The traditional view of a mortgage is a loan to buy your home, which you spend the next 25 to 30 years paying back, with interest. Finally, close to retirement age, you’ll be free of this debt and will own your home.
Here’s a more radical approach: Mortgages are a key tool that can help create and accelerate real wealth for the future.
You’re basically using someone else’s money to buy an asset and then get somebody else to pay it back for you.
I take a more creative stance to financial advice and encourage people NOT to make repayments on their home. Why? Because you can in fact leverage your finances far better by just paying the interest on your mortgage and using the repayment portion for creating future wealth and building additional assets.
If you choose to pay off your mortgage this does nothing to improve your overall financial security. Even though at the end of it you’ll have no mortgage, you’ll also have no other assets outside your own home that you can use to increase your standard of living and provide for a comfortable retirement.
Instead, you could use the capital repayments and any equity in your home to create additional assets via the purchase of a second house. You may have 2 mortgages but you’ll accrue more wealth and can use the rental income on the second property to make the mortgage interest payments.
Taking a long-term view
In my new book, Your Money Puzzle, I explain that this is one of the key strategies of the wealthy – using other people’s money to accrue more wealth. They understand that doing so will multiply their own money because when the value of their assets increase in the future, they can multiply the leverage even further to buy more assets.
In the case of property, it’s important to take a long term view. The income generated by the property will create passive income as well as equity growth... a key step on the road to ensuring financial freedom.
The average growth on properties for each 10 year period since 1963 in the UK has been 92%, and since 1946 in the UK has been 140%. House prices may fluctuate but the trend continues towards overall growth. Even during the current financial crisis if you take a long-term view the trend is extremely likely to continue.
What this means is as you increase your assets, through property, you can keep taking interest only mortgages and buying more property until you have accrued enough equity to easily pay off the mortgage on your own home, as well as creating sufficient passive income to afford you a wonderful retirement, at whatever age you choose!
Understanding how to use mortgages to create assets is one of the most vital pieces of financial wisdom you can ever learn.
Best Wishes
Clayton J Moore
© 2009 Clayton J Moore Ltd
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Author, Financial Coach and Entrepreneur Clayton Moore publishes the ‘Think Tomorrow Today' weekly ezine to help people gain control over their future financial security. If you're ready to jump-start your finances, make more money, and have more fun in your creating the life you desire, get your FREE tips now at www.claytonjmoore.com
Hello. I’m really grateful for you taking the time to look at my article and how I could help you plan a brighter financial future.
To introduce myself to you I thought it would be best to tell you a little bit about where I started out and why I do what I do today.
I started working for a major UK bank in 1995 and soon discovered that I absolutely loved helping people to make more of their money. This passion led me to set a goal of becoming a Financial Planner within the bank – something that I achieved within a few months. For a few years I loved my job and loved helping people realize that they could do more with their money and create more financially secure futures.
However, after a number of years it dawned on me that the choices I had as far as advising people to create more financial security were very limited within my role as financial planner. I could also see that most of the traditional financial products were quite frankly not working for most people in the way that people thought they would. I realized that the financial products I had been trained to sell by the bank were not creating financial security for people.
I also realized that my very own financial security was at risk long term. Even though I was a member of my company’s pension scheme I had realized that the whole notion of having to work for this company for 40 years in order to receive only two thirds of my basic salary (I was earning as much again in bonuses but these were not eligible towards my pension) for the rest of my life in retirement was just absurd. This just didn’t make sense as a long term financial plan for my life.
Worse than my own financial security being at risk I could also see that there were many people who didn’t even have the so called security of a company pension plan and that for these people they needed to take responsibility for their own financial future. However, most people I came across were either not saving anything at all for their future or, if they were saving, were not putting aside anything like the amount they required to build up even a basic financial security later in life.
My passion for helping people understand the issues surrounding financial security was lit and I decided that I was going to leave my restricted job as a financial planner and start my own business to help as many people as I possibly could create more financial security in their lives.
I also realized that it was now up to me to build up my own resources in order to become financially secure when I retire and so I decided that rather than hand my hard earned money over to financial institutions to save for my retirement I was going to invest myself in assets that would grow long term and create the financial security I desired.
So, my life had turned and I was now a business owner, an investor and financial coach rather than an employee and so-called financial planner.
I have created ‘Your Money Puzzle’ and ‘Mastering Financial Success’, as a way to share my understanding of personal finance and enrich the lives of millions of people by guiding them to create their ideal lives.
I hope I can be of service to you and feel free to contact me at anytime if you need assistance. You can reach me at clayton@claytonjmoore.com
Good luck and best wishes
Clayton J. Moore