Home equity accumulates in four ways: the money committed in the original down-payment; any appreciation in the local housing market over time; physical improvements or renovations; and, of course, principal payments on the mortgage itself. Through these four avenues, cash value – or equity – steadily builds up in the property. While seemingly desirable on its face, this accumulation of wealth in the home has three detrimental consequences that are not generally well-understood by most consumers.

First, the cash in your home is “buried.” Not only is it unavailable in the event of a family emergency, but it is also vulnerable to lose due to periodic downturns in housing values, fire, or natural disasters such as hurricanes (insurance, where available, may not cover the full market value of your home). Perhaps more critically, cash trapped in property is earning zero interest, year after year. No prudent consumer would put money into a savings account or investment plan that yields no rate of return, but many homeowners do exactly that without a second thought when it comes to their mortgages.

Furthermore, as a homeowner pays down the principal on a standard mortgage, he or she is steadily eroding the ability to take annual tax write-offs on the interest payments – which is the biggest tax shelter that most Americans will ever have. Put simply, as your mortgage interest payments decline, a greater percentage of your family’s income is exposed to taxation.

So, in addition to foregoing any interest on the accumulated equity, the average consumer also unwittingly takes on greater and greater tax liability as he or she pay down their mortgage.

In purely economic terms, this could be called “irrational” behavior; but it has been the predominant approach taken by U.S. homeowners for more than 70 years. Historians trace the cause to the Great Depression when unregulated lending practices triggered millions of loan defaults and foreclosures. The legacy of those times lives on today in the impulse felt by most mortgage holders to pay down their loans as quickly as possible so they can own their properties “free and clear.”

In doing so, however, they are opting not to take advantage of overhauls in consumer protection laws, financial regulations, and government tax codes specifically designed to help homeowners generate and protect personal wealth. In short, the range of “custom” mortgages available today – coupled with the growth in tax-exempt or tax-deferred savings vehicles like mutual funds – opens unprecedented equity investment opportunities for responsible homeowners who are committed to planning for their families’ security, their children’s education, and their own retirements. But most Americans fail to explore the power of “working equity.” Discover how to put home’s equity to work for your family. Call me today at 302-703-0727 to schedule a meeting.

If you would like to apply for a Delaware Home Loan, you can APPLY ONLINE HERE, you can call John R. Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713