Mortgage: The Dead Pledge (And How To Free Yourself)

Did reading the words “Dead Pledge” make you feel slightly nauseous?  I felt that way after finding out that the traditional French definition of a mortgage is actually “Dead Pledge”.  Perhaps this is why so many homeowners whose biggest expense is their mortgage feel that uneasy sinking feeling when sitting in front of the banker to sign new mortgage documents.  It can feel suffocating as though you actually are signing away part of your freedom.  For the average Canadian, a traditional mortgage on their primary residence is the largest outgoing expense of bad debt.

What most homeowners don’t realize is that by the time their mortgage of $250,000 is paid off, they have spent $786,664; nearly 300% the amount of the original loan over the course of a 25 year amortization .  With additional re-financing this number can drastically increase.  Can you see the correlation between how the banking system operates and the meaning of “Dead Pledge”?

So, what if there was a way to pay off your mortgage in half the time without changing any payments and without changing anything in your current lifestyle?  Wouldn’t you be curious to learn more about how such a system can work?

There is a way Mortgage Freedom can be achieved and that’s by turning your primary residence into a cash flowing asset that actually pays YOU every month.  This may seem voodoo like but it’s a simple system that fully complies with Canada Customs & Revenue Agency (CCRA) regulations.  Thousands of homeowners across Canada are taking full advantage of this exact strategy and eliminating their mortgages in record time while dramatically increasing their yearly income.  I first would like to define what an asset really is because many people believe their home is their biggest asset and investment.  In order for something to be considered an asset it must follow these 3 rules:

1) Put money in your pocket, not take money out

2) Provide positive cash flow

3) Realize returns

If you have a mortgage right now, your home is actually a liability because it takes money out of your pocket.

In order to turn a home into an asset, Canadians who have more than 25% equity in their home with a good FICO score (a defined credit rating system) of 620 can take out a home equity line of credit.  The next step is to put this equity into an investment.  Once the investment realizes returns, that sum of money is then paid back towards the balance owing against the mortgage.  As the mortgage is paid down quicker, more equity can be unlocked and re-invested.

The keystone to this strategy is the security of the investment.  There are 8 Unwavering Rules to abide when considering the type of investment vehicle to place your equity.

1) Low Risk – Look for a debt investment such as other mortgages secured by a tangible asset.  With a mortgage, the borrower has a contractual obligation to pay back the debt.  If the borrower is unable to make payments than foreclosure is enforced and funds owing on the mortgage are reclaimed.  This is the exact system the banks have been using for hundreds of years to lend money for conventional mortgages while protecting their capital.  This is the least risk investment next to a GIC.

2) Positive Cash Flow – The payments of borrowing from your home equity should be covered by frequent and predictable cash flow generated from the investment.  When investing in income producing assets the interest paid to borrow on your home equity is fully tax deductible (contact your accountant for more details).

3) First Mortgages – Look for an investment that places funds primarily in first mortgage position.  This ensures security in the case of foreclosure; hence, first mortgage position gets paid back first. Tip: Make sure the loan to value (percentage of mortgage balance) is not higher than 75% to ensure less risk.

4) Diversification – Don’t put all your eggs in one basket.  There is lower risk and more security when funds are placed in a source of multiple investments.  Make sure these mortgages or investments are in areas with strong economic fundamentals such as population growth, infrastructure expansion, and globally consumed natural resources.

5) Experienced Management Team – Make sure you know the background and experience within the management team correlate to the type of investment.  This team must be experts in their respected field.

6)  Fees – The management fees should be low (between 1%-2%) and operate with lean corporate expenses and spending.  There should be little to no fees to set up the investment process.

7)  Simplicity – Is the investment simple to understand?  If not, then there may be a reason for that.

8)  Gut Feeling – what do your instincts tell you about the company?  Really listen and tune into what your gut feel because you have to be comfortable with the investment.

When considering the mortgage elimination strategy, absolutely Do Not:

• use this strategy with a high risk investment such as public stocks
• use a long-term investment with zero cash flow
• use an equity investment
• spend cash flow on anything other than mortgage reduction.

Leave a comment if more clarification about this process is required.

Until Next Time…

Dineen Jogola

Wealth Strategy Specialist

Advertisement