Texas Loans - 10 tips for using a mortgage as a financial tool

The equity you have in your home can be a powerful tool in managing your overall financial situation. Your equity, the value of your home minus your existing mortgage, can serve as collateral for additional borrowing. While there are some risks with this strategy (as with any borrowing), home equity loans usually offer the attractions of lower rates, longer period to pay back, convenience and often tax benefits.

4. The return on equity is always zero—no matter where your property is located.

Myth: Home equity has a rate of return.
Reality: Equity grows as a function of real estate appreciation and a mortgage reduction; however, equity has no rate of return.
Strategy: Separate as much equity from your house as feasible in order to allow idle dollars to earn a rate of return.

9. Strategically refinance your home as often as feasible to increase your net worth.

Myth: Equity in your home enhances your net worth.
Reality: Equity in your home does not enhance your net worth at all. Separated from your home, however, it has the ability to dramatically enhance your net worth over time.
Strategy: Set the stage to substantially increase your net worth. Refinance your home as often as feasible to separate equity and accelerate the process of accumulating the resources to cover all your debts.

10. Keep your mortgage balance high to sell your home more quickly and for a higher price.

Myth: The amount of equity you have in your home has no bearing on how marketable it is.
Reality: Your home may likely sell much more quickly and for a higher price if it has a high mortgage balance (low equity)—rather than a low mortgage or no mortgage balance (high equity)—especially in soft real estate markets.
Strategy: Always maintain as high a mortgage—with flexibility—on your home as feasible to keep it marketable at the highest possible price should you want to sell the property.”

6. Use debt for positive leverage.

Myth: Any and all debt is undesirable.
Reality: Some debt, when managed wisely, can be desirable.
Strategy: Use debt wisely as a positive lever for equity management purposes, conserving and compounding equity rather than consuming it.

2. Avoid expensive risks. Position yourself to act instead of reacting to market conditions you have no control over.

Myth: Home equity is liquid.
Reality: When you need it most, you may not have it. Home equity is usually not-liquid.
Strategy: Separate as much equity from your property as is feasible, positioning it in financial instruments that will maintain liquidity in the event of emergencies and conservative investment opportunities.

5. Make Uncle Sam your best partner. Mortgage interest is your friend, not your foe.

Myth: Mortgage interest is an expense that should be eliminated as soon as possible.
Reality: Eliminating mortgage interest expense through traditional methods eliminates one of your best partners in accumulating wealth and financial security.
Strategy: Use the difference between preferred and non-preferred interest expense to make interest work for you instead of against you.

As you can see there are many ways you can put your equity to work for you. It might be a good idea to check with your online Mortgage Broker to see how you would be able to benefit from some of these strategies.

3. Separate home and equity to increase safety. Real properties with high equity and low mortgages get foreclosed on the soonest.

Myth: Home equity is a safe investment.
Reality: A home mortgaged to the hilt or totally free and clear provides the greatest safety for the homeowner.
Strategy: Separate as much equity from your home as feasible to achieve greater safety of principle and reduce the risk of foreclosure.

7. Understand the cost of not borrowing—compare deductible versus non-deductible costs.

Myth: lower mortgages, resulting in lower payments, mean lower cost.
Reality: If you take opportunity costs into consideration, low mortgage-to-home-value ratios create tremendous hidden costs that increase the time needed to pay off a mortgage.
Strategy: Choose to incur deductible employment costs rather than non-deductible opportunity costs, since you have no choice but to incur one or the other.

8. Turbo charge your wealth growth rate by creating homemade wealth.

Myth: Borrowing funds at a particular interest rate, then investing them at the same or lower interest rate, holds no potential growth returns.
Reality: You can earn a tremendous profit—regardless of the relative interest rates—by positioning your money in a tax favored, interest-compounding investment that earns a rate of return greater than the real net cost of obtaining the money.
Strategy: Learn to apply the fundamental principle that highly profitable financial institutions use to accumulate and create wealth—arbitrage. Employ equity to earn a rate of return higher than the net cost of separating that equity. By doing so, you will create tremendous wealth and substantially enhance your net worth.

Nearly 6 in every 10 home onwers has more home equity than stock, bond, treasury or other securities derived wealth. They key to maximizing one's wealth is to utilize one's home equity to invest in asset classes which on average return at a rate higher than the tax-deduction-adjusted interest rate of their mortgage. For example, if you have a 5% ARM your effective interest rate after deductions is roughly 3.75%. You should speak with your tax and investment professionals about finding a strategy which allows you to invest at a rate higher than this, and contact us for advice on how to get you the money to build your financial future.