Realtors Ignore the Biggest Part of Home Ownership

Services for Real Estate Pros with Estates On Line

Realtors sell the largest investment a family ever makes - then walk away. This presents an opportunity for Realtors who take the time to learn how home ownership impacts long-term financial security.

What's the opportunity? To educate their client about reducing their mortgage cost through acceleration. The benefit is that the homeowner will be have considerably more money for retirement. The Realtor demonstrates a concern for the client's financial well-being that transcends the sale. This need not be altruistic on the part of the Realtor, as acceleration systems also pay referral fees for recommendations.

A Realtor can then tie the purchase of a home to having a more secure financial future. This knowledge also gives the agent greater esteem in the eye of prospective clients.

The American dream of home ownership is only one step in a family's long-term financial plan. Overall, people also do some kind of retirement planning at the same time they are paying their mortgage, like contributing to an IRA. This is a mistake.

Most homeowners are limited in terms of both time and money when it comes to planning their financial futures. The commonly accepted "wisdom" is to start saving for retirement as soon as possible. The problem is that interest on a mortgage is front-loaded, and it is impossible for IRA income to overcome the cost of mortgage interest.

Example: put away $3,000 in an IRA earning 6% and it earns $180 in year 1. But if the homeowner has a $300K, 6% mortgage, their annual payment is $21,000 - most of it interest until year 22.

Instead of funding the IRA, the homeowner would be FAR better off by using that money (and other discretionary funds) to accelerate the mortgage. In the first year alone, the $3K would cut $18K in interest payments. Forego the $180 income and you get a $18,000 improvement to net worth. Makes a HUGE improvement to a family's long-term finances.

A financial plan using mortgage acceleration will pay off a mortgage in less than 15 years (often much less) for most homeowners. Discretionary income skyrockets - as does the ability to build wealth.

Mortgage acceleration is something every Realtor should know about - and be able to explain and offer to clients.

Comments (8)

Mike Carlier
Lakeville, MN
More opinions than you want to hear about.

Not necessarily a bad idea, but you're comparing apples to fuzzy math.  $3,000 deposited one time in an IRA earning 6% annually would compound to a little over $17,000 in 30 years.  It would also have the advantage of being more liquid than home equity if an emergency were to occur.  What needs most to be considered is that earning of interest seldom happens at exactly the same rate as the interest owed on a mortgage.  Accelerating mortgage paydown should be considered along with other investment/savings alternatives.

Apr 09, 2010 04:01 AM
Li Read
Sea to Sky Premier Properties (Salt Spring) - Salt Spring Island, BC
Caring expertise...knowledge for you!

Thoughtful post...thanks for sharing.

Apr 09, 2010 04:27 AM
Marv Eisen
Estates On Line - Manhattan, NY

Mike - there really is nothing that compares to mortgage acceleration for building high net worth. Let's compare apples to apples, as you point out. Typical investments earn somewhat less than 10% annually, but then let's assume the homeowner has high yielding investments that earn 20%. Most would agree that this is unrealistic, but for the purpose of my example, I'll use it to compare - apples to apples - with the effect of mortgage acceleration. In my example, taken from an actual mortgage amortization table, a $3,000 investment in the accelerator eliminates $18,000 of interest payments. This is a 600% return on investment. This is what an IRA would have to pay to equal the benefit of the accelerator. And that is only the first year. This is not fuzzy math. And it's also guaranteed by the mortgage note, unlike the return in an IRA, which fluctuates, as you point out.

Next, you also point out the issue of liquidity, and rightly so. There are two ways of maintaining liquidity, which I agree is important. One is to put aside some money in a liquid account. But that is not the best solution. The best solution is to use an Australian accelerator - which uses a revolving credit line (but only a small amount) in conjunction with the homeowner's income to reduce the average daily balance of the mortgage. This maintains high liquidity while also allowing for mortgage paydown in about 10 years.

Most people are not familiar with this method, but it has been used in many countries for over 15 years. Realtors would do well to learn it.

CLICK HERE for a visual example of how annual mortgage acceleration compares to an IRA, as a picture is worth 1,000 words.

Mike, thanks for reading and for taking the time to respond.

Apr 09, 2010 10:18 AM
Marv Eisen
Estates On Line - Manhattan, NY

Thanks for commenting, Sea To Sky

Apr 09, 2010 10:35 AM
Mike Carlier
Lakeville, MN
More opinions than you want to hear about.

Marv, sorry, but you're smokin' the weird stuff.  The link says that the one year ROI is 600% in the first year.  That means that the $3,000 additional payment would save the debtor $18,000 in one year.  Come on, Marv, you know better than that.  A $3,000 additional payment on the debt at the beginning of the year would save 6% of the paymnet, not the principal, in that year.  It would save $180. 

Apr 09, 2010 12:47 PM
Marv Eisen
Estates On Line - Manhattan, NY

Mike - your point of view is well taken - and wrong. No, I'm not smoking the "wierd stuff". Even Suzi Orman agrees - and equates the amount of investment income with money needed to pay monthly mortgage costs. I can't embed the video here, but I can send you the link if you wish.

In order to reduce a 6%, $300K mortgage to $297K, the homeowner must pay $3K in principle + $18K interest. This is not fuzzy math, and the arithmetic is easily proven. In addition, unlike typical investments, the financial performance of an accelerator is guaranteed, because it's based on a contract.

In the long run, the homeowner investing in an accelerator will have far more money with which to retire. In the example, the $3K investment saves the $18,000 AND reduces the mortgage by a full year. An IRA would have to return $18,000 to the homeowner in the first year alone to pay that interest (more if you consider the tax implication).

Mortgage acceleration is not taught in this country - because banks and brokerage firms can't make money on it. BUT - it has been in wide use worldwide for over 15 years. The "Australian" model that I mentioned was started, not surprisingly, in Australia and adopted by HSBC bank where it was known as the HomeSmart Home Loan. Money Magazine awarded it a top financial product. Today, about 1/2 the people in Australia and New Zealand use it. In the UK, 1/3 of all homeowners use the technique. We're talking about millions of people. Nevertheless, there is much mis-information peddled about mortgage acceleration, so it's important to understand the do's and don'ts.

I appreciate that you have defended your original position, as very few people in the USA have been schooled in the benefit of mortgage acceleration.This is why I wrote the article, and the reason that Realtors should become familiar with the concept. All I ask is that you keep an open mind - I'm not trying to sell anyone anything. The underlying arithmetic easily bears out the principle. Remember, the world used to be flat! If you remain unconvinced, that's your choice, but the math will prove that mortgage acceleration does what I have described.

The $3K investment in the first year does indeed save $18,000 in that year. Interest saved equals interest earned (and it's tax free!). The chart shown in the link is accurate, and I can also provide detailed cash flow summaries that you can discuss with your accountant.

There is no investment that compares to mortgage acceleration, and it gives homeowners a huge jump start to saving for retirement - with the ultimate result of having a larger (much larger) retirement fund.

Mike, there's more info at

Realtors who take the time to educate themselves about mortgage acceleration will have a considerable edge over their competitors.

Apr 10, 2010 06:25 AM
Mike Carlier
Lakeville, MN
More opinions than you want to hear about.

Marv, you are totally ignoring the time value of invested money, but you are artificially accelerating the image of saved interest expense.  You have been well-brainwashed by the folks who would like to charge homeowners for the privilege of making extra payments, a privilege they already have for free. I have been approached by the same folks who have sold you the kool-aid, and I rejected their argument. 

Do yourself a favor.  Get a piece of paper and figure it out.  You are following the Pied Piper. 

FYI:  I have taken the time to educate myself, I am a REALTOR®, and you are about 30% right in your assertions.

Apr 10, 2010 12:05 PM
Marv Eisen
Estates On Line - Manhattan, NY

Mike, I appreciate the dialogue. You're entitled to your own opinion, but not your own facts. And the fact is that the homeowner will pay $21K to amortize $3K of principal - $18K being interest. That's not cool-aid - that's real money - and the homeowner will pay it as stipulated in the mortgage amortization schedule.

Whatever education you took time to learn wasn't compound interest or the front-loaded aspect of the mortgage formula.

I would assume you've been approached by an agent of UFirst Financial (money merge account). I have nothing to do with them (and many of their agents don't know what they are talking about), but I am a financial advisor, a licensed insurance agent, and have both accounting and engineering backgrounds. The numbers behind the principle of mortgage acceleration are indeed real.

I didn't denigrate you for being a "Realtor", so please leave it at that, as your comments have an aggressive personal edge. If you still don't want to acknowledge the power of acceleration that's your right. Nevertheless, you stand on one side of this issue while HSBC and millions of homeowners throughout the world stand on the other.

As for the idea that clients have the "priviledge" of doing it themselves - you are partially correct (not the Australian system, which provides acceleration + liquidity and requires guidance). But very few will. Likewiswe, they have the "priviledge" of purchasing a home without a Realtor. Frankly, I don't know why anyone making a living as a broker or broker's agent would make such a statement.

Thanks for your dialogue. We can end it here, but I'll go a step further. Next time you sell a home - tell your client to contact me and I'll show them (and their accountant) how to save several hundred thousand dollars on that home - and have multiples of that in their IRA. I do indeed know the time value of money.

Apr 11, 2010 03:57 AM