Jamaal Wilkes Financial Advisors, LLC
While the arguments on why you should use equity harvesting are very powerful, the strategy is
not for everyone. If you will sleep better at night knowing you don’t have a home mortgage
payment, then it is worth foregoing the wealth building to have that peace of mind.
Again, the conventional wisdom is to pay off your home mortgage as soon as possible to be “debt
free”. Being “debt free” makes you feel good but is it the best option for you, especially when it
comes to your personal residence?
If you are debt free and have financial problems you may not be able to borrow against your
house in a short-term cash crunch if you’ve lost your job and have no income. How much will
the bank lend you? You may have $200,000 in equity but there is no income to make the
payments.
What about people who lose their homes in natural disasters, i.e. hurricanes, earthquakes, etc.?
Can they borrow against their homes? Not only do these persons have no income and/or job,
they have no homes to borrow against. To add insult to injury, the lenders holding the mortgages
on those homes with equity expect to receive the monthly home mortgage payment even though
the house in so longer there or is totally ruined.
Would you have been better off keeping debt on the home and investing the money somewhere
else in a tax-favored manner? Absolutely!
When done correctly and with discipline equity harvesting can be a no-lose opportunity. Money is
borrowed and invested where it can grow at a reasonable rate tax-deferred in an annuity or tax
free in a life insurance policy. Furthermore, you’ll be able to write off some or all of the interest on
the loan which enhances its financial viability.
Remember that your home should be appreciating in many parts of the country. So while your
debt could increase when refinancing your home, the increase in equity may more than offset this
debt.
In addition, you’re in a much better position to protect yourself when your wealth is in an
investment with liquidity rather than equity in a home which may become non-liquid. If your wealth
is equity in your home you must rely on someone lending you money. This may be a challenge if
you lose your job and/or your home is destroyed in a natural disaster. When your money is
invested in principally protected products such as annuities or life insurance you control your
money and not a lender.
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.
not for everyone. If you will sleep better at night knowing you don’t have a home mortgage
payment, then it is worth foregoing the wealth building to have that peace of mind.
Again, the conventional wisdom is to pay off your home mortgage as soon as possible to be “debt
free”. Being “debt free” makes you feel good but is it the best option for you, especially when it
comes to your personal residence?
If you are debt free and have financial problems you may not be able to borrow against your
house in a short-term cash crunch if you’ve lost your job and have no income. How much will
the bank lend you? You may have $200,000 in equity but there is no income to make the
payments.
What about people who lose their homes in natural disasters, i.e. hurricanes, earthquakes, etc.?
Can they borrow against their homes? Not only do these persons have no income and/or job,
they have no homes to borrow against. To add insult to injury, the lenders holding the mortgages
on those homes with equity expect to receive the monthly home mortgage payment even though
the house in so longer there or is totally ruined.
Would you have been better off keeping debt on the home and investing the money somewhere
else in a tax-favored manner? Absolutely!
When done correctly and with discipline equity harvesting can be a no-lose opportunity. Money is
borrowed and invested where it can grow at a reasonable rate tax-deferred in an annuity or tax
free in a life insurance policy. Furthermore, you’ll be able to write off some or all of the interest on
the loan which enhances its financial viability.
Remember that your home should be appreciating in many parts of the country. So while your
debt could increase when refinancing your home, the increase in equity may more than offset this
debt.
In addition, you’re in a much better position to protect yourself when your wealth is in an
investment with liquidity rather than equity in a home which may become non-liquid. If your wealth
is equity in your home you must rely on someone lending you money. This may be a challenge if
you lose your job and/or your home is destroyed in a natural disaster. When your money is
invested in principally protected products such as annuities or life insurance you control your
money and not a lender.
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 |
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