It’s the American Dream right? To own a home that is free-and-clear of mortgage debt. If it’s not a dream of yours, it’s at least a goal for most to achieve before retirement…right? You plan for a future that entails you not having to make mortgage payments on a home once you’ve retired from the workforce. However, this goal or dream seems to be a daunting task for many of Colorado’s homeowners, since 30 years is a long time, and a full generation into the future.
The Old Way:
The interesting fact, is that on average homeowners in the U.S. and in Colorado owe money in the form of mortgage debt for a 30-year period. However, over this same 30-year period they are in and out of at least 5 mortgage loans. Meaning, that although most homeowners sign up for a 30-year mortgage loan each time they take out a new mortgage, they rarely (if at all), stay in one single 30-year mortgage for its duration, primarily because they don’t end up living in the same home for more than 10 years at a time and/or end up refinancing for some reason or another.
The lucky Colorado homeowner, typically ends up becoming mortgage free at the end of this 30-year period by using the equity appreciation accumulated on their first home, to invest a much larger down-payment on their second home than they did on their first home. They then use the equity appreciation accumulated on their second home, to invest an even larger down-payment on their third home, than they did on their first and second homes. This pattern typically repeats itself if they purchase a fourth or fifth home, and until they are close to retirement.
When heading into retirement most Colorado homeowners are “empty-nesters” and they don’t need or want as much square footage in a property as they may have required during the years they were working and raising children. Therefore, most often they are able to purchase their last home without using a mortgage loan at all, by taking all or most of the net-proceeds from selling their last home, and applying it all to acquiring a smaller home where they will spend their twilight years. This is most often referred to as “down-sizing”.
However, many homeowners aren’t so lucky, end up dealing with some sort of life event that causes them to divert from this process of trading up for most of their working years, and then finally trading down for retirement. Such life events can be a divorce or two, a business failure, job loss, or worse, a health issue, that requires them to borrow against their home equity, or even worse, lose one of their homes altogether. Therefore, many Colorado homeowners cruise into retirement still owing a substantial amount in mortgage debt, and aren’t one of the lucky ones who’ve avoided such events, and have been able to work the process outlined above.
Mortgage Acceleration Options:
Given this typical process, and given the potential issues that some face, it’s no wonder that many Colorado homeowners seek out ways to accelerate their mortgage debt. Whether it’s the homeowner who’s behind the eight ball, because of a job loss, divorce, or other unfortunate event, and is overpaying his/her mortgage to try to play “catch up” or the high income earner, that’s just buckling down and making huge pre-payments in an effort to pay off his/her mortgage in a fraction of the time, a mortgage payment typically constitutes for up to half of a homeowner’s after tax income. When coupled with the fact that 25% of all the interest in a 30-year mortgage loan is paid in the first 5 years (17% of the term), one’s mortgage is the largest financial burden anyone will take on, and can be the single largest barrier to having more money left over for retirement.
However, the light at the end of the tunnel is provided by the knowledge that with each and every monthly payment, equity is being built up, by the mortgage loan slowly being extinguished, but even though Colorado homeowner’s have had the luxury over the previous 15 years to finance their homes with record low interest rates, the interest costs when spread out over 30 years, continue to be astronomically high.
Therefore, the number one strategy most Colorado homeowner’s employ to reduce these interest costs, is to get into a mortgage loan with a shorter amortization, such as a 20 year or 15 year fixed mortgage loan. However, while this strategy will provide a lower interest rate, as well as an earlier payoff, spreading the interest out over 15 to 20 years, still adds up, and the homeowner is now required to commit to higher monthly payments then they would be if they stuck with a 30 year mortgage loan. Taking on higher payments could cause more financial strain should something happen like a job loss, or a sever reduction in income, so this is why most typically stick with a 30 year mortgage, and simply make larger monthly payments when they have the extra funds to do so.
A Better Way for Colorado Homeowners:
However, there’s a much more effective and efficient way to accelerate one’s mortgage debt, drastically reduce interest costs, and create more home equity in just a fraction of the time it takes in even a 15 year mortgage loan.
Arguably, the United States is trailing behind other countries around the world with the way we finance our homes. More consumer-centric home loan products have been developed over the previous 20 + years, and made available throughout Canada, Australia, the United Kingdom, and most of Europe. These home loans are actually the most common and popular type of mortgage utilized by homeowners in these aforementioned countries, and in these countries, these home loans are called “Flexible Mortgages”, “Off-Set Mortgages”, or “All-in-One Loans or Accounts”.
Finally, a new loan is available for Colorado homeowner that uses the “Flexible Mortgage” and “Off-Set Mortgage” as its template, it’s called the All-In-One Loan. Put simply, the All-In-One Loan allows you to use the money in your checking and/or savings account(s) to off-set your mortgage balance each month. In other words, if you have $100,000 in your savings and/or checking account(s), and you’re carrying a $100,000 mortgage balance, then you will be charged 0% interest on your home loan. If your checking and/or savings account balances(s) fall below the principal balance on your All-In-One Loan, then you are charged interest only on the difference and current balance, and not the original loan balance, which in turn enables you to save even more in interest costs when compared to a traditional mortgage loan.
For Colorado homeowners who are already in the All-In-One Loan, and enjoying its benefits, the average payoff time-frame is just over 11 years, and depending on the situation, there are many who are paying their homes off in a matter of 5 to 7 years.
To learn more about the All-In-One Loan, you can download the e-Book I wrote describing exactly how the loan works, as well as its benefits, by CLICKING HERE .