Bridges Financial

I'm Normally Not This Tall. I'm Sitting On My Wallet

What's in your wallet?  If you're like a lot of us, you have several different cards for different things.  You've got the card that pays you cash back for gas purchases.  Then there's the one that earns you airline miles...the one that pays you 1% back on all purchases or, the one that pays you 3% back for the category where you spend the most.  On top of that, you may even have little sticky notes on each card to remind you which one to use for what.  Then there's your Barnes & Noble or Border's membership card, Petco, Petsmart, T.G.I. Friday's, etc...  You really can't afford to leave any one of them at home unless you know before you leave the house in the morning exactly where the day will take you.  As a result, if you spend more than 20 consecutive minutes in the car, your butt starts to fall asleep.  OK, maybe that's just me but, at one point, I actually tried to put together a weekday wallet and a weekend wallet since the weekend is when we do most of our shopping and consequently need to stop at T.G.I. Friday's. 

The number one reason people choose the Home Ownership Accelerator is simplicity.  You can clean out all of those cards and just use the debit card associated with your account since your entire income gets  deposited directly into your account and then every dime you spend, from coffee to car payments, stays parked against your mortgage balance until the day you actually spend it.  So, if your interest rate on the Home Ownership Accelerator is 4.5%, it is equivalent to earning 4.5% on your checking and savings.  You can still juggle all those cards if you want to but, it really isn't doing as much for you as your Accelerator loan is doing automatically with only one card in your wallet.

This ARM could cost you an arm and a leg

Whenever I meet with a homeowner to discuss the Home Ownership Accelerator,  I always look at different scenarios based on their actual cash flow.  The Home Ownership Accelerator is an adjustable rate loan that adjusts monthly based on the 1-month LIBOR index.  The loan allows you to take a higher margin and pay less up front or, you can buy the margin down.  You pay 2 points up front to buy the margin down 1%.  In general, your break-even point is two years because you prepaid 2% interest up front to pay 1% less per year thereafter.  However, your cash flow may be so strong that the higher margin makes sense.  I've seen this happen several times.  Here's an example.  I had a husband and wife come to see me and they have good but modest income and no outstanding debt other than their 15-year mortgage on which they had about 10 years left to pay.  I ran the simulator using a margin of 3.25% over the 1-month LIBOR which historically has averaged about 4.5%.  That makes for an average rate of about 7.75%.  Then I added 5 points to the starting balance to reduce the margin to .75% which would mean an average of about 5.25% over the life of the loan.  Here are the results:

• Using the high margin, their home would be paid off in 6 years and 9 months.
• Using the low margin, their home would be paid off in 7 years and 4 months.

This example shows that the actual rate you get is not as important as the actual dollar amount you pay in interest.  You can't take your family to Disneyland with an interest rate.  You can with the thousands you save in actual interest paid.

So the conclusion we can draw from this is that if your cash flow is strong enough, you may not want to buy down the margin.  On the other hand, if two years is the break-even point for buying down the margin, this loan could cost you an arm and a leg but you get your arm back the first year and your leg back the second year. 

All Shook Up: Check Your Homeowners Insurance

One of my favorite things to do on the weekends is to sit and watch the History Channel.  A few weeks ago, I was watching a program about the 8+ magnitude New Madrid earthquake that rocked the Midwest in 1811.  Tremors were felt right here in Des Moines, IA (520 miles away).    This massive quake changed the landscape of the Midwest, permanently changing the course of the Mississippi River, and temporarily causing it to flow backward.

This morning, 197 years later, a smaller 5.2 magnitude earthquake again rocked the ground.  Fortunately, so far, there are no reports of damage or injuries.  However, my girlfriend's sister, who lives in Martinsville, Indiana (just south of Indianapolis) said she thought her house was going to fall down.  Here in Des Moines, WHO radio morning co-host, Bonnie Lucas, was sitting in her office and felt her chair move, grabbed her desk, and heard the ceiling panels start to shake.  At first, she thought it was Van Harden working on another invention (like cheese-crust pizza).  Then she read the newswire and realized it was just an earthquake.

This morning's quake likely didn't change the course of the Mississippi but, maybe you should check the fine print of your homeowners insurance to see if it covers earthquake damage.  This is NOT included in most homeowners insurance policies.  It is an available, affordable endorsement that can be added to most policies.  But, especially here in the Midwest, with the last major earthquake happening nearly 200 years ago, it probably wasn't even something you asked about when you took out your coverage.  The risk is nominal but so is the premium.  On the other hand, in the even of an actual loss, it could be financially devastating.

Static to Dynamic: What's a Sweep Account?

What normally happens when you get your paycheck?  If you're like a lot of people, it gets deposited into your checking account.  From there, you manage all of your spending.  You first make sure that you meet all of your monthly obligations (credit).  These are static obligations.  Then, you probably have a pre-determined amount that you allocate to savings for vacation, college, and unforeseen expenses.  Then there's the long-term investments that you don't plan to touch until retirement.  The money that's left is what you spend on groceries, coffee, dining out, and clothing.  This money is your everyday spending.  You've been doing it for so long that it's practically automatic.  You've got it figured out.  It's called a budget.

What if there were an easier way to make your money work harder for you?  Check this out. This chart shows you how businesses and higher-net-worth individuals manage their cash flow using sweep accounts.

What does this mean to you?  Well, your home is likely the biggest investment you'll ever make, and the Home Ownership Accelerator is a sweep account linked to your mortgage.  It works for ordinary people with ordinary income, generally positive cash flow, and equity in their home.  It makes the money that would have gone to interest go to principal instead.   The result is a significant interest savings over the life of the loan, and more rapid equity buildup in your home.   The last and most important benefit is your mortgage is  "cheap money".   You can also systematically divert a portion of the equity you are rapidly accumulating to outside investments and still watch your mortgage shrink and your supplemental nest egg grow.

You've done it by switching your biggest investment from a static obligation to a dynamic tool to manage your money more effectively without any extra effort or change to your spending and lifestyle.

I'll pay for your appraisal.

Did you know that only $13 of every $100 spent at a big-box retailer stays in the local economy while $45 of every $100 spent at a local merchant stays local?

With the help of Sherry Borzo over at dsmbuzz.com, Des Moines area business owners are able to promote their business by offering discounts to her consumer members.  You can check out her merchant list to see some of the perks currently offered.   

I have agreed to reimburse DSM Buzz members the cost of their appraisal at closing.  This usually runs between $300 and $400.  So, if you're considering the Home Ownership Accelerator, stop by her site first and sign up for only $10/year, show me your membership card, and get your appraisal cost refunded at closing.  It's a great return on your investment....spend $10 to get $350.

Have you ever watched paint dry?

Last Saturday, on the way home from running our errands, I said to my girlfriend "Let's go check and see if they've moved the Murillo building yet."  This has been big news here in Des Moines for several weeks now.  A major health insurance carrier is wanting to build new headquarters downtown and there are a lot of small properties in the three block area where they want to build.  Among them were two historic buildings over 100 years old.  One was a rowhouse built in 1880.  It was the sole survivor of 8 original rowhouses.  The other was a three-story, six-unit brick apartment building built in 1903.  The insurance company agreed to donate the building if someone would move it.  It would be the biggest structure ever moved in Iowa.  Local news crews as well as the Discovery Channel and National Geographic were on hand to film it.

Well.  We arrived at around 2:00 in the afternoon and, when we left around 3:30, the building had moved a little more than half a block.  You had to watch closely to even see it move.  A lot of the preparation had already been done like lowering power lines, trimming trees, lowering street lights, and of course the hundreds of man hours just to get the building ready for it's 4-block trip.  However, from time to time, they'd bring someone in to trim a tree branch that was in the way or take down a traffic sign. But then the building would start to move again.

It's sort of like planning for your financial future.  First, you have to know where you are now, where you want to go, and have a plan in place to get there.  Then, you need to work with someone who has the tools and the knowledge to handle the little things that get in your way from time to time.  Financial planning is a journey, not a destination.

Fear and greed are the two most common reasons why people make decisions but, it may be smarter to trust your plan when it comes to your money.  Every year the Dalbar Quantitative Analysis of Investor Behavior shows how individual investors have fared in comparison to overall market returns.  The 2007 report covered the twenty-year period from the beginning of 1987 thru the end of 2006.  During that time, the average investor earned only 4.3% annually while the overall market return averaged 11.8%.  Why?  Well, greed motivates them to dump money into things that are already doing well but, then when those investments experience a temporary setback, fear makes them sell off their position when there may not be anything fundamentally wrong.

So, if you have a plan, make sure that, before you make any big changes, you are reviewing the plan overall and not just reacting to temporary setbacks.  It requires patience and it is a little like watching paint dry.  Now, you've probably never watched paint dry.  You know that you can paint and be confident that it will dry.  You may check in on it from time to time but you don't grab a towel and wipe it off and switch to wallpaper just because it's a little humid outside. 

Wordless Wednesday: Dream Big

  My friend, Sandy Renshaw, has a regular Wordless Wednesday feature on her blog.  Thanks to my neighbor and loyal subscriber, Claudia Pfander, for sending me this picture.  It just proves that everyone's dream is different and the only limit is your imagination.

My Intermittent Quest for Washboard Abs

Last spring my girlfriend and I were over visiting my Grandma.  While we were there a lady from her church popped in to say "Hi.".  I used to go to the same church but I hadn't seen this lady in ten years or more.  She took one look at me and said "Derek!!  It's been years.  You look good fat!!"  Now the last time I'd seen her I probably weighed about 165 pounds but, as human nature goes, I wasn't happy because I couldn't see my abs.  Fast forward to last spring, I'd lowered my expectations and was pretty OK with myself at 210 except for the first 30 minutes after my Men's Health magazine came in the mail. 

A couple weeks later I went for my annual physical.  My politically correct doctor informed me that "..my body mass index was a little high."  So, for the next 2 or 3 months my girlfriend and I started walking at least 3 times a week and we even lifted weights like 6 times (total).  We both lost 10 or 15 pounds but then the progress started to slow and we lost interest.

It's all too common to get discouraged or just plain lazy once the new wears off.  You go back to relaxing and cussing those people who can eat anything they want, don't exercise, and still are the same size they were in high school...all because they have "good genes."

"Okay, Derek.  That's great but what's it got to do with money or financial planning?"

I was getting to that.  One thing that comes up often when I'm talking to people about the Home Ownership Accelerator is that they could just do it themselves without refinancing.  The fact is it's true to a point.  There are software programs that you can buy that range in price from $99 to $3500 or more.  Some of them are sold directly and some through "network marketing."  Don't you feel sorry for your relatives when they try to explain "But it's not MLM!!!  It's network marketing."  Anyway, I digress.  There have been surveys done to follow up with people who have purchased these programs and the truth is that, within 6 months, close to 70% of them are not using it anymore because they still require extra effort and discipline.  It's sort of like the 2 1/2 months worth of Nutri System food you've got left in you pantry right now.

The #1 reason people choose the Home Ownership Accelerator over other options is because this loan allows them to set it and forget it and get on with living their life.  Sort of like being born with "good genes"

Oops!  Gotta run.  I just got an email about washboard abs.

Use your IRA before retirement to fund those dreams too.

Some of us are blessed to be doing what we love to do and make a living from it.  For a lot of other people, their bucket list may include the dream of owning their own business.   Late last year, I reconnected with an old friend of mine.  We worked together waiting tables and bartending about 8 years ago.  I asked what he was up to.  He said about two years ago, he was able to buy an established baseball card store.  He said he was like a kid in a candy store and loved it.  I've stopped in several times to see him and he always seems to be enjoying himself.

I wrote in a previous post about rolling your money over to a self-directed IRA which allows you to use the money you've saved over the years to purchase or fund the business of your dreams before you retire and with no taxes or penalties.

I stumbled across a story today about a music teacher who makes roughly 30% on his money.  What is his sideline.  Well, his passion is music.  So, he still teaches.  As any parent knows, kids have a hard time making up their mind whether or not they want to play an instrument or maybe deciding what type they want to play.  Well, the parents at his school are relieved of having to shell out the money for an instrument and then end up putting it on Craigslist six months later for half what they paid for it.  This teacher used his IRA money to buy instruments and then rents them out to his students for up to $60 per month.  Not bad for an investment of less than $1000 per instrument.

My point is simple.  If you've got a dream chase it.  With a self-directed IRA, the only limit is your own imagination.

Different Strokes for Different Folks

  I try really hard to emphasize on my site that there is no one-size-fits-all approach to any type of planning.  That is why you need to make sure your "tax guy, financial guy, mortgage guy, whatever guy" takes the time to understand your priorities.  The same goes for the decision to rent or buy a home.  I received this comment from a lady who calls herself "People Power Granny"

"For the last 32 years we have made house payments. We're out of that maze now, and are renting and liking it very much. Plus we're saving gobs of money. Check out why at peoplepowergranny.blogspot.com. And of course, vote in my poll on which you prefer."

Granny's post is titled "Wanting a New Home?  You'll Save $$$ if You Rent!"  She definitely makes a valid point; however, I'd suggest that the real savings is in the headaches that come with being a homeowner.  You are responsible for repairs instead of being able to call your landlord.  You put a lot more of your own hard work into the home.  That's why they call it "sweat equity".  Then, at the end, you get to cash out of your "investment" and down-size or even rent to eliminate these headaches when you retire.

I think back over the last five years and recall how every weekend is spent either working on a home-improvement project or feeling guilty for not doing so.  I remember how excited we were when we gutted our bathroom and made it bigger,  included a monstrous whirlpool tub and then found out the hot water heater didn't have the capacity to fill the dang thing.  I remember having guys at the house until midnight in the ten days leading up to our Christmas party two years ago getting all the finishing touches put on our remodeled living room so we didn't have to have HGTV show up with cameras so we could pretend it was a theme party.  Now, we're getting ready to do the kitchen.  The end result will be great but, we'll be using a toaster oven, microwave, and hot plate to prepare meals for a couple months.  Not to mention we'll have to walk through the mess to get to the back door since that's our primary entrance. Oh, the joy of owning a home!  I kinda agree with Granny.  I'd at least like to rent for two months and come back when the kitchen's done.

Lawrence LaRose even wrote a book call "Gutted: Down to the Studs in My House, My Marriage, and My Life"  Luckily, Sheri and I will agree immediately on every single detail of our project so I don't have to worry about reading it.  Anyway, home ownership may not be for everyone or at least you may consider other alternatives after you retire.  Fortunately, the Home Ownership Accelerator can also be used to hasten the day and increase your equity position should you decide to cash out, start renting, and spend your weekends doing whatever you like.

Is your home underinsured?

Does your homeowners insurance provide actual cash value or replacement cost coverage if you suffer damage or a total loss to your home and it's contents?  The truth is nearly 60 percent of all homeowners are seriously underinsured.  There are several things to consider but the biggest one is which type of coverage your policy offers. 

Replacement cost coverage calculates the cost to repair or replace your home with one of comparable size using the same quality of materials as your current home and at today's cost.  Many companies are even allowing you to purchase guaranteed replacement cost coverage which allows you to get as much as 25% more than the estimated cost to rebuild.  This type of coverage is the best at ensuring that you will be back at the position you were prior to the damage to your home.  All with minimal out-of-pocket expense to you.

Now, lets look at actual cash value (ACV) insurance.  This type of coverage uses the same calculation of replacement cost but then subtracts depreciation.  Now different parts of your home depreciate at different rates and it is a complex calculation.  So, I won't pretend to be an expert at that.  But let's say that your 40-year-old home that you re-roofed 12 years ago with 25 year shingles and updated with a new furnace and water heater 8 years ago along with various other improvements you have been able to make burns to the ground.  What is the actual cash value of your home?

I don't know either but, one thing is certain.  It is less than what it will actually cost you to rebuild which leaves you with a couple of options:

• Build a nice, cozy home that is a lot smaller than the one you lost using the money you do get from your insurance company
• Build one similar in size and amenities to the one you lost and pay thousands of dollars out of your savings, retirement funds, or loans from friends or family.

One thing that should not be an option at that point is keeping the same agent.

A recent survey conducted by the National Association of Insurance Commissioners (NAIC) found that 64% of the homeowners who responded said that they were insured for replacement cost, 24% said ACV, and worst of all, 12% had no idea.  Veteran and new agents alike make this mistake and it could cost you thousands.  Go home tonight and review your declarations page of your homeowners insurance policy to see which coverage you have.  You'll probably sleep better....maybe...

Niche and grow rich

People questioned my sanity last summer when I chose to add mortgages - more specifically, the Home Ownership Accelerator - to the list of services available through Bridges Financial.  Seems like a particularly foolish time to be getting into the mortgage business.  Since then, whenever I mention mortgages to someone in conversation, they say something like "Boy!  You guys really have it rough right now.  Huh?".  I always try to explain that the Home Ownership Accelerator is a loan program designed for an entirely different type of borrower.  This is not another program for the borrowers who are costing taxpayers, investors, and people in the industry a lot of money and possibly even their jobs.  No, this loan is designed for responsible borrowers who have a fair amount of equity in their homes, good to great positive cash flow, and a demonstrated pattern of financial responsibility.  It's just a matter of time before this program becomes incredibly popular and I'm excited to be the first guy in Iowa talking about it.

Anyway, yesterday I came across this news story about how CMG Mortgage Bucks Mortgage Industry Collapse, Doubles Sales of New Home Ownership Accelerator^® Loan in 2007 .  The story has been featured on several U.S. and even a couple international news sites.  The story confirmed for me what I'd been thinking all along.  Any company that can double their sales and maintain strong underwriting profits (i.e. NO loans in default) is probably a pretty good partner for me to help my clients reach their financial destination.

Just call me "Monty"

Gosh, I love it when a plan finally starts to come together.  I've been working with the Springfield Nuclear Power Plant for months now to try to get a voluntary benefits plan in place for their employees.  I spent a lot of time to get Smithers to even introduce me to his boss, Mr. Burns.  See, he knew Mr. Burns wouldn't spend a plug nickel more than he had to on his employees.  Employers always tend to think of insurance as expensive and benefits as a hassle. 

Finally, one day, I had an idea.  I called Mr. Burns office when I knew Smithers was at lunch.  My thought was that a stingy old coot like Mr. Burns probably brown-bagged it every day.  Well, I got lucky.  He was kind of rude at first but, he couldn't cut me off with his mouth full.  Anyway, I told him that he could offer these benefits to his employees at little or no cost to himself, the business owner, since the employees pay for it themselves.  I went on to tell him that by offering these benefits on a pre-tax basis he would actually save money on the employer portion of his FICA taxes.  He was still a little skeptical and asked what it would cost to get this set up.  I told him that I could actually set up a Section 125 plan through the insurance company at no cost.  Well, he really couldn't say no at that point. 

I just had one thing I had to do.  I'd need to Simpsonize my professional portrait to fit in a little better in the little misfit town of Springfield.  "Thank you so much, Mr. Burns!" I said.  He said, "No.  Thank you...and just call me 'Monty'".

Compare this photo to the one in my sidebar.  How'd I do?

There's still time to make your Roth IRA contribution

Even if you've already filed your taxes you can still make a contribution for 2007 to your Roth IRA at any time before your deadline to file (not counting extensions).  The reason is that you make these contributions on an after-tax basis.  So, there would be no need to file again unless your Adjusted Gross Income is below $26,000 (single) or $52,000 (MFJ).  In that case you may qualify for a savers credit on your return and it would probably benefit you to file an amended return.

So, there's no need to think "Oh well. Maybe next year."  If you have the money sitting somewhere to make the contribution, talk to your tax professional about the guidelines for Roth IRA contributions.

I am a big fan of Roth IRAs and here's why:

Let's say you're 40 years old and plan to retire at age 65.  If you contribute the maximum of $4,000 for 2007 and pay taxes on it now, assuming a modest 6% rate of return, you will have $17,167 in tax-free money to use for retirement at age 65

Now, let's say you're 50 or older and have 15 years left till you retire.  Your maximum contribution is $5,000 for 2007.  In 15 years, assuming that same 6% rate of return, you will have $11,982 in tax-free money to do with as you please.

People often tell me "But I'll be in a lower tax bracket when I retire".  Really!  Here's a post from someone who describes "the whole 401(k) thing – apart from the “free money” from your employer "– as "a perfect way to lose money without even trying." 

There are only two reasons you'd be in a lower tax bracket when you retire.

1. You draw a significant portion of your retirement income from a tax-free account like a Roth IRA.
2. You didn't quite reach your goals for retirement. 

The Home Ownership Accelerator Explained in 60 Seconds or Less.

I've spent a lot of time writing about this revolutionary new loan program and various ways that you can use it.  I just felt like I should try to explain the basic concept in one post.  So here goes:

The Home Ownership Accelerator saves you thousands of dollars in interest by converting all of your purchasing power from credit and cash reserves to equity in your home which can be accessed at any time through a full-service checking account built right into your mortgage.  In the meantime however, the unused money is used to offset the principal balance of your mortgage resulting in interest saved.

"Sounds like an interest-only loan.  How do I pay down my balance?"

The key to this loan is "no change to your spending habits".  That means you don't go out and buy a new boat or car or spend money that you wouldn't have otherwise spent.  If you continue your current lifestyle and spending habits, then the money that would have gone to pay interest pays principal instead.

One last note: With this loan you get everything you would get from you current local bank or credit union except for a "brick and mortar" location that you can visit in person.  All transactions on this loan are conveniently done on line, by mail, or through a dedicated CMG "Concierge" service center that you can call.  Ironically the difference between the rate you earn on checking and savings and the interest you pay on your mortgage normally is what pays for a the "brick and mortar" bank you can visit.  With this loan that money goes to you instead to pay for your "brick and mortar" home.

"Home Ownership Accelerator" and the yellow flying house logo are registered trademarks and used by permission.

Mortgage Interest is deductible but...

  In talking with people about the Home Ownership Accelerator, I am often confronted with the question "Won't I lose my tax deduction for mortgage interest if I pay off my mortgage early?".  The answer is always "Yes, you will but, that's a good thing."  The reason is clear once you understand what a deduction actually is.

You are very good at what you do for a living and you are confident that your CPA or Turbo Tax are good as well.  You provide them with whatever information they ask for and then trust them to prepare your return.  When it comes time to file your return, you only look at two lines.  Line 73 is the amount you overpaid or your refund.  Line 76 is the amount you owe.  You then either write a check or wait for one.

I have also become aware in conversations with clients that they believe that their mortgage interest that they paid reduces the amount they owe dollar for dollar and that is what I am trying to clear up here.  Your CPA or software computes your adjusted gross income on page 1 of the 1040 and shows it on line 37.  This amount is carried over to page 2, line 38.  Your mortgage interest is recorded on line 10 of a separate form (Schedule A).  Then the total itemized deductions on Schedule A are recorded on line 40 of your Form 1040.  Line 41 is Line 38-Line40.  One more fuzzy calculation on Line 42 (that may or may not apply to you so, I won't get into it) and you have your taxable income. 

The amount of mortgage interest you pay directly reduces your taxable income and only indirectly the amount you owe.  So quick example and I'll wrap this up.  If you paid $10,000 in mortgage interest in a calendar year and your tax bracket is 28%, you save $2,800 on you total taxes. 

So, it's nice to be able to deduct it but, let me put it another way.  Would you invest $10,000 in anything that was guarateed to be worth exactly $2,800 a year later?  You bought your home because you wanted to own rather than rent so, doesn't it make sense for you to take control of precisely when you stop renting the money too?

Why Wait for Socialized Medicine?

I just switched my own health insurance yesterday!  Let me tell you why.

I make it a point from time to time to re-evaluate my plan since I'm self-employed and responsible for paying all of it myself.  My old plan (by choice) had a $10,000 deductible and $20,000 maximum out-of-pocket cost in a calendar year; however, I did not have to meet my deductible to have small co-pays on prescription drugs and office visits.  So, being relatively healthy, the plan was well suited to me and it only cost me $94/month.

I'm 34 years old and since it hasn't been 12 months since my last cigarette, I'm still classified as a smoker for insurance purposes.  So, I looked at this new plan that had a $3,000 deductible and $5,000 maximum out-of-pocket.  I still got 3 office visits per year for a $30 co-pay without having to meet the deductible as well as $8 co-pays for prescription drugs.  So, I cut my deductible by $7,000 and my maximum out-of-pocket costs by $15,000.

Guess what?  My premium went from $94/month down to $70.75/per month.  So, I'd say it pays to re-evaluate your plan every couple years because the health care business is very competitive and good companies will always innovate to try to earn your business.

Besides my health insurance, I also had a $50,000 term life insurance policy costing me $21/month.  Well, I'm saving $23 on the health insurance and had the option of purchasing a $100,000 term life policy for $33.74 on the same application.  Sounded pretty good so I did that too.  Then I thought, "What the heck?  I'll take the dental plan too for $21.40/month."

So, I added it up and my total premium for everything went from $115/month to $125.85/month. So, what did I get for that extra $10.85?  I got $50,000 more life insurance, $15,000 less in out-of-pocket risk for major medical, $7,000 less for a deducible, and a dental plan to boot.  Plus, I like things simple.  I get this all for one single monthly payment.

I've often told people that the problem with health insurance is agents trying to sell you a "Cadillac" plan when a "Chevy" will give you peace of mind and get you where you want to go for a lot less money.  Affordable health care is very doable right now even through private companies if you first determine your tolerance for risk and then sit down with an agent who will help match it with the right plan.

I call it right-sizing your health insurance.

If you live in Iowa and are responsible for your own health insurance costs, get in touch with me.  It pains me to see people running around who have looked into health insurance, got a quote for way too much insurance, and think it's way too expensive to even consider.  They have some tolerance for risk or they sure wouldn't be uninsured.  But they're probably been quoted a premium 2-3 times what I'd end up quoting.

This post is getting a little long but one final thought:

I don't represent any of those no-name companies that send their fliers to your fax machine in the middle of the night.  I only write business through reputable insurers whose names you'll easily recognize.

What would you do with an extra half-million $$?

   Mark and Michelle are 35 years old.  They got married back in 1997 and bought a starter home.  They bought within their means and have been able to make a few extra payments along the way.  That, combined with the increase in the value of their home has left them with a fair amount of equity.

In 2001, Michelle gave birth to twins, Matthew and Madison.  Now the twins are getting ready to turn 7 and the starter home is getting a little small.  However, the equity they have accumulated will enable them to make a nice down payment on a larger home.   So they start shopping.

After a couple months of shopping they find a nice home that they can afford and make an offer.  Their house sells a couple weeks later.  They've already been pre-approved for a mortgage of $200,000 @ 6% interest for 30 years.  Their principal and interest payment will be $1199 per month.

They move into the new home and get settled.  A few months later, Mark reads a book on this thing called equity harvesting.  The author proposes that Mark and Michelle trade their fully-amortized mortgage for an interest-only mortgage.  Assuming the same 6% on $200,000, their interest-only payment will be $1000 per month.  That leaves $200 per month that they can use to invest and build a nest egg.

So, Mark sits down with a financial planner who shows him that if he invests $200 per month faithfully for 30 years and earns an average of 7%, at age 65, he and Michelle will have a nice nest egg of $243,994.  Mark is a smart guy and says, "Hey, wait a minute! I'll still have a $200,000 mortgage that I need to do something about.  So, after 30 years, I'm really only ahead $43,994." 

Mark remains interested in the concept but decides to shelve the idea for now.  Then he comes across this loan called the Home Ownership Accelerator and learns that it is supposed to be a very efficient tool for equity harvesting.  He knows that he and Michelle are locked into paying $1200 per month no matter what for 30 years so he uses that figure when he talks to the offset mortgage professional.

Here's what Mark learned: If he were to take out an offset mortgage and divert the same $200 per month to outside investments earning an average of 7% (same numbers as the interest-only scenario), he would pay off his $200,000 mortgage in only 18 years, 10 months and have an accumulated nest egg of $92,616.  However, he still has 11 years, 2 months before his current 30 year fully-amortized loan would be paid off.  So now, with no payment, he would be able to invest the full $1,200 per month until he turns 65.  After all, the twins would be done with college at this point, and he and Michelle would have a lot more discretionary income.  So, leaving the $92,616 alone and increasing to $1,200 per month until age 65, he learns that he and Michelle would have a nest egg of $448,485 just from the money that would have gone for mortgage payments.

Now, the only question is, "Does he tell all his friends or just keep it to himself?" 

No-Sweat Equity

Would you store 53% of your life savings under a mattress?  How about in a coffee can?  Would you go to the bank a put in a safe deposit box?  Of course not!  You probably want as much of your money working for you as possible at any given time.

We've heard time and time again that your home is your biggest investment.  We've also been told that the best mortgage is no mortgage but let me ask you a question.  Does your home appreciate faster or slower based on how much equity you've accumulated?  That's right.  It makes no difference how much or how little you owe on your mortgage.  The value of your home is what it is. 

Many equity harvesting gurus will recommend that you continue to refinance every five years or so to continuously tap the equity in your home for other investments.  Your parents and grandparents keep saying to pay off your home as quickly as possible.  I said "They're both right!"  That is you can do both.

In the first quarter of 2007, we Americans owned $20.8 trillion dollars worth of residential real estate on which we owed only $9.8 trillion dollars.  That's an average of 53% equity in our homes.  Let me just add right here that the sub-prime mortgages that are causing such a commotion and turmoil in the market represent less than 20% of all outstanding mortgages.  You've heard the saying that the squeaky wheel gets the most grease.  Well, This quarter 1 2007 balance sheet shows that while consumer debt is growing, overall we still have a positive net worth.  $65.6 trillion in assets-$12.5 trillion in liabilities equals a positive $53.1 trillion in collective net worth!

I agree with Marian Snow when she suggests that we stop sitting on our assets, but beware that an interest only loan or a series of them will leave you with a big mortgage during retirement that will eventually need to be repaid.   The Home Ownership Accelerator offers an extremely efficient platform for equity repositioning along with the ability to retire mortgage free.   

By combining this powerful tool and safe money savings vehicles, you could call it "no-sweat equity"

There's gold in them there walls!!

Let's pretend you just bought a house in an older neighborhood and you were told the following urban legend at your housewarming party:

The house and several others in your neighborhood had been built during the Great Depression.  It is rumored that some relatively affluent individuals had escaped without suffering total losses in the market but they were still panicked.  So, they cashed in their investments and converted the money into gold and then built a modest, comfortable home to ride out the storm.  They decided that since banks weren't safe, they would stash the gold between the studs of their new home and then cover the opening with plaster.  When things got back to normal, they would simply bust out the plaster, retrieve their gold, and start investing again.  After all, the cost of repairing the hole would pale in comparison to accessing their gold again.  Meanwhile, a handful of these folks passed away before things got better and obviously they hadn't told anyone for fear that some desperate soul would try to steal it.  They never even told their family.

Now, you have it from a fairly reliable source that your house is one such house.  Only trouble is you're going to have to gut it or at least start tearing into it until you find it.  The price of the gold will far exceed any cost you will incur putting your house back together.  You have a friend who is whispering in your ear that he found gold when he was remodeling his home so you really ought to try it.  All of your other friends are saying that your home is lovely and even though there may be gold hidden in the walls, you should just leave it the way it is because at least right now you know what you've got.

What would you do?  You've got a very distinct possibility that there's gold in the walls but, you also are very comfortable with your home just the way it is.  So, you live in your home for a few years and then sell it.  A few months later, you're watching the news and there's a story about a family who purchased a home, started remodeling, and discovered a tidy stash of gold hidden under the plaster.  You remember the rumor and upon closer observation you realize it's the house you used to own.  I'm not going to ask what you'd be thinking at that point. 

That is precisely what equity harvesting is all about.  Many folks including financial planners shy away from it simply because they don't understand it.  The view debt and assets as two completely separate parts of your financial plan.  Debt is bad.  Investments are good.  You get a 15 or 30 year fixed rate mortgage because at least you know what you've got.

The truth is that, with the right tools, you can efficiently siphon equity out of your home for outside, relatively safe savings vehicles and still live out your retirement years with no mortgage payments.  You don't have to choose between paying off your mortgage as fast as possible or staying mortgaged to the hilt and maxing out your retirement savings. 

You can do both!