A Publication of WTVP

Total balance sheet management, which helps in the management of both sides of your personal balance sheet, can also help create and maintain your wealth.

If you own a home, there are now a number of liability management techniques with residential mortgages that can help make the most of your wealth creation opportunities.

Since the 1970s, mortgage and securities markets have evolved to such a degree that they’ve helped create an entirely new set of consumer loan products and services.

Many of these are specifically designed to allow residential mortgage holders to keep their equity investments intact, avoid or delay recognition of capital gains, and maximize monthly cash flow—all while retaining their real estate investments.

For some homeowners, mortgage financing has become an important component of a total balance sheet strategy that focuses on creating wealth by managing both the asset and liability sides of their personal balance sheets.

Innovative Concepts

Some innovative mortgage loans feature interest-only payment periods, rather than the more traditional method of paying down both principal and interest. Holders of these interest-only mortgages may find it easier to maintain their equity strategies by diverting the cash that would otherwise go towards reduction of mortgage principal to the purchase of additional securities.

Although investing in a residence is primarily a practical decision, based on your individual lifestyle needs, it also has the potential to build and store wealth through property appreciation, as well as principal paydown. The interest paid towards a residential mortgage, and any capital gains realized on the sale of a primary residence, both receive favorable tax treatment, which can transform the purchase of a home into a strategic investment decision that can enhance your overall investment strategy.

Home equity lending represents yet another possible method of strategic liability management. Many homeowners borrow against the equity in their homes to provide additional capital for use in a variety of purposes. For example, open-end lines of credit secured against residential property have been driving a move toward increased household liquidity since the mid-1980s. IBI