Explain to me why I'm wrong

amother

Poppy

Tue, Nov 21 2023, 9:01 am

My husband was able to take a $50,000 home equity loan and start his business. Our house is not worth that much and we have only owned it for a few years so we were only able to get $50,000. But if your house is worth more or you've owned it longer, you can get a higher amount. If not for that, we would have emptied our savings/mutual fund which would have been a very sad, and probably bad financial decision.

In the future, we can do another loan for other big expenses and pay back over time.

amother

↑ Tealblue

Tue, Nov 21 2023, 9:14 am

How do assets help if you aren't selling?

I'll try to explain in very basic terms.

Let's say something expensive comes up. You want to start a new business, you need to do a major renovation, you're making a wedding. You need 50 - 250k, now. You don't have that money sitting in your bank account.

Normally, you'd have to borrow it. From whom? Maybe you're lucky to have a relative or friend who'll lend it to you, but for such a large sum it's unlikely, or they'll want a cosigner, which is a big deal to find. Maybe you can put the expense on a credit card, but most credit cards don't have such high credit limits, and they have high interest rates. Maybe you can take out a bank loan, but most bank loans won't approve you for that much money, plus the interest rate is not that low.

With a home equity loan, you are borrowing against your house. The amount you're approved for is higher, and the interest rate is lower, because the bank knows - if you don't pay it back, your house is there as a guarantee. This is the advantage of owning an asset even if you aren't selling it.

Aside from this, there are other advantages to owning that were mentioned in this thread, like never being forced to move, mortgage staying the same vs rent that always increases, more privacy, you can sell and downsize in retirement.

amother

↑ Glitter ↓

Tue, Nov 21 2023, 9:14 am

amother OP wrote:

What does $700k in assets help for if you don't sell your home?

A bank will be willing to give you a new loan based on the current value.

2 real life examples:
1)I bought my house years ago for about 230,000 and took out a loan of $180,000.
After 5 years, because more people were buying in the neighborhood and spending more money the value of the house went up. You can usually figure out how much your house is worth by seeing how much people in the neighborhood are paying currently or by looking it up online on a real estate site like Zillow.

We applied for a refinance loan of $280,000 that's when you take a whole new loan out and the new bank will pay off the old bank so you have one, new loan to pay) at that point mortgage rates were actually better than when we took out the first loan so our mortgage pretty much stayed the same. Because the house was now assessed at around 350,000 the bank was okay with lending that. The new bank pays off the old Bank and the difference between the payoff and $280,000 was over 100,000 which we were able to use to invest in a business.

2) a family member did something similar. They bought their house for $280,000 and 12 years later it had gone up to 800,000. They refinanced the entire loan because at that point rates were low and they use the money that they got to demolish & rebuild.

If the value of a house goes up you can either borrow just the difference from a bank and pay two separate mortgages or if mortgage rates have gone down it's worth it to refinance.
You can then do whatever you want with the money.

amother

Taupe ↓

Tue, Nov 21 2023, 9:17 am

I bought a house on the outskirts of my town for 300k. It was old but pretty big. We put about 150k into the house in terms of repairs and updates. I pay 2% interest on a 15 year mortgage. So that means I pay about 2k a month to own. My house is now the center of everything and I can sell for 600k. Rent in my area is close to 3k a month.

So the benefits:

In 12 years my house is paid off. I will have to pay tax and insurance but that will be significantly less than rent forever.

I pay 1k less per month to own over rent.

I doubled the value of my house

Even having paid 150k for repairs plus the mortgage,I come out ahead financially paying into my own house rather than someone else's house

I can do what I want with it

I won't be evicted by a landlord or have my rent raised.

I will add that in an area with very high taxes or if you buy at 7.5% the benefits are lower than my scenario but usually it pays to own over rent.

amother

Indigo ↓

Tue, Nov 21 2023, 9:28 am

coloredleaves wrote:

People take out home equity loans against their equity. And those loans have much less interest than other loans or credit cards

So assuming the equity is there, do you automatically qualify to take out the money, or does the bank need to verify that you'll be able to pay back the higher amount?

amother

Tanzanite

Tue, Nov 21 2023, 10:12 am

What determines the price of a rental.
The fair market value. That is based on current interest rates, taxes, insurance and maintenance, repairs to the property plus income in the owners pocket. If you walk away from a rental, you get nothing in return. The rental price could go up based on the market.
When you own, you pay your mortgage payment, consists of principle and interest (the monthly payment for this is the same the entire life of the loan), taxes, and insurance you will also have repairs and maintenance. Of you sell your home, you walk away with the funds of the sale.

amother

↑ Outerspace

Tue, Nov 21 2023, 12:28 pm

amother Taupe wrote:

And my house went up about 30% in 20 years.
I pay almost 30K in property tax (you don’t get that back).
Every little broken thing, lawn to be watered, gutters to be cleaned, drip in the sink….. is my problem.

FYI, my parents bought their condo 30 years ago and theirs is up 10x what they paid.

Oh, and with antisemitism on the rise, I think like in Nazi Germany, we will not be able to sell our homes and have equity available to take.

Not everyone gets as lucky as you did where property values increase the way yours did.

Cheiny

Tue, Nov 21 2023, 2:39 pm

amother OP wrote:

I know officially I'm wrong but I don't really understand finances enough to know why and right now I'm annoyed.
We used to live in a beautiful apartment in the center of our community and paid rent. All we had to do was pay rent and the rest of the the worries were taken care of by the manager.
We saved up so much money, bought a house on the outskirts of our community where it is affordable and now we are constantly needing to spend money on house things.
I have siblings who still rent like we used to and I wonder if we are the idiots who were so determined to buy a house because it's the right thing to do but we are always spending. They have so much more available funds because they don't have to repaint or fix the plumbing or have lawn equipment, the list is endless.
I wish we didn't buy and lived blissfully in an apartment. We could have used the money we spent on the house for lifestyle choices or savings for simchas.
Why is owning a house the better choice?????

Because when you pay rent you’re essentially losing the money you pay towards rent every month. When you pay your mortgage you’re paying towards owning a large asset and then you can eventually sell it and get your money back plus a whole lot of additional profit. With renting you get nothing back.

amother

↑ OP ↓

Tue, Nov 21 2023, 3:14 pm

Cheiny wrote:

There's plenty money you pay owning a home that you never get back example: taxes. It's like paying rent to the city. Forever.

amother

Teal

Tue, Nov 21 2023, 3:19 pm

So I rented for 20 years the last time I told my husband I’m done every landlord ends up needing the house for a kid or himself etc. I can’t live yearly knowing I might not be there soon. Also the rent kept going up which was insane. I bought a house on the outskirts a couple years ago and the calmness knowing no one is sending me is huge. It’s smaller then my rental but it’s mine anything I fix up is for me

Ellie7

Tue, Nov 21 2023, 3:48 pm

It really depends. I rent in an area where my monthly mortgage for a similar house would easily be twice what I pay in rent, if not more.

And though the accepted truism 20 years ago was that real estate never goes down, we all know that’s not true.

When you rent, you don’t have the stability of knowing you won’t be kicked out but you do have the stability of not having surprise repairs that can be added expenses.

Also,I’m the case of an emergency, renter’s insurance will cover your losses and a place to stay the same way homeowner’s insurance does.

That said, it’s often a good move to buy but not always.

amother

Cinnamon ↓

Tue, Nov 21 2023, 4:02 pm

I dont have a head to do the math, but after paying off your mortgage, after paying interest to the bank on that mortgage, paying taxes, maintenance on house and property, you will probably have spent much more on the house than rent - but then you have the house to live in. Its NOT always financially better off from a purely financial point of view.

But the main difference is that you live in that house with property, instead of an apartment/basement for 30 years. You cant compare living in an apartment to living in a house. If you want to compare, then compare renting that same house to buying it. Or renting apartment to buying that apartment.

amother

Blush

Tue, Nov 21 2023, 6:45 pm

My friend who recently had a preemie baby (and has 8 other kids) and her DH just lost his job was also just told by the landlord that she needs to move out of her rental. I feel so bad for her and have no idea where she's going to go. That's besides the stress of an actual move.