Jamaal Wilkes Financial Advisors, LLC
The age old question – should you pay off your mortgage or keep debt on the house long term
while investing the saved money in a tax favorable investment?
First, we NEVER advocate pulling out equity of your home to invest in the stock market.
Second, this program is not designed for homeowners who are looking to reduce their monthly
mortgage payments with an eye on paying off their home mortgage in the standard time frame
of15 - 30 years. This cannot be stressed enough.
The essence of equity harvesting is to refinance your home with the most appropriate mortgage
program to have lower starting monthly payments and invest the savings and borrowed money in
a tax-favored environment. You must clearly understand and be disciplined enough to invest the
“dead equity” for tax-favored wealth-building and not to just lower your monthly payments. “Dead
equity” is equity in your home that is not being used for tax-favored investment purposes.
Does it make good financial sense to buy a 30 year mortgage and pay it off as quickly as
possible? The answer is – it depends. The classic response from homeowners is the equity in
their home is making them money because they are not paying interest o the loan to a bank. True,
but let us take a look at the numbers.
Homeowners think when they have a 6% loan on their home they’re equity is making them 6% a
year as an investment. They think that because they’ve paid down their mortgage $100,000 over
the last ten (10) years and this year, and don’t have to pay interest at 6% on that $100,000 of
equity, that they made $6,000 this year. Wrong!
The interest on the home loan is deductible. Assuming you at a 40% income tax bracket, if you
had to pay interest on the loan, the cost would have been $3,600 out of pocket and not $6,000.
Therefore, you only made 3.6% on your money, it’s not compounding every year, and nor is it in a
tax-favored environment. You do nothing and simply pay down the mortgage on a home which
does not help you accelerate wealth building in a tax-favored manner.
The interest deduction for higher income homeowners is one of their most powerful tax planning
tools. The IRS allows for a massive deduction for the home mortgage. If this is the case, why are
we all in such a hurry to pay down a debt on an asset that provides us one of our biggest tax
breaks? The answer is most homeowners are not educated on the topic of equity harvesting.
Click here for more on Equity Harvesting
JAMAAL WILKES FINANCIAL ADVISORS, LLC is a Registered Investment Advisor (RIA) with the State
of California and therefore, is not legally empowered to provide investment advisory services to
residents of any state other than California. This website shall in no way directly or indirectly be
construed as a solicitation to sell investment advisory services outside the state of California. CA
License 0B90669.
while investing the saved money in a tax favorable investment?
First, we NEVER advocate pulling out equity of your home to invest in the stock market.
Second, this program is not designed for homeowners who are looking to reduce their monthly
mortgage payments with an eye on paying off their home mortgage in the standard time frame
of15 - 30 years. This cannot be stressed enough.
The essence of equity harvesting is to refinance your home with the most appropriate mortgage
program to have lower starting monthly payments and invest the savings and borrowed money in
a tax-favored environment. You must clearly understand and be disciplined enough to invest the
“dead equity” for tax-favored wealth-building and not to just lower your monthly payments. “Dead
equity” is equity in your home that is not being used for tax-favored investment purposes.
Does it make good financial sense to buy a 30 year mortgage and pay it off as quickly as
possible? The answer is – it depends. The classic response from homeowners is the equity in
their home is making them money because they are not paying interest o the loan to a bank. True,
but let us take a look at the numbers.
Homeowners think when they have a 6% loan on their home they’re equity is making them 6% a
year as an investment. They think that because they’ve paid down their mortgage $100,000 over
the last ten (10) years and this year, and don’t have to pay interest at 6% on that $100,000 of
equity, that they made $6,000 this year. Wrong!
The interest on the home loan is deductible. Assuming you at a 40% income tax bracket, if you
had to pay interest on the loan, the cost would have been $3,600 out of pocket and not $6,000.
Therefore, you only made 3.6% on your money, it’s not compounding every year, and nor is it in a
tax-favored environment. You do nothing and simply pay down the mortgage on a home which
does not help you accelerate wealth building in a tax-favored manner.
The interest deduction for higher income homeowners is one of their most powerful tax planning
tools. The IRS allows for a massive deduction for the home mortgage. If this is the case, why are
we all in such a hurry to pay down a debt on an asset that provides us one of our biggest tax
breaks? The answer is most homeowners are not educated on the topic of equity harvesting.
Click here for more on Equity Harvesting
JAMAAL WILKES FINANCIAL ADVISORS, LLC is a Registered Investment Advisor (RIA) with the State
of California and therefore, is not legally empowered to provide investment advisory services to
residents of any state other than California. This website shall in no way directly or indirectly be
construed as a solicitation to sell investment advisory services outside the state of California. CA
License 0B90669.
| Managing Wealth Intelligently |
EQUITY HARVESTING
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