Monday, June 2, 2008

ATM the House

Here are some interesting snippets from an interview with two economists, Gary and Margaret Smith, called Banking on Homeownership from the Record. The book the authors are promoting is called Houseonmics - have not read it just the interview. But what they said in the interview sounds like sound advice. Lets take a look -

Q. One of the points you make in the book is that your home is not an ATM. What do people need to know about that?

I think in our society we've got this keep-up-with-the-Joneses mentality. ...But taking money out of your home is bad, too, because a home is one of the best ways you can build financial security for the long run. Over your lifetime, you live in this home, you pay off the mortgage, and then somewhere down the road you're not making any mortgage payments or any rent payments, and you've got this great place to live.

If you keep using your home as an ATM, the mortgage payments never stop. You're not prepared for the future.

Q: I guess the worst-case scenario is people who made the mortgage payments but then —

Used the house as an ATM. They've got nothing. They don't have any money in the home and they don't have any money in the stock market, and retirement is right around the bend.

The house is not a bank. Spending the equity now means really having nothing banked for the future. In the post just below we see people using everything they can - if the HELOC is locked up use the retirement funds and sell the insurance policies ... just to keep up with the Joneses.

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