A “home” is defined as the place where one lives. Yep, that is true but it so much more. It is an emotional safe haven. You decide what goes on in your house. The house embodies dreams for marriage, kids and entertainment. When the whole world turns to sh–, going home is a “warm hug”.
Now the financial side of the issue. Normally there is an initial mortgage that follows a down payment. Most mortgages are for 30 years. Each year that goes by, your equity in the house increases. Equity improvement is slow in the early years of a mortgage payment schedule but you have the option of accelerating reduction of the loan principle (so your equity goes up). The silver lining to this whole issue is that most homes increase in value by following inflation increasing your equity holding also. The jackpot is when you happen to have a home in an area where people are rushing to live such as Silicon Valley in California, Phoenix, Arizona and Naples, Florida.
My advice Grasshoppers is that you shouldn’t risk the equity you are building in your home. It represents your biggest financial asset. It gives you financial stability. It is your special place. It is the one place in the world, no-one can tell you what to do.
Why this rant! More and more people are tapping home equity because it seems to be cheap money. From a pure financial perspective, a home equity loan (creating a 2nd mortgage) can have an attractive interest rate and is tax deductible on your year end income taxes. Suddenly your home equity is gone! You’ve got another payment! The bank has really become your “Daddy now”. In a worse case scenerio, if you miss several payments on your home equity loan, you could be living a homeless shelter.
Don’t do it! Don’t tap your home equity. You are screwing with the emotional core of your family. Why do that? Did anyone ever hear of saving? If you need money, save up for the expense.
It is true, a man’s home is is castle (as humble as it may be).
Love,
Dad