3 Things Popcorn Can Teach Us About Managing Our Mortgage

Guest post contributed by #1 voted financial advisor in Akron, OH – Joel Wymer of Tax and Financial Strategies.

We have been teaching over the last several years that many conventional financial strategies have proved themselves to be wrong.  The recession has exposed gaps and holes in “what most people will teach you” about how to save for retirement, build financial security throughout your career and pay off your mortgage, to name a few.  I’m so glad that I have another financial advisor, friend and financial crusader that can resonate this message with me.  Joel Wymer was on our financial talk radio show last year and I asked him if he would contribute to our blog.  I am honored that he obliged!  Joel has been voted the #1 financial advisor, according to the Beacon-Journal, of Akron, Ohio.  As Terrell Owens would say, “Getcha popcorn ready!”

Enter Joel Wymer:

The Academy Awards are almost here. There aren’t many things that symbolize America more than popcorn and a movie.

Just like becoming an over-night star and winning an Oscar, home ownership is the essence of the American Dream.

Yet, once we actually “make it” it isn’t always what it’s cracked up to be. Like the movie star who seemingly has everything but still isn’t happy, many homeowners view their mortgage as a burden they can’t wait to get rid of.

But is there something we’re overlooking?

To me, the great thing about going to the movies is the popcorn. Yet, if the theater gave you a bag of un-popped popcorn it wouldn’t be very appealing, would it? The kernels are hard, they don’t taste good and they could even break your teeth if you’re not careful.

But, hidden inside that hard shell is a real treat.

Joel Wymer, voted #1 Financial Advisor in the Beacon Journal of Akron, OH

When the tiny bit of moisture inside the shell is heated it turns to steam. It begins to expand and puts so much pressure on the shell that it bursts open. The inside of the kernel literally comes to the outside.

So what does any of this have to do with your mortgage, you ask?

Here are three key points that will make it clear. I’ve summed them up in the acronym P- O- P:

1. Payments – most people have been told that making extra payments to pay their mortgage off sooner makes good financial sense. Traditional financial advice tells you that paying the mortgage off early saves you interest and puts more money in your pocket. In fact, data from the National Bureau of Economic Research says that 38% of U.S. households that are making pre-payments on their mortgages (instead of saving that money in a tax-deferred account), are making the wrong decision. Furthermore, that poor choice is costing U.S. households as much as $1.5 billion per year. You may end up with a ton of equity in your house…… and No Liquidity! In other words, you can’t get at your money.

2. Overlooked opportunity – does the equity in your home earn a competitive rate of return? Contrary to what you may have been told, your home equity earns no rate of return. For example, let’s say your home is worth $250,000 and you have $200,000 of equity. Next year at this time, if the value of your home doesn’t change you’ll still have the same $200,000 of equity. In other words, your equity earned a 0% rate of return. You have overlooked the opportunity to earn a decent rate of return on $200,000. How many times do you get your hands on 200,000 dollars? For most of us the answer is almost never. I’ll go out on a limb here and say that most of us also can’t afford to overlook the opportunity to earn a good rate of return on that $200,000 when we get the chance.

3. Protection – everyone knows you can purchase an insurance policy to replace your home if it’s destroyed. However, I know of no insurance policy that will guarantee your house will increase in value, year after year. Over the last couple of years, average home values have plummeted between 30% and 40%. You know what else plummeted right along with those home values? That’s right, the equity in those homes! Not only did the equity not earn a rate of return, it actually lost money for the homeowner. What if those people had separated the equity from their home and invested it in a safe, guaranteed, tax-free account that actually rose in value? Even if they were faced with a life changing event like a job loss, health problems or some other emergency they still would have protected their equity all while increasing their net worth. That is the ultimate mortgage protection plan!

Just like a kernel of popcorn doesn’t taste good until you heat it up and bring the inside out, your equity does you no good sitting inside the shell of your mortgage.

Let us show you how to put some heat into what is probably your biggest and most under used asset.

Your home mortgage.

With all the bad news we are constantly hearing about the housing market, the stock market and the economy in general, it’s time to put a little P-O-P back into your financial plan.

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