Early Mortgage Payoff – Why It’s a Mistake

In a time of change, it is critical to rethink why we believe what we believe.  Mortgages have always been a target of negative financial thoughts and something most traditional financial planners would suggest be paid of sooner than faster. After all, you don’t “want all the interest” to be going to the banks! Is it possible to have a mortgage become a wealth-building tool, rather than just the biggest piece of debt we will ever get into?  Right?  Well, one of the topics of great debate, “paying off my mortgage is a mistake” has revealed certain truths through the recession.

In the mid 2000s, we began education at our financial workshops about the concept of “home equity management“, encouraging homeowners and real estate investors to rethink about leaving home equity dormant within a property that ultimately wastes the value of this asset over time.  In fact, I helped illustrate this with a “pitcher and goblet” analogy during one of my workshops held during Money Smart Week with the Federal Reserve Bank of Chicago.

I had bumped into a real estate agent at the gym several times and he would always brag about his several real estate holdings.  It was the real estate boom era and what type of realtor would you be without property all over the place, right?

To make a long story short, he would tell me that that he is looking forward to his properties climb in value over the years. First rule, in my book, you want LIQUIDITY with your serious money…especially when the you-know-what hits the fan.

Sadly, over the years, I’d see him less and less at the gym.  Found out he was stressed out at his real estate office and his properties ended up upside down on the mortgages, compared to what the real estate was worth.

He says, “Had I followed what you told me, I would still BE a millionaire!” He remembered what I taught in these workshops, but unfortunately, never did anything about it.  He admitted that at the time, he was proud of his work, having two paid off homes, another two properties cash flowing $1,000 above what he was charging in rent and selling many homes from his own real estate agency.  The ideas I had were just “too against” his existing train of thought, after all, on paper he was a millionaire.

Now, if a real estate agent who owns his own real estate agency, whose daily job is knowing the ins and outs of home-ownership and real estate investing can get it wrong…what about the common person who isn’t?

After watching this video, you may want to consider working with a mortgage professional, versus a transactional-minded loan officer who credits building his business on the lowest rates, cheaper fees and quicker closing time frames.  I’ve personally worked with hundred of loan officers and as I share with them the importance of teaching their clients how critical it is to manage their mortgage and obtaining the proper mortgage structure to creating wealth…it flies over their heads.  Many that I have found just don’t want to take the time to educate their clients and would rather close the deal sooner so they can get paid faster.

What a shame that is!

Money Smart Financial Coaching:  Would you like to know how to use your mortgage to create wealth vs. just simply payoff debt?  You’ve got to hear “the rest of the story”…that most mortgage and real estate professionals don’t know to tell you.  If that is you, please give our office a call @ 630.560.3673 or email us – coach@moneysmartguy.com to set up a quick 20-minute conversation to see if this applies to you, with a Money Smart Coach.