http://www.harborwa.com Retirement planning. On the last video I asked you if what you thought to be true about retirement planning turned out not to be true, when would you want to know?
For those of you who said immediately, you’re gonna love this video where we talk about another question that should be asked but never is, and that is….
Should I have a mortgage in retirement?
That’s the question that should be asked, but it never is because people always just assume that a primary goal should be to pay off their mortgage by the time they retire. Let me first digress and go over the psychology of where that thinking started.
This thinking hails back to the great depression. So let me give you a very basic, very brief history lesson to understand why this retirement belief system was ingrained in the American public. Back during the roaring 20’s the exuberance and speculation on Wall Street got rampant to where people were making so much money hand over fist without really having to do anything.
So people thought the boom would never end. But, of course in the crash of 29, that’s exactly what happened. The stock market crashed, and the resulting depression caused runs on the banks. Then to raise some cash to try and stay in business the banks started calling their mortgages. Back then a lot of mortgages were callable, meaning that the bank could call the homeowner and demand payment on the full mortgage balance at any time with 30 days’ notice.
So a lot of homeowners started getting these 30 day notices, and if they didn’t have the cash to pay off their mortgages they got foreclosed on. It was at that point that having your mortgage paid off became a central theme to financial independence so the bank couldn’t take your home away from you. That’s what ingrained the mentality of you always want to have your mortgage paid off once you get to retirement.
Now, that was a very different time, financially. But as it tends to happen, that set of retirement planning beliefs got passed down from generation to generation to generation. Today, mortgages are not callable. As long as you make your monthly mortgage payment, the bank can’t take your home.
So, let’s go back to my initial question and think about what happens when you accelerate payments to your mortgage, or pay cash for a property. You’re putting your money into your house and it’s earning a zero percent rate of return. And I would submit to anyone to prove me wrong. Most people think that’s not true because if the house appreciates in value then your equity increases. Ok, that’s fine, but home equity is different than the actual cash that you put into your house.
When you have a mortgage, there are only 2 ways your equity can grow. One is, the house appreciates in value. That has nothing to do with the money you put into the house earning any sort of rate of return. The house is going to appreciate or depreciate in value regardless of whether or not you have a mortgage.
The only other way to increase equity or reduce the mortgage balance is to make principal payments and pay down the mortgage. That’s it. Once your money is inside the house, it’s not earning anything, it’s just sitting there.
You have no control. The value of the house will go up and down based on market conditions regardless of the amount of dollars you’ve parked inside of those walls.
And as far as access, I mean try taking some siding or a 2 by 4 to the grocery store and buy some food. Now that’s ridiculous, but what I’m getting at is you need to turn that equity into cash to be able to actually use it.
So you have to go to a lending institution, like a bank, to borrow against the house to get cash. And I see this all the time with all the estate planning I do, where people are property rich and cash poor.
See once a house is paid off the banks are in control of the cash, not you. So just ask yourself, when you’re in retirement, who do you want to be in more control of your cash, you or the banks?
If this video made sense to you, and you want to make sure you have as much control over your money in retirement as possible, I’d love to have a short conversation with you. There’s no pressure and no obligation.
I can reached at 1-800-889-1290
Video Rating: 5 / 5