Musings from You and Me

Home Equity is Like a Piggybank

Today I was looking at some listings from the past 3 years, and if they were listed today at those prices, they would no doubt get full price offers- no problem. I wondered if asked would those purchasers agree they had gotten a great deal? On average they paid 98% of asking price, not the listed price.

I am told there is nothing certain in life, except death and taxes. Well, I want to add real estate equity. I have gone on some appointments lately where the potential sellers have viewed their home's equity as a piggy bank that can be dipped into with no consequences to their fiscal health.

Even though they have made 3 years worth of payments, they are close to being tapped out. The money owed is almost equal to the market value today. They have essentially gone nowhere in their biggest investment and profit center-let's call it the home portfolio.

The goal used to be pay the house off, so when you retire on a reduced income you will not have to worry on making the mortgage payment. I am seeing quite a few homeowners that do not feel that way. They are quite comfortable using the home portfolio to finance cars, home improvements, and credit card debt.

When the time comes to sell, they are shocked to learn they may have to bring money to the closing table, or that they have miscalculated the money to be invested in the next home. What about how much my home has appreciated? There seems to be a disconnect between the gain in equity and the siphoning of it into another use.

You get what you pay for either way, and right now interest rates are so low, the equity grab is understandable. It may not be without consequence though. Don't lose sight of your family's goal, if it is to pay off the mortgage, you need to allow the equity to accumulate. Don't break the Piggybank.

Labels: Home Equity, Increase Home Value

posted by FineVirginiaLiving.com @ 7:13 PM