Helping Homeowners Accelerate Their Freedom Point Is the Best Way for Loan Officers to Achieve Their Own Financial Goals

Every chance I get, I try to drive home the fact that the best way for loan officers to increase their wealth and achieve their own life and financial goals is by helping their customers do the same. And within that strategic framework, there is no tactic more important for a loan officer than helping a homeowner reduce the time it takes to achieve their “freedom point”.

The freedom point is the point at which a homeowner becomes debt free and/or when their liquid assets exceed their debts and when paying off their mortgage becomes a strategic financial planning decision. Some mortgage programs gradually reach the freedom point automatically over a predictable timeframe; others help homeowners accelerate their freedom point and wealth creation.

There are two very different strategies for accelerating a homeowner’s freedom point:

The homeowner can prepay a traditional mortgage program by making extra monthly or annual payments on the mortgage itself. This is a safe strategy with a predictable return on investment. Below is an example of the impact of this strategy illustrated by Mortgage Coach’s Total Cost Analysis. In this example, based on subjective assumptions by the LO, i.e., predictions as to how the index will perform and assumptions of rate of return on the investment, the homeowner could be debt-free in 23.3 years (rather than 30) and would save $131,788 in interest:

Or, you could choose a low monthly payment mortgage program, such as an Option ARM mortgage, a 5/1 or a 30-year fixed with 10-year interest only (keep in mind that an Option ARM isn’t designed to be a lifetime loan; if the mortgage is being managed proactively, the homeowner will likely refinance every 3-5 years) . While many factors determine the overall interest accrual, i.e., index, margin, adjustment caps etc., if properly managed, homeowners who invest the difference between the 30-year fixed monthly payment and the low interest-only or Neg Am monthly payment in an interest-bearing account potentially can shave additional years off their mortgage time and achieve their freedom point faster than a traditional debt reduction plan. Also, they have more liquidity if a life emergency should arise, such as a loss of a job or an illness which might affect their ability to earn an income.

I n the Option ARM example below (third column), the freedom point is reached in 22.6 years, saving this client $245,755 in mortgage interest expenses. While the time to reach the freedom point is relatively close in the two examples, the amount saved is almost double by investing the difference between the two in a freedom account, not to mention that the freedom point could be much slower or faster with the low monthly payment strategy depending on the rate of return of the investment account. Given that the average homeowner retires with less than $80,000 in savings, this is a significant and life-changing amount of money.

Which mortgage strategy your clients choose will be based on their savings discipline, goals, rate of return on their investment and current financial situation.

The key to helping your clients achieve their freedom point faster is first and foremost to educate them about their options and then, once they choose a program, to help them measure and monitor their progress by conducting an annual “freedom point review”. As part of the Annual Equity Review, the freedom point review helps homeowners understand how the mortgage fits into their long-term financial goals and to adjust their savings strategy as needed.

In addition, homeowners with an Option ARM should also have a “recast point review”, to ensure they are on track to either sell the property by the time the loan recasts, or will have the money in their freedom account to pay the balloon payment when it comes due. With an annual freedom point review (and annual recast point review), all homeowners will be better prepared to achieve their retirement and overall financial goals.

By helping customers achieve these goals, you (the loan officer) will be positioned as a trusted advisor who has their best interest in mind. These customers will in turn come back to you several more times over their lifetime, generating thousands of residual income for you, as well as providing you with valuable referrals, because they trust you and will tell their friends and family about you.

I highly recommend that you contact all your referral sources and tell them about this new proactive service you can offer their clients to make sure their clients are on track to reach their freedom point. This new services is one of the best “LoanNOW Opportunities” I know in today market to generate a flood of referrals. So start spreading the word and start delivering freedom point reviews.

The Mortgage Coach is the foundational system that helps you illustrate the freedom point and conduct both freedom point and recast point reviews for your clients.