Are you thinking about renovating your home and wondering what the best way to finance that purchase would be? Whether it’s paying cash or taking out a home equity line of credit?
It’s a foregone conclusion, you are going to do some renovations or remodeling around the house. Whether it’s adding on a deck, redoing the kitchen or a bathroom, getting new windows and siding. Either way, remodeling your house is a major capital purchase, and you’ll always hear us say, it’s not what you buy, it’s how you pay for it that really matters.
So the question remains, what is the best way to make this major capital purchase so that you will come out ahead on the other end? Our unique ability is to see things through the lens of being in control of your cash flow or not being in control of your cash flow.
So with every financial decision we look at the question, is this putting you in more control of your money or giving control to someone else and leaving you in a weaker financial position Let’s take a look at how you could be in control of your money and still buy the things you want, like renovating your house.
First, let’s assume you have enough cash or enough savings to pay cash for the renovations that you’re planning on making. So in this scenario, what happens is you have all the cash sitting here that you own and control, and then as soon as you make the purchase, the control is gone, your bucket is empty, and now all that cash is given away to an outside entity.
But what does that really mean for you financially? Well, you’ve drained the tank. You’ll never see the interest you’re not earning on your pile of cash because you drained the tank and it could no longer earn any compound interest for you. We call that opportunity lost.
The second way you could pay for your renovations is to do traditional financing, whether it’s an installment loan, whether it’s a home equity loan, whether it’s a total refi or a cash out refi to pay for the renovations. Either way, you’re asking permission to get the loan and now you have an additional payment to make out of cash flow.
So what this looks like is you had these payments going towards your savings or investments and now you have to redirect that cash flow to pay this installment loan, home equity, loan, mortgage, whatever you chose. So based on what we just said, whether you finance or pay cash, you’re either going to pay interest if you finance or give up your interest if you pay cash.
The answer may be a specially designed, whole life insurance policy designed for cash accumulation so that you could build up a pool of cash that you have full liquidity use and control over so you could access the cash through a collateralized policy loan, a contractual guarantee, and still continue to earn continuous compound interest.
Now you’ll have a loan against the policy and you could make payments back to the policy loan and rebuild access to that cash value. So you could use it again in the future instead of giving away control to an outside entity.
So again, looking at things through the lens of you being in control of your money and showing you how to regain control of your money, it’s very simple. You build up a pile of money that you are in control in your life insurance policy. You pledge that, as collateral through a collateralized loan, all they do is put a lean against your policy and they give you a separate loan. Now, when you make a payment, every payment you make increases the equity that you have. You stay in control of the cash. It’s always earning compound interest and you’re in control of the loan payments that you’re making because every loan payment reduces the outstanding policy loan, increases your equity and is completely accessible to you through the contractual loan provision.
Let’s look at this for a second. What’s the difference between building equity in a life insurance policy in the cash value versus, let’s say, building equity in your home? And there’s a very distinct difference, and that is you have guaranteed access to your cash value. There is no ifs, ands or buts or qualifications of any kind to access that money. It’s simply giving an order to the insurance company. “Hey, I want a policy loan against this cash value,” and then they send you the money versus going to the bank and saying, “Hey, I’d like a home equity line.” And they say, “Okay, show me everything you got and prove that you could repay this loan.” It doesn’t work like that with a policy loan, and that is a very distinct difference.
So it basically comes down to this: with a policy loan, you’re giving an order. With a home equity loan, you’re asking permission. Which position gives you more control when you’re giving an order or when you’re asking permission? So when you take a policy loan against your cash value, it basically is giving you the best of both worlds. The aspect of paying cash and financing.
So what do we mean by the best of both worlds? Well, it’s really simple. If you were to pay cash, you would have first had to have saved money. But when you pay cash, you drain down the tank. You don’t want to do that because you’re giving up control to the contractor.
Borrowing against your cash value, you don’t drain down your cash. You still access it through the loan provision, but now you have a payment. But now that payment is yours. Every payment you’re making goes back to reduce the policy loan and increases your equity. So you’re controlling your cash because it’s continuing to earn compound interest and you’re controlling the monthly payment to pay back the loan against your policy. The best of both worlds.
If you’d like to see whether or not a specially designed whole life insurance policy designed for cash accumulation makes sense in your situation. Be sure to visit our website at Tier1Capital.com and schedule your free strategy session today.
On our website, we also have a free web course, The Four Steps to Financial Freedom, where we do a deep dive on exactly how we use this process to achieve our clients financial goals.
And remember, it’s not how much money you make, it’s how much money you keep that really matters.