The good, the bad, the ugly, and my directions for use

The good: This is a great product for those who have 25% equity in their homes, have positive cash-flow annually if not monthly, and are committed to paying off their mortgage aggressively.  I find it a more financially sound strategy than taking out a standard 30-year fixed-rate loan and making extra principal payments.  The 30-year fixed-rate loan is an extremely expensive loan over time. The Homeownership Accelerator is far less expensive and serves the client rather than the lender.  The product is also kept with an investor.  There are no Fannie/Freddie underwriting guidelines in play.

The bad:  The one aspect that I don’t like is that I believe that once you’ve paid off the mortgage to a particular level, it is arguable by the IRS that the interest is no longer deductible for a portion of the loan balance.  Now, there are relatively so few people using this loan that the IRS is unlikely to waste its time trying to figure out what is/not deductible.  You’re probably safe.

The ugly: The only thing that scares me about this loan is that it’s an equity line and lenders are notorious for reducing or closing down equity lines these days. In my conversations with the folks at HOA, the chances of the equity line being closed or reduced are slim because the underwriting is strict and it’s only issuing loans where it knows its collateral is sound. You’re probably safe.

Directions for use:  Take a look at the videos. Talk to your mortgage professional.  Talk to your financial advisor.  You must have 25% equity, good credit, positive cash-flow, and a willingness to try something “new” (it’s new here, but my Australian counterparts have 30% of their clients in this loan).  Use the loan to capture low daily interest calculations.  Do not change your spending habits.  Take the savings that you do reap and make additional investments. Over time, your loan balance will go down faster, your investments will increase faster, and you will be in a “debt-free” place (as you have the ability to pay off the loan with assets at a moment’s decision) sooner.

Redefining financial security and other out-of-date financial terms

As many of you know, I don’t approach financial planning from a traditional prospective because we don’t live in a traditional world.  Please consider adopting the following definitions:

“Financial security”:  The ability to weather any financial storm and to take advantage of any financial opportunities.  Notice this has nothing to do with whether you own your home outright.  If you cannot pay your bills if you’re out of work for a year, if you cannot help out your family when they are out of work for a year, when you can’t buy things that are on sale (e.g., income taxes right now when you convert your traditional IRA to a Roth or purchasing investment property), you are not in a financially secure place.  Get your safety net in place, which includes reserve accounts and insurances.  Then go pay off your house.

“Retirement”:  The ability to work for no money and still support one’s health and well-being.  Notice this has nothing to do with whether you own your home outright.  People are living longer and want to contribute to society with their gifts and energy into late adulthood.   They want to try new things.  If you have your house paid off, but no other sources of income to help you make ends meet, you cannot work for no money and pursue those late adulthood activities.  Go get your retirement income accounts in place and then go pay off your house.

“Debt-free”:  When your assets (after liquidation, taxes and penalties) exceed your debts.  Notice this has nothing to do with owning your home outright.  Once you have accumulated assets and can wake up one morning and say, “Hey, you know, today I think I will pay off my house and all my debts,” you are debt-free.  Just because you can do this doesn’t mean that you should.  In many cases, it makes sense to take debt even into retirement.  Go get your assets working for you, use debt intelligently and safely, and someday go pay off your house.  If that’s what you want to do.