Certainly, there isn’t any shortage of opinions from clients about which financial strategies are “best” for their mortgages. Each and every day our clients are bombarded by media outlets with news stories, marketing messages, and advertisements about financial decision-making. They are also heavily influenced by the decisions and actions of friends, co-workers, and relatives.
As advisors, it is our job to help our clients understand the impact of their previous financial decisions, evaluate their current financial health, and counsel them on ways in which they can minimize losses and increase their “Circle of Wealth” moving forward. This is not a responsibility to be taken lightly for sure.
In order to properly serve our clients, we need to be extremely knowledgeable on the subject of mortgages. There are many client views on this subject, and there is much opposition to even having a conversation about alternatives to their current plan. After all, nobody wants to hear that the decisions they have made might not have been the best ones.
About the Mortgage Master
In the Circle of Wealth® system, there is a tool that can help you navigate this emotional subject with your client, dispense with preconceived notions and faulty logic, and help educate your client on making the most efficient use of their money with regard to their mortgage. That tool is the Mortgage Master.
Here are a few points you should be able to easily convey to your clients with the Mortgage Master:
- We believe everyone should have his or her house paid off. The question is how are you going to do it? Having your house paid for is certainly a safe position financially. Would you like to know a way to have your home paid off and still control the money?
- Most people believe that once they have their house paid for, they have no more housing costs. They do not have to write a check once their house is paid off; however, they do not get a check either. They must also consider the impact of the lost opportunity cost on the money that has been put into the house, which is no longer earning interest.
- Inflation can also have a large impact, especially if the client is prepaying on the mortgage. The dollars they have today are the most valuable dollars they will ever earn. Dollars used to pay future mortgage payments will have less and less purchasing power over time.
- Principal payments reduce the loan but also reduce liquidity use and control of the money as well. Once in the house, access to the money, if necessary, may be difficult or even denied. Remember, we never tell anyone to take equity out of their house to invest in anything, including insurance or annuities. We also believe that cash value is more valuable than home equity.
Going Over the Client’s Options
The points above are important and need to be discussed, but you should also be prepared to have more detailed conversations about mortgages with your client. Here are a few example scripts taken from the Mortgage Master, found in our Circle of Wealth® system.
What do You Know About Mortgages?
Everything you know you think is true. The things you think are false you have already ignored and put out of your mind. There is a great deal of misinformation concerning this topic. Many make their decisions based on what they have heard, not on what is necessarily correct. As we go through this program together, we are going to see both the concept as well as the numbers to help you gain a better understanding of how your mortgage may affect your “Circle of Wealth”. The question I would like to ask you is this: If what you know to be true about your mortgage and how it affects your ability to accumulate money turned out not to be true, when would you want to know?
How do You Choose a Mortgage?
There are so many options; is it even possible to make the right choice? There is no doubt that making the right choice can be very confusing. Many of these mortgage options reduce the interest paid on a mortgage by expediting the mortgage payments. While transferring less interest away is desirable, there are other issues, which must be included in our thought process as well. This presentation is designed to raise some of these important issues and help you in deciding which mortgage option is right for you.
If the mortgage lending institutions made the same amount on every mortgage option, how many options would there be? Obviously, there would only be one. More money is made on some options than is made on others. In our review, we would want to help you find the one, which is best for you with the least wealth being transferred in the process.
Why Have a Mortgage?
There are three emotional reasons to have a mortgage and probably a hundred reasons not to have one. The first is disability; if you become disabled and need access to capital, you will most likely not be able to attain a new mortgage on the property you own. Similarly, if you lose your job, it will probably take several years of document employment history before you may obtain a new loan. You are once again locked out of the equity in your house. Lastly, the overall uncertainty of the world mandates that a prudent person maintains liquidity, use and control of their assets whenever possible. If a majority of one’s wealth is tied up in illiquid assets, there is limited ability to adjust to changes in one’s personal and economic environment
Can You Avoid Wealth Transfers?
Wealth transfers are inevitable no matter how you decide to pay for your house. If you finance your purchase then there is the obvious wealth transfer in the form of interest payments. If you pay cash for your house there is wealth being transferred because your money is no longer earning interest. Our focus will be to help you maximize the dollars you are spending on your house by avoiding unnecessary transfers.
Do You Think of Your House as an Asset?
Your house is a place where you typically allocate a significant portion of your income and cash flow. It also represents a major lifestyle decision. How you go about paying for your house can transfer money from your “Circle of Wealth” unknowingly and unnecessarily. Should you desire to pay your house off early, you would want to do so in a method that would transfer the least away possible in the process. My focus will be to help you accomplish what you want with the least out-of-pocket cost.
Get Involved with the Mortgage Master
Discussing mortgages and the ability to pay them off can be a sensitive conversation to have with your client; you may need assistance with the discussion. Fortunately, Mortgage Master, found in the Circle of Wealth® system, offers proven scripts, calculators, and detailed visuals plus much more to help explain everything to your client.