The 7 Most Critical Steps To Protecting The Equity In Your Home

 What Every Homeowner Should Know

Before They Apply For A Refinance Loan

  A recent poll shows that challenging economic times has caused homeowners to realign their priorities.  Dramatic declines in housing prices over the last several years have left homeowners wondering if restructuring their mortgage is part of financing the American Dream or the American Nightmare.  In addition, lending guidelines have tightened to the point where even the most credit worthy borrowers are being faced with additional hoops to jump through in order to get a home loan.  The combination of the two factors has the average home owner pondering if refinancing has any advantages at all!

The first thing to realize if you are a homeowner considering refinancing is that we have entered a ‘New Economy’.  This doesn’t mean that you cannot prosper.  What it does imply, however, is a change in our thinking and habits related to our mortgage, debt and savings/investments.  It is forcing us to focus on self-reliance and self-accountability for determining our own financial destinies.  Here are 7 steps to review before you refinance to ensure that your decision meets both your economic and emotional needs, but most of all protects the equity in your home:

1.    Create A Plan
Depending on your age, income, and lifestyle you have to decide how you will ‘manage’ your equity.  Will you aggressively pay off debt or will you increase your ‘leverage’ in order to maximize your savings and/or your investment contributions and returns.

 2.    Understand The Meaning Of Risk

The biggest wake-up call that the ‘New Economy’ has provided is that all markets can be extremely volatile, including housing.  Even more importantly, it has taught us that every investment (including our home) has the potential to lose substantial, if not all of the money we place in it.  This makes it even more important to understand the relation between risk, timing and use of leverage.

 3.    Establish A Highly Liquid Emergency Fund

Before you begin paying off debt or increasing savings/investments, plan for at least a minimal amount of readily available emergency funds. 

 4.    Set Realistic Time Frames

Regardless if you decide on an aggressive debt reduction strategy for your mortgage or increased investments, eventually using the extra accumulated funds to pay-off your loan, make sure that you evaluate your risk tolerances appropriately and the length of time you have available to reasonably accomplish your goal.
 
5.    Manage Expenses
By analyzing household and lifestyle expenses you can often find additional free cash flow to contribute to your plan, increasing your ability to reduce terms, increase investment contributions or add to principal.

 6.    Find More Cash Flow

While managing expenses is a great way to find more cash flow, adding supplemental income can help turbo-charge your plan.  Temporary part time jobs, consulting, selling “widgets” for a local business on commission, or even starting a small boot-strap business all present fantastic opportunities to provide additional income.  An additional thing the ‘New Economy’ has shown us is that “this too shall pass.” Brighter opportunities are always waiting ahead.

7.    Discipline & Consistency
When I review the steps above with my clients, they are usually shocked to see that the average person can be COMPLETELY out of debt in only 12.9 years, including their mortgage.  (This is proven statistic based upon my average refinance client whose goal is to pay off all debt.)  The plan to pay-off debt or build wealth is not difficult – it simply requires you to maintain the discipline and consistency to accomplish the goal. 

In summary, there is no right or wrong answer to refinancing your home loan.  However, it does require that you recognize what you are trying to accomplish by refinancing and develop a sound strategy for achieving that goal.
 
Call today for your personal appointment and I’ll show you how proper Mortgage Planning can help you analyze whether you should pursue a Debt Free Strategy, or Leverage Your Wealth.  It also helps construct proper time lines and planning horizons in order to determine the correct mortgage product and term for your goals.