Equity Positioning to Build Wealth

It’s time you put your idle dollars trapped in your home to work for you. How? One of the best vehicles for accessing and investing your equity in higher-yield, liquid accounts is the Home Ownership Accelerator loan.

The loan’s name can be a misnomer, because it can work two ways: first, you can use it to pay off your loan faster by taking advantage of lowering your loan’s principal balance every month when depositing all of your monthly income into it.

But, experts have started refering the Home Ownership Accelerator by another name: the Home Equity Management Loan. Instead of keeping your money in the loan, you can lower the loan balance every month as described above, but then take the equity back out, either when you need it OR on a schedule that fits your investment goals.

Sometimes it is not the best option to pay off your mortgage as soon as possible. This can be the case because:

Unlike our parents:

• We do not live in the same house for 30 years; the average person stays in a home for 5  to 7 years
• We do not work at the same company for years; therefore we cannot count on pensions and instead have to build our own nest egg with savings and 401k
• The average homeowner only has their mortgage for 4.2 years, because of refinancing for a better rate or debt restructuring

For those who invest the money that they would otherwise use to pay off their home loan, they can actually build wealth faster than if the money were paid into their mortgage. Why? Because money accrues interest outside of a mortgage, but not inside of one. Always remember, your return on investment on your home’s equity is 0%--unless you can make it work for you by accessing and investing it.

Plus, having the equity in your home not only fails to increase in value, it actually costs you money, because of the loss associated with opportunity cost. Every dollar that we give the bank is a dollar we did not invest. We need to learn how to play the banking game—borrow at one rate and invest at another, higher rate.

The beauty of this home finance solution—or investment tool—is that you have the flexibility to access a portion of your equity for investment purposes without having to refinance.

For instance, let’s say you begin with a loan balance of $400,000. At the beginning of the month, you deposit $8,000 of your monthly earnings into the account, immediately lowering your loan’s principal balance to $392,000. Even if you spend most of it gradually over the course of the month, during the time it sat in your account you saved interest by having a lower average loan principal balance of $396,000, which means you have more money in your pocket to invest.

Now let’s say that after four months, you decide to take some of your equity out for an investment. Since the money you deposited into the account lowered the amount of interest you had to pay, you actually built more equity than with a traditional mortgage. You have more equity to take out for investments, and you can put the equity back whenever you want—to lower your principal balance even more.

One of the best ways to use the Home Ownership Accelerator loan is to park money made in investments into the account, lowering your loan’s principal balance during the time period between when you take it out of one investment and put it back into another. By doing this, you save yourself money by lowering the amount you pay in interest while keeping the money out of a taxable account. Each time you reduce your principal balance, you create more equity to invest.

Over time, by doing this you can save interest you pay on your mortgage while increasing wealth in a liquid investment account, meaning that most of your assets are accessible. If you choose to do so, using this scenario you can actually make enough money through investing your equity to cover the entire debt of your mortgage, plus have money leftover.

Contact us today at (703) 748-3100 to receive your complementary mortgage plan, and find out if your current mortgage is optimizing your comprehensive financial goals.