We live in interesting times! The news is mostly unsettling if not disastrous. The US based sub-prime fiasco, Iraq, corruption in Afghanistan, oil, global food prices, Zimbabwe, Global Warming, the terrible cyclone in Burma, China’s resurgence, and the seemingly permanent US election process.
We are all aware that major changes are taking place and that the world is experiencing simultaneous crises, any one of which represents a huge challenge. We know that in many ways they are all related, and that we are in an uncertain period between historical epochs. New models are going to emerge but nobody knows what they will be. We have seen oil prices rocket upwards and we vaguely expect that other shoes are going to drop.
Old business models and deeply-rooted assumptions are being challenged, including most of what we think we know about money. Most of the conventional wisdom about mortgage financing is based on the losses experienced during the Great Depression of the 1930’s. Sheltering savings in the home, by paying down the mortgage, was perceived as the best way to build protection against another such calamity, referred to in previous newsletters as “Black Swan” events. Pay off your mortgage and live debt free, became the mantra.
The current sub-prime crisis reminds me of the last housing market crash when home prices plunged about one third. At the height of the boom, in May 1989, I bought a home with a considerable down payment. By the early 90’s the value had fallen by 30% and only ten years later, about six years ago, did prices start to climb until we are now slightly ahead of 1989 levels. Fortunately, I did not have to sell in the nineties, otherwise I would have taken a huge loss.
During that period, when governments and companies downsized to reduce debt, homeowners were saddled with losses and had to live with the consequences.
Having observed and experienced these events, I have come to the view that there is a better way. It is possible to look at a mortgage as a financial planning tool! Instead of focusing on debt, it is more profitable to focus on managing and optimizing ‘net worth’. We should consider the opportunity cost of maintaining “dead” home equity, which earns us nothing, and which may be vulnerable to “Black Swan” events such as the one we are experiencing now.
In my travels I met American author Marian Snow who invited me to co-author a Canadian edition of her book “Stop Sitting on Your Assets”, which advocates this new approach. I have accepted her invitation because it ties in with our shift in thinking from that of mortgage broker to that of mortgage planner. During my spring initiative I also changed the face of our website by making it a springboard for launching the Canadian version of “Stop Sitting on Your Assets”. The book presents a holistic view of how to safely leverage the equity trapped in your home and transform it into a constant flow of wealth and security.
Before launching the book I would like to tell you via email how to reserve a ‘free copy’. To test the accuracy of our email data base this letter is being sent by both snail mail and email. If you did not receive an email version it indicates that we do not have your email address. If that is the case, please, respond to morwatch@ca.inter.net
Recent Comments