Paul Haarman, vice president of Renaissance Mortgage, said that if parents plan appropriately, harvesting real estate equity can turbo charge their savings and make the thought of college much more palatable.
“When it comes to financial aid, your kid’s prospective college will view your home as a gold mine, so why shouldn’t you?” said Haarman. “If you treat a home like a liability, it will perform like one. Being house rich and cash poor doesn’t help you when you lose your job or your children go off to college.”
Through a program called the Integrated Wealth Management System, Haarman introduces his clients to a unique savings approach that encourages people to invest their home’s equity in order to start saving, pay down debt and create liquidity.
The theory behind the Integrated Wealth Management System, according to Renaissance Mortgage, which has offices in both Salem, NH, and Reading, Mass., is that real estate is an appreciating asset that has tax-leveraging benefits, regardless of whether or not a person owes money on a home. If a person were to take their equity and invest it in a separate, interest-earning environment, it begins to earn compounding interest while the home’s value rises as well.
“This is a tough concept for people who come from the old school of thought that you should pay off your mortgage as soon as possible,” said Haarman. “But if your equity is tied up in the brick and mortar of your home, it is essentially getting a zero rate of return. If you invest it, you benefit from the miracle of compounding interest and create liquidity. Liquidity is safer — who cares if your house is leveraged to the hilt if you have $500,000 in the bank and can pay off your mortgage at any time?”
He quickly adds, however, that harvesting equity should not be done without the oversight of a trained professional who can ensure that the investments and financial projections are prudent, safe and carefully handled. He also warns that if someone does not have the discipline to leave that equity alone or if they have a consuming mentality, this program may backfire on them.
“The Integrated Wealth Management System and the concepts behind it are certainly not for everybody,” said Haarman. “But for those people who are open to this idea, it can make a huge difference when your child’s college years roll around — and it can most definitely mean the difference between retiring and not being able to retire at all.”
To learn about the Integrated Wealth Management System or Renaissance Mortgage, visit www.paulhaarman.com, www.rmcmortgage.com or call (800) 459-6327.
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