"Home Equity Management Case Study" 

"How to Better Manage Home Equity and Build Wealth"

It's not necessary to have a large chunk of equity in your home to benefit from using your mortgage to create wealth. Many homeowners without a large equity balance have benefited by simply moving to a more strategic mortgage, which allows them to pay less to their mortgage company each month, thereby enabling them to save or invest more each month. For example, a couple who follows traditional thinking when they buy their $400,000 home. May put 20% down and takes 30-year fixed rate mortgage at 6.5% on a $320,000 mortgage with a payment of $2,022.61 per month. This is how the vast majority of Americans would purchase this home.

However, knowing that most people will refinance every 2, 3 years or will move out every 5 to 7 years you may instead get a 5/1 Hybrid ARM that will be fixed for the first 5 years at a 5.25% rate with a payment of $1,767.05 when you understand the benefits of integrating your mortgage into your financial plan. You move to a more strategic hybrid ARM, option ARM or interest-only mortgage. You keep the same loan balance, but you are able to reduce your monthly payments and save $255.56. You invest the $255 savings each month, and assuming a 7% rate of return, you will have $ 18,617.68 in your investment plan after 5 years and if you keep it for 15 years you will have $81,551.87, which you can use to pay off your mortgage balance or buy an investment property.

Therefore, by simply redirecting a portion of your monthly mortgage payment, you are able to potentially shave years off your mortgage. In addition, you also receive the benefits of having you cash in a more liquid, safer position throughout the process. You may as well buy an investment property and create a passive income. Here is an example of how to create positive cash flow from your new investment.

Let's assume you buy a $250,000 property and put down $80,000. Your loan will be $170,000 and we'll assume you get a 6% rate on a 15-year loan. Your new monthly mortgage payment will be $1,434.56. Let's assume you rent your property $1,800 you will have $350 positive cash flow and that property will be paid off in 15-years. You will then be able to create an additional $1,800 to $2,000 when you retire and you will be able to pas on that wealth to your kids who will be thankful to have parents who decided to leave a legacy to their children so they do not have to struggle as much as their parents.
 

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