How our houses are financing our lives
This week’s Surreal Estate from Carol Lloyd at the Chron covers her own borrowing practices as well as a broader discussion of leveraging one’s house for remodels, travel, or college tuition.
Lately, our lives seem to be inundated with mortgages of various kinds, and we’re taking advantage of them in droves. Last year, homeowners extracted some $600 billion in equity from their homes through refinancing and equity lines.But those are mere numbers. That I too have succumbed to this mortgage mania shows just how far it has seeped into the American psyche. I always considered myself a fiscal conservative. Credit cards get paid off to zero each month. Can’t afford it? Don’t buy it.
How did I change?
A decade ago, I remember my mother telling me that after nearly 20 years of residing in their home, which my father had designed and built for about $75,000, my parents had a mortgage of over $500,000.
“What happened?” I asked my mother disapprovingly.
She waved my concerns aside. “This house is a bank,” she said. “We’ll never pay it off.”
A bank? After that, I could never think about our lives in quite the same light. My parents were self-made. They were from poor, working-class families with five and eight siblings, and they had put themselves through college, worked hard, and never got a dime from any parent or grandparent, dead or alive.
But suddenly I realized that their college educations and hard work might not have been enough to cover certain … luxuries. Like trips to Europe or my tuition at a private high school or my mother’s painting habit that sometimes took time away from her more lucrative work.
I know very few people who pay cash for properties (for the tax benefits, mostly) and also very few people who have long-term plans for paying off their properties. Some might argue that this is going to lead to a real estate downturn, but I would argue that this is just a difference in priorities from previous generations. Those that paid off their houses likely didn’t mortgage against them, until they perhaps pulled a reverse mortgage after their retirement.
There are definitely those out there now who are over-leveraged and who could be hurt by any slight change in the market, but of the 100+ clients I have put into homes in the past few years, I don’t know any of them who are in danger of losing their house. They may decide to sell if the market shifts, but that would be a voluntary decision…
My bottom line: for most homeowners, the chance to create far greater opportunities or better living environments is more convenient than it ever has been, and it doesn’t have to hurt your investment or break the bank. Talk to your mortgage broker about the best way to get what you need while protecting your investment.
