Tag Archives: Mortgage

What do you do when there’s nowhere to invest?

nowhere to invest

Nowhere to invest? With a sky-high stock market, it often seems like there’s nowhere to put money.
Image courtesy Renjith Krishnan via FreeDigitalPhotos.net.

I had an interesting exchange with a reader named Bradley recently. Bradley’s basic question was “with the market at all-time highs, where do you put your money? It’s a good question because it does feel a bit like there’s nowhere to invest right now.

And it’s a particularly relevant question for me because I’ve been facing this exact dilemma with the recent windfall from the sale of my fourplex. Making matters “worse,” I just sold another piece of property so I have even more cash coming my way.

If you’ve ever made the mistake of reading any news site comment sections related to the stock market, you already know that there are two main contingents who both believe they are 100 percent correct: One says the market is headed for a crash very soon and only a fool would gamble his money in the stock market. The other group, equally sure their beliefs are correct, say the market will keep going up, up, up and only a fool stays out of the market worrying about a crash. (To get a handle on your investment portfolio, be sure to sign up for a free account from Personal Capital.)

Naturally, both sides are right and both are wrong. In reality, we all know that this market will undergo a significant correction at some point. We also know that the market will grow its way out of that dip. What we don’t know, of course, is when and we don’t know how long it will take to recover. That’s why the most important factor in any investment is the investor’s personal situation. For example, this is why people nearing retirement are typically advised to move to safer holdings as they age, although ironically people in this situation currently are among those who feel strongest that there is nowhere to invest. For some perspective, consider that my first money market account back in the late ’90s paid five percent!

There was a pretty interesting piece in CNN Money in January. While generally sticking with fairly standard allocations and advice, the writer reminds us that good ol’ cash also used to be seen as an asset class.

I recommend heading over and reading the whole thing. Lots of interesting data points pulled together, such as the fact that the market usually has a 10 percent drop once a year but hasn’t seen one in 2 1/2 years (at the time the article was published).  The writer suggests 10 years of disappointing returns await. And, oh yeah, the level of borrowed money in the market is already reaching pre-crash levels. So we’ve got a bubble again, inflated with Fed policy, borrowed money, greed and blind trust.

I might be the last honest blogger, because I’ll just tell you the truth: I have no idea what’s going to happen or when. I held my real estate winnings in cash at the end of last year, partly because I was expecting at least a small correction (which we’ve finally gotten a little taste of) and partly because I haven’t had time to really focus on it. (Which is not to say I didn’t do anything with my money last year. I actually was moving and reallocating funds quite a bit, which is still going on.)

So far this year, I have picked up a few individual stocks when I see a good value, but I’ve held off on buying much more in the way of mutual funds so far. And, in fact, I’ve been moving more money into cash, as I finally dump some stuff I’ve been packing around with higher costs. I’m dreading the tax impacts after this year, but I just want to clean up my portfolio.

My short-term strategy right now is to go ahead and sell my high-cost funds (I have seven of them left at this point with various amounts of money in them). Thus, my cash position is increasing. I’m selling those semi-quickly. Meanwhile I’ll be moving this cash back into individual stocks and/or low-cost Vanguard funds — however, this will happen much more slowly, basically dollar-cost averaging my way back in. By default, depending on how slowly I move these dollars back into the market, I’ll be effectively keeping significant assets in cash as well. I don’t want to say I’m hoping for a big market crash, but if one were to happen, this would be a pretty awesome time.

So that basic framework aside, let’s get back to the main question: what do you do when there’s nowhere to invest?

Let’s start by recognizing that, really, there is always somewhere to invest. Maybe with a sky-high market, now isn’t the time to move a large sum in all at once. But there are always a few undervalued stocks. But you have to be careful. It always rains after I wash my car and the market always dips when I make a purchase. And with the market so inflated, I have been thinking quite a bit about what options do exist outside the usual menu we typically think about. Here are a few things I’ve thought about.

Pay off debt

If you’re carrying any consumer debt at all, this is a good place to start. Whatever your interest rate is on the debt you’re carrying is your effective return by paying off that loan. Still carrying a car loan? Maybe instead of buying into an over-inflated stock market, you pay that car off for good. The free cash flow you now enjoy could dollar-cost average its way into the market or you could save it up so you’re ready to pounce when things drop.

Keep funds in cash

Why consider holding money in cash? Well, on one hand it’s a defensive move — you’re protected from a big crash. When everyone else is panicking, you’re kicking back on your pile of cash. That pile is, however, slowly disintegrating under you, however, as inflation eats away at your buying power. There is another advantage, of course. Imagine if you’d been sitting on big pile of cash during the real estate crash. I know if I didn’t have all my money tied up in, yes, real estate, I would have been on a shopping spree. Thus retaining cash can be an offensive move as well. Sit, wait for a big drop and start swinging your big weapon.

Pay off your house

If you don’t know where to put your money right now but you’re still carrying a mortgage, perhaps it’s a good time to increase your security by putting a bullet in your mortgage. If you’re worried about missing a big market dip, maybe open a HELOC on your now paid-off mortgage. If things look irresistible, you can pull out the funds from your house again and take advantage of market conditions. Remember the crash you’re waiting for could be two or three years away and you could be enjoying the cashflow improvement in the meantime.

Lower your overhead

Recently I wrote about forcing cashflow and how it can hurt you or benefit you. If you’ve got a sum of money and no place to put it, spending some of that money on increasing your cashflow situation can be a savvy move. For example, I’m still considering making the move on solar panels for our house (no-brainer if we’re going to stay in this house long-term). A $15,000 investment in solar would permanently remove our $75/month electricity bill. The downside is it doesn’t pay if we move. But the idea is the important part. For you, it could mean upgrading to a more efficient car, new insulation for your house, moving closer to work, buying new clothes that don’t need dry cleaning. You name it.

Increase your security

You could also tap your funds for  increasing your financial security as well. This might mean stepping up and paying for a few things now just so you don’t have to bother with it later. Maybe your roof is starting to fail — writing that check now while you have the cash not only removes a hassle from your list, but think about the alternative: Imagine you bought in big to the market at the top and suddenly find yourself with several years of waiting before you’re out of your hole. Then, while you’re waiting, the roof fails completely, leaving you in desperate need for cash. By making sure these aspects of your life are rock-solid now while you have this free cash, you’ll be in a much more solid position when crash time comes.

Be creative

People forget there are other places to invest outside the stock market. There are too many to list here, but for example a guy I used to work with owned shares in a local pizza place. There are always people looking for private investors — some people have friends or family who are interested in starting business for example. (Be careful!) You could even buy a small business if desired. Always wanted to own your own restaurant? Now is your chance! If you can think of it, you could probably make it happen. Have a great idea for a mobile app? You could probably hire a development team overseas for less than $20,000 and bring your idea to reality. In addition, there are online lending options such as Lending Club or Prosper where you can make a decent rate on your invested funds.

Jump in anyway

And, of course, where most of us will end up is back in the market, hoping any dip is not too deep or long-lasting. This is where I’ll probably end up as well. I’ll dollar-cost average my way in, at least, but more than likely I’ll limp my way back in and just wait out any dips, just like I always do. In the end, prudent, boring investing in low-cost index dividend funds is usually the best bet. But when you have a big chunk of cash you’re sitting on, it’d sure be nice to start out with a lower price.

What do you think? Any other creative places to put money while the market remains so high? What would you do if you had a large sum that needed a home?

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Another way to decrease your debt: Recast your mortgage

We lowered our mortgage payment by more than $1,000 without refinancing. Here’s how to recast your mortgage

recasting your mortgage

Image courtesy Sujin Jetkasettakorn via FreeDigitalPhotos.net

As I alluded to back in May in Save money with a tool library, there is some potential that we may decide to rent out our house for some period of time. We have a few different ideas in mind, some of which aren’t ready for public eyes. However, since we wisely chose a 10-year mortgage when we last refinanced our house, our payment has been large enough that we’d have negative cashflow at current market rates.

So we had a bit of a conundrum. We didn’t want to restart the clock on our mortgage term, but we wanted that payment to go down. Fortunately there’s an option that perfectly fit our needs and it could fit your needs as well.

Hold up! I suppose it’s time I explain myself. Since I’ve started this blog, I’ve simultaneously mentioned that I don’t have  a mortgage payment and have also said that we’re still working on paying off our mortgage. How can both be true?

The answer is really pretty simple. Being several years older than my wife and because I had a chunk of change from selling some real estate a few years ago, we decided it made sense for me to pay off my half of our mortgage earlier so that I could move toward pretirement (although I still pay my share of the escrow costs). Pretired Mama had quite a bit more saving to go (although she’s far ahead of where I was at her age). But that’s why I had the freedom to quit my job and stay home with the baby (even though I’m still shy of being fully pretired). (I also have two more mortgage payments related to some property I own with my brother, but that’s a story for another day.)

Anyway, here was the situation on our house as 2013 was winding down:

  • Mortgage (1st): $186,000 (10 year loan paid down from $251,000 — all of this is Pretired Mama’s debt)
  • Mortgage (Home Equity Line of Credit): $10,000 (leftover from a deck we recently had built and some other stuff – half of this was my share)

The payment on the first was around $3,000 including escrow. The payment on the second is just $100 (the minimum it can drop to under the terms of this loan.) We could probably rent our house for somewhere around $2,500/month so we’d need to drop it a fair amount to get into positive cashflow territory.

Pretired Mama has been faithfully following my patented template for rapidly paying off a mortgage (seriously — check it out if you’re working on paying off your mortgage. I have yet to see anyone produce a more efficient way to get there quickly.) She had some $40,000 in side savings built up so we had some options. Originally we had planned to do a refinance later this year, but we realized we could get to the same place easily without paying any expensive fees.

Recasting — the easy way to lower a mortgage payment

The method is called “recasting your mortgage” and it may just be the biggest secret in the mortgage industry. A recast of your mortgage simply means the bank will reset the amortization clock based on your current equity situation plus any funds you may wish to bring to the table. The timeframe of the loan remains the same, only the principal drops. She had been paying roughly three years on a 10-year loan so effectively the recast was equivalent to starting a seven-year loan at the new balance.

The bank’s rules (a local credit union) were that you had to be in good standing on the loan and you had to have a minimum of $10,000 to apply toward the recast (either that much equity or cash you brought forward). The processing fee was $150. No appraisal, no credit check, no income check. All we had to do was making a principal payment, call the person in the special products department and tell her the payment had been made, sign and notarize some documents (called “loan modification agreement” — probably the same documents people use when the bank agrees to lower the principal for people who are underwater) and wait. It really was that easy. There was one other question I asked the woman from the bank: “So does our other debt have any impact on this process? For example, if we withdrew some money from our HELOC would that impact our ability to complete the recast?” She said, “No, we don’t look at that at all. You bring the money and we recompute the amortization. That’s it.”

The biggest hassle was trying to get notarized. The bank’s paperwork was unclear about whether we had to have a witness to the notarization or not so we wasted an extra hour with a bored baby at the bank trying to figure that out. (People were scowling at us as we dealt with the signature issue and I’m pretty sure they were assuming we were deadbeats trying to get a loan modification. Heh!)

So here’s how we ended up structuring things. I paid off my half of the existing HELOC ($5,000) as originally planned. Then, we actually pulled some additional funds out of the HELOC to combine with Pretired Mama’s side savings. So effectively, we brought $86,000 to the table from the bank’s perspective (even though half of it was their own money). The remainder on the first mortgage would be $100,000 and the HELOC would now have around $51,000.

When we were done, the loans looked like this:

  • Mortgage (1st): $100,000 (still officially a 10 year loan, but with just seven years left — still all Pretired Mama’s debt)
  • Mortgage (HELOC): $51,000 (this is now all Pretired Mama’s debt as well)

The new payment is $1,800 on the first (including escrow) and it’s still $100 on the second. Monthly savings of more than $1,000/month! So now we’re well below what we could get in rent and Pretired Mama should have the HELOC paid off in a year or less. From there she can either stay on the accelerated plan to pay off the first mortgage or she can shift over to rapidly building up her pretirement fund. Another interesting fact is that the bank said there is no limit to how many times you can recast. So it’s possible we could do one more of these before our loan term is done.

Will your bank allow you to recast your mortgage?

Since I was dreading the high costs and hassle of a refinance, I’m now in love with the recasting concept.

Unfortunately, not every bank is on board with letting you recast your mortgage. My brother and I tried it with another piece of property we own together and they told us they don’t offer this service. And why would they, really? They lose thousands in interest. The only advantage I can see from their perspective is that they retain your business vs. letting you refinance away to another company. But since we use a credit union that offers good service, it’s still an available product (although one they don’t advertise at all).

But if you’re in anything close to my situation, it’s worth a phone call to find out. With a sky-high stock market it can be tough to find a good place to put money. If you’re sitting on cash and are worried about buying at the top of an overpriced market, a recast could be a good solution. You could recast your mortgage, lower your payment significantly then invest the savings on monthly basis, thus dollar-cost-averaging your way into the market — all with less debt hanging over your head.

It made sense for us right now, but every situation is different. Be sure to do your homework. For me, though, I’ll be confirming any bank I take a mortgage from in the future offers a recast. I like having options.

The best mortgage term: 10 years

Want the best mortgage term? Think beyond the 30-year fixed

The best mortgage term: the 10-year fixed rate loan!

The best mortgage term: the 10-year fixed rate loan!

What were you doing 30 years ago?

Me, I was about to start my sophomore year in high school. I was thinking a lot about getting my driver’s license and staring at a lot of boobies. I had begun what would become a lifelong obsession with destroying my hearing, blasting Duran Duran, Men At Work and Loverboy through my orange-padded Walkman headset. All-in-all great times!

In other words, it was a lifetime ago. A lifetime.

Now think back to what you were doing 10 years ago. For me, I was working. My boss who thought highly of me got fired in a tussle with a hated adversary. That adversary became my new boss and he transferred all his hate to me. I was thus left fighting to save my job, even though from any objective measurement, I was doing great in my role. (No wonder I hate corporate America so much!) It was also the year I bought two fourplexes and I spent nearly every weekend for a year working on them.

The thing is, though, that doesn’t seem that long ago. Yeah, a lot has changed since then, but I still remember those days clearly.

Not long ago, when I wrote about how to get rid of your mortgage, I mentioned offhand that part of the strategy was a 10-year mortgage. I also mentioned in How much should you spend on your house that the payment on a 10-year loan should be the measure for how much house you should buy.

I realized I never completely explained my thinking around 10-year mortgages so I wanted to spend some time fleshing out my thoughts on that.

The 30-year term was created after the Great Depression in the 1930s to stabilize the real estate market. Now homes were accessible to a much larger market than ever before. As easy credit has a way of doing (we’re now seeing it with tuition costs), the rapid increase in the number of buyers created an increase in housing prices.

Thus, as time went on, the 30-year mortgage became less of an option and more of a necessity — particularly during periods of high interest rates. Now the 30-year mortgage is the standard loan in America. Nearly everyone with a house has one. Rather than simply believing it is the best mortgage term, many people assume there is no other option.

For people seeking pretirement, however, there is another option and it’s the best mortgage term: the 10-year loan.

Here’s why I say it’s the way to go right now while interest rates are still low:

It’ll help keep you honest about what you can afford

When I give the advice to not buy a house if you can’t afford the 10-year payment, I’m not necessarily recommending that you take out a 10-year loan — it’s just a way of determining the right loan amount for your budget. However in most cases I DO recommend it, because it prevents that money from cleverly turning into electronics and furniture. These many, many things that you’re going to want but don’t really need will be out of reach — and that’s a good thing. You may really want that nice, new couch for your living room, but you’re effectively buying that couch on credit if you’re only able to “afford” it because your house payment is artificially low.

The payment might not be as high as you think

Check out the difference in the payment amounts for two sample loans, one at $250,000 and the other at $450,000:

Loan AmountRate for 30 year fixedPayment on 30 year fixedRate for 10 year fixedPayment on 10 year fixedDifference in monthly payment
$250,0003.99%$1,192.102.75%$2,385.28$1,193.18
$450,0003.99%$2,145.783.25%$4,397.36$2,251.58

Now, I’m not pretending that the extra money you’ll be paying each month is not an insignificant amount of money. On the smaller loan example, you’d be out an additional $1,100 per month. That will sting. It’ll sting badly. On the higher-priced loan, you’ll be well over $2,000 more each month.

Here’s why I say that’s OK. While it certainly is a chunk of change, let’s remember that in most cases, we’re spreading this across two people. So on the smaller loan, we’re talking about $500 each. That should be doable. If it’s not doable, we have to say you’re buying too much house and send you back to my first point.

You’ll actually see results

Sure you’ll gain equity with a 30-year loan as well. Eventually. Nearly every first time home buyer is stunned that just a few pennies from their giant mortgage payment actually go toward principal. For YEARS you’ll watch your principal sit there, barely changing at all. If you sell in too short a time period and you haven’t seen any market appreciation, the theoretical equity that you’ve been earning by reliably making your mortgage payment each month will have been more than wiped out by realtor commissions, property taxes and home maintenance.

When you go with the best mortgage term — the 10 year fixed loan — it’s the opposite. We have a 10-year loan on my current house (AND I live mortgage-free — guess I should explain that one of these days). It’s incredible watching the principal balance drop in big heavy steps. In fact, I’m finding it rather hard to put into words how breathtaking I find it to be each month. Even in the first month our principal began dropping by $1,700 per month. Every year it’s another $20,000 gone. Compare that to a 30-year loan where on a loan of our size you’d see a drop of just a few hundred a month. Take a look for yourself with an online amortization table.

Low interest rates make it possible

My favorite reason to pursue a 10-year loan is that you can. The low interest rates we see currently make a massive difference on your total payment size, all else being equal. That means you can put your house purchase on the accelerated plan, something that was largely impossible for middle class buyers until recently.

You can lower your debt load

Back when I was carrying five mortgages at once, it really sucked doing loan applications. Sure, credit was unbelievably easy to get. I once had a loan officer looking at my list of five mortgages and ask me “So do you want to run this through as a no-doc loan?” Meaning they wouldn’t need to verify my income, they’d just approve the mortgage based on my credit score. WTF?

That was still easier than in the days following the great economic collapse. When the list of loans popped up  on my credit report, it would take about 45 minutes to walk them through each one, explain the rental situation for each and explain how I managed to make all my payments on time. While it’s still pretty tough for me to get a home loan, it’s getting easier. As I’ve been shedding properties (and related debt) in recent years, the ice has been melting. My overall debt looks much more reasonable and I don’t get the shocked questions about the eye popping numbers on my credit report.

It gives you options

Even if you have a few years left on your 10-year loan, your disciplined focus on getting rid of debt and building up equity creates new opportunities for you. You’ll be able to consider buying investment property or just pay off your house completely. You can take out an affordable home equity loan and start a business or pay for your kids’ education. You name it. But even more fun, if you start out on a 10-year loan path and save up a little on the side, you could pay off your mortgage in as little as seven years! Now that’s an option.

It’s less risky

The biggest push-back against a 10-year loan is usually fear of a cashflow crunch should hard times arrive. The classic scenario is one or both members of the couple lose their job. The house payment is too large to be made on one salary and the house of cards collapses and you lose the house and the kids are out on the street.

Is it really a concern? Of course it is. But you’re not going to run into this situation because you’re reading Pretired.org and are going to take some measures to keep yourself safe. If we look a little deeper we can see that it’s actually less risky to go with the 10-year over the 30 year loan. You wouldn’t be buying a house if your employment wasn’t reasonably stable anyway. But how far into the future can you see? You might feel reasonably safe for the next 7-8 years but what about the next 20-25 years? It’s a lot harder to predict a couple decades out, right?

Also, because you’ll be building up your net worth instead of buying a bunch of crap, you’ll have a larger margin of safety. If things go south on you, you’ll have equity available and controlled housing costs so you’ll have more security than your highly leveraged neighbors.

Which brings me to final reason you’re safer with a shorter-term loan: Your emergency fund. Now, in the first couple years things could be tight and you need to be careful. Bad things can happen. I’d say keeping 6-12 months of emergency cash handy is pretty important in the early years. In later years, however, you can open a line of credit to access your newly-built equity, which will serve as your emergency fund.

Your housing costs will be controlled

One of the important steps toward reaching pretirement is bringing your housing costs under control. Whether it’s as a renter or homeowner, you need to ensure housing costs don’t rise suddenly on you in later years, eating up your cashflow and sending you back to work. Getting rid of your biggest expense gives you a lot of power over your monthly finances.

You could be mortgage-free

Hey, need I say more? The American Dream used to be “owning” a house (even though the bank really owned it). These days, the American Dream is about getting rid of your mortgage as early as possible in life. That mortgage payment is what keeps us chained to our desks. You dream of doing something else, anything else, but the career brought you to this place and you’d have to make much less if you changed careers. Getting rid of your mortgage is what makes this possible. And the 10-year loan is the best path to getting there.

What do you think? Have I convinced you the 10-year fixed loan is the best mortgage term?

Image courtesy of Renjith Krishnan via FreeDigitalPhotos.net.

Pop your own housing bubble

Is it time to downsize?

It feels like a million years ago now, but the massive real estate crash of 2008 was only a few years ago. I saw the collapse up close and personal. Well before the crash, my wife and I bought a fairly large fixer, planning to move in once the bulk of the work was complete. Part-way through, we decided we hated the place and decided to complete the work and sell it. It’s what I call our inadvertent house flip.

Once we put it on the market, we had one (ONE!) interested buyer. No one else had really even given it a serious sniff. The housing market was cooling, but a total meltdown was yet to occur. But I could tell a bomb was about to go off. I just didn’t know how big the bomb was. My heart was racing nearly every day. Even as our buyers got squirrely, we did everything they asked, even suddenly replacing the furnace just days before closing. And we survived! With our asses intact. We didn’t lose any money but didn’t really make any either. All we lost in the end was a year of very hard work. We felt like winners as we watched the house’s Zillow rating drop by $200,000. That was late 2007. I think it was close to a year later that the stock market collapsed and all hell broke loose.

So that’s how I found myself sitting pretty when the big crash finally hit. I still owned a lot of real estate with rapidly declining value, but I had equity in everything and was cashflow-positive on the investment side. Plus I was working at a stable healthcare company. While the company was experiencing a brutal income drop as workers lost their insurance, it was getting through just fine. In fact, the crash may have helped that organization shake itself out of its complacency and begin running a much more lean operation.

Fear and debt

During that time, I talked to many of my coworkers about their finances. And they were SCARED. Scared shitless. One friend had decided to let the bank take his condo back after they announced massive assessments and he realized the value was never coming back. But most folks, many in their 40s and 50s, just had that blank stare of someone who is beyond panic. I had just two words of advice for them: Shed. Debt. These were good people, nurses and techs, who would wipe up your bodily fluids without thinking twice and give you a hug on your way out. Better people than I’ll ever be. They’d worked long, hard careers, but most of them had very little financial security.

That was when I realized just how much debt people were actually carrying. It was stressful for me just talking to them. Massive house payments, car payments, credit cards, school loans and on and on and on. I had just one good friend who was on track to having her house completely paid off and wasn’t even that worried after her husband was laid off. Good for her!

That’s not to imply that I wasn’t freaked out, though. I had three mortgages I was responsible for. Would have been four if I hadn’t unloaded that other home! I had to drop the rent price a few times and had a few periods of vacancies, but really it was not that big of a deal looking back. But, still, I was pretty spooked by the whole thing. That’s why I was so anxious to get mortgage-free as soon as possible and to reach financial independence as soon as possible.

Instead of reinvesting the cash from that home sale like we should have, (DAMNIT!) my wife and I decided to finally buy the house we really wanted, leaving my starter home behind. We also bought way too much house. Too much room, a nicer view than we really should justify given our financial goals and more yard than I can maintain.

That’s not to say we don’t love it. We love our neighbors. The house is wonderful. Our neighborhood cannot be beat. But it was probably well into 2010 before we realized how much this house is holding us back. So as we sit here in our beautiful cage contemplating our pretirement, we’re rethinking things. Hopefully many of you are as well. That fear that so many of us felt was driven by our over-inflated lifestyles. The good news is that we now have a chance to restructure things so we never feel that fear ever again.

Time to pop your own housing bubble?

It occurs to me that that the real estate market has largely recovered (at least here in Seattle), that it may be the right time for quite a few people to make strategic adjustments to their housing situations. Pop your own housing bubble, if you will.

Now on one hand, real estate appreciation could mean we’re in the perfect situation. Just ride up with the market, sell at the right time and be loaded! And that might be where we end up. Our neighborhood could very likely appreciate by 10% a year for the next few years. Don’t scoff, it’s true. Right now, houses are selling on their first day in my neighborhood and prices are rising rapidly.

On the other hand, depending on when a person purchased their home, they may already have significant equity but prices in general are still somewhat deflated, particularly if they were to move to another area. But more importantly, by downsizing, a family could move from being saddled with too much mortgage and back-breaking maintenance to a debt-free lifestyle with a fast-track plan to pretirement!

As always with real estate, whether this is possible for you depends on your situation.

Let’s say a family owes $400,000 on a house valued at $600,000 and are still paying on their original loan. They could dump the giant house, buy a still-very-nice $400,000 home and be paying on a mortgage of just $200,000. And with the low interest rates of today, they could enjoy an additional boost in their savings. And using my patented mortgage payoff acceleration plan, they could be mortgage-free in just a few years! Or they could rent awhile and put all of their equity toward their pretirement funds. That invested money could even generate enough income to pay a good chunk of their rent if they were so inclined. If the house can be rented to cover the mortgage or close to it, you could still pop your bubble by renting our your house and moving yourself to a cheaper place.

Can someone without a ton of equity also pop their housing bubble? Of course! Renting a fancy apartment way bigger than you need? Move! Only have a tiny bit of equity but know you bought too much house? Works for you too! You might want to wait a bit for the market to run up a bit more, but as soon as the timing looks right, sell it off and downsize!

The bottom line is that if you’re a normal American, you are living with way more than you NEED. By downsizing now, while you can, you may be able to greatly accelerate your pretirement. It’s time for a difficult conversation with yourself (and your spouse): How much do you REALLY love your house? I figure that by buying such a luxurious home cost us at least an extra TWO YEARS of working.

What will we do? I don’t know. We’re talking about it now. We’ll be here at least another year or so and then we’ll make the decision. We may rent a cheaper place for a time and pocket the difference (our current house could rent for quite a bit). We may even keep living here awhile. And, who knows, maybe we’ll change our minds and decide to take the hit and just live out our days here. It may be a cage, but it’s a damn nice one.

In the meantime, we’re getting this place ready to sell or rent. Even if we decide to stay here at least we’ll have all these projects done!

What about you? Are you thinking about popping your own housing bubble? 

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