‘Go buy a house, pay it off and then save for retirement’. Sound familiar? Simple in plan and great advice… in 1952, but in today’s world where homes cost $400k, $500k $600k+ and average household incomes are typically somewhere in the 5 figures or low 6’s and forced to stretch thinner and thinner.
Think about it, you buy your 1st home at 25 years old. 5 years later you upgrade to bigger and better and then at maybe 32 you get married, start a family and together you and your partner purchase the new family home with a 25 year mortgage. Assuming
A)you both plan to retire at age 65,
B) you are both the same age,
C) you don’t die young and
D) not accounting for any other debt you collect along the way (and you will) that leaves you 8 years to save for retirement (65 age at retirement- [32 age at purchase of family property +25 mortgage]= 8 years left).
If this is the path you’re currently on I think its safe to say your retirement no longer looks like those ads on TV on a yacht or private golf course but closer to the guy in a blue vest handing out shopping carts at Walmart.
Sorry if that hurts, but future reality with currently closed eyes often come by means of a hard rude awakening.
What do you
think the bank does with your monthly mortgage payment? Do they just toss it
into the vault and let it collect dust for the manager rolls around on it or do
they send it right back out the front door to fund someone else’s house, car
loan, boat, credit card, whatever and of course, grab as much interest/profit
as they can?
Pick the very worst neighbourhood you can think of and guess-i-mate what’s an average house there is worth today? Now do the same for its value 20 years ago? As long as your not reading this in Detroit, Greece or other area that destroyed their local economy, even if the house was burnt to the ground right now the land alone should be worth a fair amount more than the house was back then. Ie. ‘The Dollar$ are in the dirt’.
Now does it make any difference if that same place was paid off or not? The answer is simply, No. The value is the value regardless as to who owns it or how much they own on it.
The banks
know this and so they should but so should you. The problem is as you pay the
mortgage for the next 25ish years you leave more and more equity (in the value
of the property verse what is left owing on it), not just behind but firmly in
someone else’s hands to use on their own behalf instead of yours. If you sold
the property would you get the Equity from it? Of course you would, its your
profit. So why is someone or something else using and making profits from it
while you still live there and own the property? Shouldn’t the asset be yours
to use as you see fit?
To be fair
many institutions are now enlightening people that they could get access to the
equity in their homes and use it to go out and buy the toys of life they want
but by doing that they’re simply tying another noose around that person. Think
about it what’s the value of a European vacation 2 years after you went? Or
that Skidoo, Canoe or big screen TV and sound system you had to have but
haven’t used for whatever reason for the last 3 years? They’re all nice but
they’re all also depreciating assets that if bought on credit you will be
paying for over and over again in the form of interest and put yourself in a
deeper hole instead of getting you further ahead. You literally just increased
your debt and the amount you owe (and the interest someone else is going to be
taking out of your pocket).
Now if you took a portion of that equity out of the banks pocket in the form of a line of credit and used it to buy an asset that has a good track record and history of appreciating like a revenue property or a safer haven fund (yes they do exist)…
you could be saving for retirement, paying off your house and investing intelligently all at the same time and depending how you approached it, it could be with the same amount you’re paying the bank currently in the form of a mortgage payment
but now you may be able to also write-off the interest you’re currently just
waving ‘bye-bye’ to.
Its YOUR money!!! Not mine, not the governments and certainly not the banks thus who should be reaping the rewards?
We live in
an ever evolving world that modify’s and changes in the blink of an eye, (just
count how many people you know no longer have/use a home phone or try to find a
phone booth and compare that to only a few years ago) yet when it comes to money
and financial matters we often still follow the sheeple path from generations
gone-by and somehow truly believe we are going to see different results from
everyone else that take us far to long to wake from if at all.
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