I heard a commercial this morning. It was the first time I've heard this sort of commercial
in awhile -- and given the events of the last few years, I frankly couldn't believe it.
The commercial was from a local financial institution, encouraging viewers
to use their home equity to pay medical bills, pay for college costs,
buy a new car,
or take a vacation!
Frankly, I think that sort of advertising is (and always has been) irresponsible. There are
certainly reasons when tapping your home equity makes sense or may be your only recourse --
but buying a new car or taking a vacation is
not among them.
Your House Is An Investment
Your house is an important part of your investment portfolio. Just as with other
components of your investment portfolio, there are tax consequences and advantages that
attach to financial decisions you make regarding it. Historically, home equity loan interest has
had tax advantages over the "personal interest" that results from use of credit cards, car loans,
etc.
Any good investments counselor will tell you that you don't make investments decisions based
solely on tax consequences. Neither should you borrow against your investments solely for
whimsical purposes.
Your House Is More Than An Investment
Your house is your home. For many families, their home stirs memories of family life, of raising
children, of growing up. Even if the home doesn't stir such memories for you, it may still be your
shelter from the storms of life, the place where you come at the end of the day. The last thing
you want to do is risk your shelter for frivolous reasons. Homeowner debtor protections can be
jeopardized by borrowing against home equity.
Bottom Line
Farmers learned a hard lesson three decades ago as they lost family farms owned for generations
to debt incurred for operational loans. Many homebuyers learned a hard lesson just a
couple of months ago. Lenders are
not your friends. They are simply
business people trying to make a living. While many have a social conscience, some don't --
and capitalism in its purist form has little place for conscience.
So what should you do before considering a home equity loan? President Reagan perhaps put it
best, "Trust, but verify." In other words, don't be paranoid, but don't put too much trust in
the kindness of strangers either. Consider debt as a tool, and don't make foolish loans.
