I just wrapped up a couple of seminars on home equity management with my good friend Peter "Coach Pete" D'Arruda. There are a number of financial planners and mortgage lenders promoting techniques for either paying off your mortgage early or keeping your mortgage balance high and using your money to invest. I'll write more about each of these topics over the next few days. If you receive a letter inviting you to a seminar about equity harvesting, Australian mortgages, or asking you to participate in a bi-weekly payment plan, be sure to look before you leap!
Equity harvesting and Australian mortgages are opposite ends of the spectrum as one advises you to invest as much of your home's equity as possible and the other helps you pay off your mortgage in a short amount of time. Both can work for the right person in the right situation, but beware of hard-sell tactics! In many cases, these products are sold simply to generate commissions for the financial planners and mortgage lenders.
Your home is both a financial asset and a psychological asset. You should manage it as part of your wealth portfolio, but never lose sight of the fact that your home is also important to your family and feelings of security. NEVER put your home or equity at risk. It's important to remember that financial liquidity is very important, so be sure to keep an open home equity line of credit if you have significant equity in your home. If you should suffer a job loss, medical emergency, or other difficult life situation, you may not be able to access the equity in your home to carry you through the tough time. As the Boy Scouts say . . . BE PREPARED! Set up an equity line now.