prices were increasing, many people took out equity from their houses with an equity line of credit. They then, unwisely, used that that money to buy vacations, recreational vehicles and more. Needless to say, that money didn’t help them to build their wealth.

But some took it out with the thought that they could make more in the stock market in the late 1990s, only to see it evaporate in the dot com bomb. So we don’t recommend taking out equity from your house to put it into questionable and uncertain investments.

There are, however, investments that would make taking money out of your house worthwhile. Investments that will build your wealth.

Imagine, if you could take money out of your house and put it in a vehicle that would pay off handsomely. Hard to believe? This is made possible by buying into a vehicle such as an equity indexed insurance policy. The benefit to you can literally be hundreds of thousands of dollars extra tax-free income in your retirement years.

This concept has been popularized by a few books, such as Missed Fortune 101. CAUTION: There are a few tricks to using this method correctly. If done incorrectly, you could run into issues with the IRS, and with the tax-deductibility of the money you harvested from your home equity to pay the premiums.

So don’t use the method as described in Missed Fortune 101 or similar books - which are written to make advisors wealthy whether the method is right for you or not. It could be disastrous to your wealth.

Instead, read How to Achieve Maximum Wealth with Maximum Security: The Home Equity Management Guidebook, which explains what is wrong with these other books, and most importantly, how to do the strategy the right way. This is the book that ethical advisors use to help their clients build wealth through equity harvesting.

When done correctly, this can be a marvelous wealth builder for the right person at the right time. To learn exactly how this works and see the numbers in specific case studies, please download my special report on Equity Harvesting.

You can also give me a call at 1-800-490-8200 or sign up for my free consultation if you would like to learn how to harvest equity from your home to safely build your retirement wealth. Seriously, this could be “found money”. Have you been wondering where your golden retirement nest egg might come from? This could just be the answer. Call me to find out.

3. 1% CFA Mortgages for Equity Harvesting in “Hyperdrive”

When we mention a 1% mortgage, it never fails to attract interest. When used for equity harvesting, as described above, it can put your wealth building, especially for retirement, into hyperdrive - under the right conditions and for the right clients.

“CFA” stands for the type of loan, a “cash flow ARM” or “cash flow adjustable rate mortgage.” In other words, the 1% will adjust to a higher rate if the loan is held long enough (usually after 3-5 years.)

Because this type of loan fits only unique situations, few lending institutions are aware of it. Certainly not your local bank. And rarely will you find a loan broker who has ever heard of it. Similar types of loans, however, are used by well-heeled real estate investors to improve their cash flow.

Before we get started, a couple of caveats, up front:

1. Who this strategy is NOT for:
   1. This strategy is NOT for people who are barely able to to make their mortgage payments.
   2. This strategy is NOT for people who aim to have no debt
2. Who is the strategy for:
   1. People who have some wealth
   2. People who are looking to maximize the return on their money TODAY to build a tax-favorable retirement next egg.
3. What it is generally dependent upon:
   1. Increasing Real Estate Values.
      1. Currently, much of the U.S. real estate market has not been going up, but rather, down.
      2. However, there are parts of the real estate market where values are increasing and are likely to continue to do so.
      3. Or, possibly, you get a great deal where the value of the property you have will have to go up.
   2. Repeatedly re-financing your mortgage back to the 1% rate. (You’ll see why in a moment.)
4. What is meant by the interest rate?
   1. There are 2 interest rates used in CFA loans:
      1. The interest rate your payments are based upon
      2. The actual interest rate (more on that below) - which is higher than the interest rate your payments are based upon. This interest rate is called the “fully indexed rate”.
      3. The CFA interest rate fluctuates and so 1% is not always available. In mid-2008, the lowest CFA interest rate is 2.5%

Now, let’s get started and introduce you to the pieces that make up a CFA Loan.

We’ll answer the following questions:

1. Why would a bank or other financial institution fund a 1% CFA loan?
2. What happens to the difference between the interest rate your payments are based upon and the fully indexed rate?
3. Why you would want to take one out?

• Why would financial institution fund a 1% CFA loan?

It doesn’t take too much to realize that if you are paying only 1% on a mortgage, your mortgage payments are a lot less. But who, in their right mind, would loan you money at 1% when they could loan it out at 5%, 6% or more?

The answer?

The 1% interest rate represents the interest rate your payments are based upon. However, this is not the rate at which the money is being loaned out.

The “actual” interest rate, called a “fully indexed rate”, consists of 2 rates: the “index rate”, and “the margin”.

The index rate comes from the places interest rates on mortgages come from - such as LIBOR. “The margin” is an additional amount charged by the bank, above and beyond the LIBOR. This is pure profit for the bank and one reason why banks will loan money on a CFA loan.

Let’s take a quick example.

If the index rate (the LIBOR) is 4% and the margin is 2.25% , then the fully indexed rate would be 6.25%. This is the actual amount of interest being charged to the loan.

• What happens to the difference between the interest rate your payments are based upon and the fully indexed rate?

Whoa! So you make payments at 1% and the fully indexed rate is, in our example, 6.25%. Where does the other 5.25% come from?

As you may have guessed, the additional interest owed accrues and is tacked onto the end of the loan, payable either at the end of the loan or when the loan is refinanced. You might say — oh, this is a “negative amortization” loan. However, CFA loans use a negative amortization component in a constructive and useful way. Nevertheless, CFA loans are not for everyone.

The way we use CFA loans, the additional interest would be re-financed at the end of the loan.

• Why would you want to take one out?

With the appropriate use of a CFA loan, you can

     • Borrow money and write off the interest
     • Use the money to invest in something that will
          • Grow tax free.
          • Come out tax free at retirement.

How could you do this?

Let’s say you are 42 and you have. a home loan of $400,000 at 6%. If you used a 1% CFA loan you could free up substantial additional cash - in the tens of thousands of dollars.

With this, you might be able to invest in an equity indexed life insurance policy. If your life insurance policy earns 7.9% a year, it might be possible to take $22,000 a year - income tax free - from that insurance policy, from age 63-82.

The difference in the out-of-pocket cash using a 1% CFA over a 6% fixed could be in the neighborhood of $73,000 for a 5 year loan. That money, wisely invested could turn into $22,000/yr for 20 years - tax free! Total, that would return some $440,000 tax free dollars at a time in your life when they might be most appreciated.

Using a CFA loan, continually re-financing, you would never pay off your home. The money you would have used to pay down the house can then be used to build a tax favorable retirement pool.

If you could turn the savings from just 5 years in a 1% ARM into $440,000 tax free dollars, how much more could you put away over re-financing several times?

Successful use of a CFA loan depends upon

     1. Your house appreciating in value.
     2. The appreciation covering the deferred interest due on the loan when it is eventually paid off.

This is why this loan, and this strategy, is not for everyone.

Which strategy is best for you to maximize your wealth in the “Mortgage Game”?

This last strategy, using a CFA is not for everyone. Is it right for you? We can’t supply that answer for you on a website - there are just too many variables.

But if you would like to learn if a 40 year mortgage, or home equity line of credit, or a CFA mortgage (all of which can free up funds in some form of Equity Harvesting) is right for you, please contact our office. It could mean the difference between a comfortable retirement and just scraping by. Call us at 1-800-490-8200.