You might be surprised to know that we recommend that you die with a big fat mortgage. It goes against the normal way of thinking that you should pay off all your debts before you pass away. There are several reasons why a mortgage is different and we’ll get into them in this article. Let’s dive in.
The Mortgage is Our Biggest Asset
My goal is to bring that to your attention and where you’re unknowingly and unnecessarily transferring wealth. The mortgage is one of the biggest ways people lose money without knowing it. By plugging that hole, you can live a better lifestyle in retirement or pass along more wealth to the next generation.
Let me ask you this: If you got to retirement with a nest egg of $1 million but realized that you could have had $2 million if it wasn’t for these wealth transfer leaks, how would you feel?
Plug the leaks in your bucket. A lot of people don’t see the leak because it’s just a trickle but it makes a huge difference over time. We go through all six areas of wealth transfers in the Financial Foundations program.
Good Debt Versus Bad Debt
A mortgage debt is a good debt, especially right now. We are in a historically low interest rate environment. I used to tell people that they cannot go lower, but I stopped saying that because they kept going down!
Credit card debt is bad debt. You are purchasing items and paying more for them than necessary because of the interest rate. Avoid this type of spending behavior.
With regards to mortgage debt, you need to look at the mortgage rates and think about how you can leverage those dollars. Paying down a mortgage is simple interest. Over the years, it comes down to zero. Whereas if you separate that equity and you are able to invest it, then it’s growing at a compounding return. There comes a point of the return when you can actually write a check and pay off the mortgage but I haven’t met anyone who is willing to write that check yet! By the time they reach that point in time, they see the real value of investing the money instead of keeping it tied up in the house.
Investing the Equity Makes Your Money Work for You
There are idle dollars trapped in our homes. What we want to do is prevent our money from being wrapped up in the home’s value and instead leverage those dollars for compounding interest.
We are not suggesting that you take all the money out of your home and consume the equity. Don't go buy an expensive vehicle or use it to take a fancy vacation with that money. We want you to create a spread between the low interest rate of the mortgage and making that money work for you by investing it instead. You are leveraging those dollars for your future so that you can enjoy a better lifestyle later on down the road.
At the end of the day, you’ll be able to pass the money to the next generation and they can choose to pay off the home if they wish. (I’m sorry to say that most of the time, they do not want your home.)
This approach gives you more flexibility and it helps you leave an even bigger legacy for the next generation.
Mortgage interest can be good debt if you use it properly. Some people still have the ability to tax deduct the mortgage. We provide an entire class dedicated to mortgage information during the Financial Foundations program. Please click here for more information or to register for the next class.