I am often asked when a homeowner should put the focus of paying off their mortgage. Although the answer to this question is specific to each homeowner, my general recommendation lies within a 4-step plan that I use to advise each of my clients.

Each step is numbered based upon the priority. In other words, step one should be on track before moving on to step two, and so on. The problem is that many homeowners jump ahead before the prior step are mastered. This typically leads to living paycheck to paycheck, getting stuck in the consumer debt rut, or reaching retirement to find that you are equity rich and cash poor. By following the steps below, you can help ensure you reach retirement having achieved the long-term goals you desire.

Step 1 – Develop a Cash Reserve

The most important step is to have a reserve fund to cover short-term unplanned expenses. Without having cash reserve, shortages typically result in having consumer debt. Once consumer debt is established, it can lead to destructive long-term habits that are difficult to break. If you have a cash reserve, you should never have a need for unsecured debt.

Step 2 – Pay off ALL Consumer Debts

This is the step where you become consumer debt free, with the exception of your mortgage. Revolving and unsecured debts should be paid off first, with car loans and other secured loans being paid off second. Remember that cars are depreciating assets, and you will always have car expenses. If you are able to pay off your car, you can begin to save money to pay cash for your next car.

Step 3 – Create Significant Liquidity

One of the greatest gifts we have is the gift of compounding interest. This is the quadrant that grows and compounds. Even if you are not secure in steps 1 & 2, if possible, you need to develop the habit of putting cash into long-term investment accounts. Once you are secure in steps 1 & 2, make this quadrant your primary focus and watch your net worth rise over time.

Step 4 – Focus on Home Equity – Paying off your Mortgage

Once you have developed a cash reserve, have paid off all consumer debts, and are on track to meet or exceed your retirement goals, then you can put a focus on paying off your home loan.

Personal finance is most often a reflection of habits. If you develop good financial habits, and exercise them over-time, long-term you will likely do well. Not only can you use the four step plan to help you allocate cash flow in the budget, but you should also use the plan to help you to allocate cash and home equity net worth.

If you have specific questions regarding your personal situation, please call or send me an e-mail. Also, if you have a friend or family member in need of advice, I would be honored to help them as well. Having professional advisors to help you manage your investments, mortgage, taxes, and estate is the best way to protect your long-term results.

With the number of seniors growing at a rapid rate, reverse mortgage loans have grown in popularity. For many homeowners, this loan provides opportunities to stay in a home when financial circumstances may not otherwise allow. Not only will a reverse mortgage provide freedom from burdensome mortgage payments, it can also help to provide supplemental income to seniors with sufficient equity in their homes. Below are key points to know about reverse mortgage loans:

What a Reverse Mortgage is and How it Works:

• It is a loan that allows seniors to tap into home equity to obtain tax-free money
• The funds can be used for anything
• There are no monthly mortgage payments to be made
• The homeowner retains title to the home
• The loan is repaid when the senior moves or upon death
• When the home is sold, the remaining equity goes to the senior or their heirs

Eligibility:

• You must be a minimum of 62 years old
• All borrowers must occupy the property as their primary residence
• No credit or income requirements
• Single family homes, PUDs, condos, manufactured homes, and 2-4 unit properties

Payout Options of Cash to the Homeowner:

• Lump Sum
• Monthly Term
• Monthly Lifetime (tenure)
• Line of Credit – Can grow annually
• Combination of the above

One key concern that many seniors have regarding reverse mortgage loans are related to what happens to the home and its equity. The senior continues to own the home, and maintains control over keeping or selling the home. When the senior no longer resides in the home, the home must be sold or the loan must be paid off (either with cash or a new refinanced mortgage). However, after the reverse mortgage is paid off, the remaining equity will be paid to the homeowner, or to their heirs. Also, it is a non-recourse loan, meaning that no other assets, or the senior’s heirs, will ever be affected.

Financial considerations regarding cash flow, housing, and overall net worth are important decisions that each senior citizen must make. For many, misconceptions on reverse mortgage loans keep them from having the freedom of not making a house payment. If you, or someone you care about, are interested in having a free Reverse Mortgage Analysis, please let me know. After a quick review, I can let you know if you are eligible for a reverse mortgage, and whether this is a good option for your circumstance.

FREE Reverse Mortgage Analysis

Email me at mike@citycreekmortgage.com