Tuesday, May 6, 2008

Good equity vs bad equity

At the height of the bubble, an enterprising loan person left a flyer on my door. I was so taken aback by the content, I kept the flyer for all of these years.



Of course, this "equity management specialist" is not alone.

According to a recent CNBC article, the gub-mint folks say that 32% of homeowners in 2006, owned their homes free and clear. "The question for these consumers is what to do with a houseful of equity." The article goes into great length about how folks can pull the equity out and what they can then do with all of that equity.

Whatever happened to the philosophy of buying a house, paying for it, living in it, and not using it as security for a HELOC (or similar) that you may or may not be able to ever pay back? In my small circle of friends, all but two live in homes that are free and clear, and none have any plans for taking out a loan. (If you are curious, all have lived in the same home for many years. Home values range from mid $100k to +$1million. At least two built their own homes, very slowly, using cash.)

Paul

2 comments:

smf said...

Equity left in your house = $$$

Equity taken out = LOAN

A typical equity loan is what, 6%?

Whatever 'investment' is made with the removed equity has to be HIGHER than 6% for it to be a good investment.

Not many safe 6% investments out there...

sacramentia said...

"Whatever happened to the philosophy of buying a house, paying for it, living in it, and not using it as security for a HELOC (or similar) that you may or may not be able to ever pay back?"

Same thing that happened to Dividends - something I wish would come back in force.