By Daniel P. Daly, President and Chief Executive Officer, SENB Bank
We have owned our primary residence for 34 years but have yet to pay off our mortgage loan. I would guess that we are in the minority of homeowners who have had their homes for so long, but still have debt. I can just hear Personal Finance Authority, Dave Ramsey, going, ”…tsk, tsk, tsk…“ While conventional wisdom would suggest that it is advantageous to pay off your mortgage loan, Sherry and I had a plan to use the equity in our home to capitalize on opportunities and support life events.
Plan how you will use your refinancing funds
The equity in your home is the difference between what you owe on your mortgage and what you can sell the home for on the market. Over the last 34 years, my wife, Sherry, and I have used this equity and refinanced our home three times, using the proceeds of the refinance as follows:
- The proceeds of the first refinance in 1995 were invested in a startup company which I was leading which was sold after 8 years for a nice profit.
- The proceeds of the second refinance in 2005 were used to pay for college expenses for our children. We augmented student loan debt (debt since repaid by us) and savings with the equity in our house to make sure that our four children were able to earn a college education and graduate debt free. Sherry and I wanted to make sure that our children had a good start on their professional lives, so funding college education was a priority for us.
- The third refinance in 2015 was to take advantage of a very low 2.625% rate on a 15-year mortgage loan (a historic low rate at that time) with the plan of finally paying off the mortgage.
As you can see, Sherry and I had a plan for each of the home refinances, and each of the thoughtful, calculated refinances had the desired effect we sought. While we love our home and have remodeled it several times over these 34 years, I see a house as a ‘dead asset’! By dead asset, I see a home as an expense, a burden for which we must pay debt service, taxes, maintenance, utilities, and other expenses. The home does not generate any income, except for value growth, if you happen to live in an area with growing property values. Using the equity in our home to finance our life events, we have lived satisfied lives, lived within our means, and preserved other investments for future retirement.
In addition to our first mortgage loan, we have continually maintained a home equity line of credit, which we have used to finance home remodeling projects, new appliances, occasional trips, and other significant costly events. It was preferential to use the lower cost line of credit, rather than using credit cards to support these needs. It was also prudent to use the equity in our home rather than invading savings and retirement funds for these costs.
Research your options to make an educated decision
Before forging ahead to refinance your home or obtaining a home equity line of credit or a second mortgage loan, it is important to do your research. The Consumer Information section of the Federal Trade Commission (‘FTC’) website has outstanding articles which provide excellent advice on these loans. I encourage you to look at this FTC article on home Equity Loans and Credit Lines. This article walks the reader through the process of pursuing these loans. The article also clearly explains the risks of these loans.
The FTC article, Using your Home as Collateral does a great job of guiding you through the process of making your borrowing decision and finding the right advisor to guide you through the process. It is important to find the right consultative banker who can formulate the loan structure that best meets your needs.
Consult with a professional to get the right structure for your loan
SENB Bank is committed to mortgage lending in the communities that it serves. In 2020, SENB Bank originated over 600 first mortgage loans totaling $120 million. SENB Bank services the loans that it originates and is currently servicing 1,200 loans with balances totaling over $170 million. SENB Bank’s mortgage professionals are among the most highly rated in its peer group for integrity and quality of service. These professionals are ready to consult with you to get you into the right structure of home mortgage loan or equity line of credit that best fits your need and your budget.
As evidence of the quality of advice of SENB’s professional team, SENB Bank’s loan delinquency rate is well below national averages. We pride ourselves in getting our borrowers into loan structures that are appropriate and affordable, and we want all our customers to succeed financially.
Sherry and I are not bad people for not having paid off the mortgage debt. I am proud of the thoughtful, careful decisions we have made to refinance our home to fit our life needs and support our family. I encourage you to carefully consider your options and work with true professionals when you are making your financial decision. With interest rates at historic lows, now is the time to consider how or if you want to use your home’s equity to fit your needs. Talk to your financial adviser now about using the equity in your home to help you achieve your financial and life goals.