Todd Gehrke explains in a very simple demonstration when considering the best place to put your money you need to ask yourself three basic questions: 1. Can I access it? 2. Is it safe? and 3. What is my rate of return--in that order! Remember the old saying, "The return OF my money is more important than the return ON my money." Todd Gehrke: [00:00:00] All right here is a simple analogy of liquidity with your money. So. There are closed end mortgages and that's going to be represented here. It's something that has a lid on it. So I always tell people when they come into my office the money that you have in equity in your home what's going to be the water here in a mortgage situation. The reason why I'm not a big fan of having a bunch of equity in your house is number one it's not liquid. You don't have access to it unless you call somebody in my profession and prove that you have the ability to pay this loan back and we'll give it back to you. Secondly is it isn't safe from loss. It's still exposed to the marketplace. And then what type of rate of return on it the money that's sitting in here has a zero percent rate of return. Same as it does here. Now here's the difference. One of these is a loan. So if this is your savings these are your. This is your house. And what that means is when you make a payment. So let's say you make an extra thousand dollar payment. So we're going to throw this money near and when you're done with whatever that dollar amount is it's capped and is no longer accessible to you.
[00:01:06] You cannot get out this money. Now in this scenario. It doesn't have a lid on it. So if you want to pay an extra thousand bucks a month towards your home equity line of credit and you know what you add a little extra money in savings. And you had your cash reserve account for emergencies and you decided you know what I want to pay everything I have towards my house you can do so and fill it up and then everything's great and I'll send you go. Wait a second I and I need that money I need access to it. You can't get access to any of the money that you've got in this. Closed mortgage scenario. But on a home equity line there's no lid on it. You can simply draw out without calling me without asking permission without qualifying without a credit check without having a job. Without anything because you have the line set up with no lid on it. You have access to the money. So the reason this is so important and the reason I'm a big fan of having a home equity line of credit now where most everyone has a mortgage and then they've got the line of credit kind of on top of that where they have access to additional equity in their house.
[00:02:11] The reason is because. People retire. And they lose their ability to repay the loan. People become unemployed and they were working so hard to get rid of their mortgage in general. They've got all of this equity in here but they have no access to it because they lost their ability to repay it and they don't have permission to get access to it. But if this cap is gone and something happens you lose a job. You have a major medical issue and you need access to that money. If you've got one with the lid off you simply can withdraw that equity back out if everything is going great and you don't have any need for the money. It can all sit here. But the key to this is you want to make sure that the money is liquid. It's something that you have access to at all times. And the only way to do that is with something like a home equity line of credit. So most of my clients know to put the home equity line on top of their mortgage to give them access to that additional equity. License info here: www.newamericanfunding.com/licensing.aspx Todd Gehrke, Sales Manager, New American Funding NMLS6606
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