Your Mortgage: My unpopular opinion of equity…Part 2

Mike Miles

By Mike Miles

Last week’s wildly popular post introduced my opinion of equity. If you haven’t read it, here is the link. It leads to today’s column, which will discuss the idea of financing home improvements even if you have enough cash in the bank.

Not everyone has both enough equity available to finance renovations and enough cash in the bank to pay for them. Many people who are in this position tend to to pay for the renovations in cash, and I argue that it’s not always the smartest move. Here’s my side …

  • Borrowing funds for home improvements could help lead a homeowner to obtain a new lower, fixed rate (depending on the last time they refinanced their loan).
  • Borrowing funds for home improvements can be done with a flexible line of credit.
  • Borrowers could apply for more than they think they need and only pay on what is actually borrowed, but there is still available credit remaining for other life situations (college expenses, unplanned medical bills … etc.)
  • Interest rates on home equity lines of credit are typically offered at up to a 2 percent rate discount for the first 12 months.
  • Depleting cash can diminish net worth. Yes, I agree that equity is part of a net worth component, but like the previous post mentioned … equity amounts are actually never realized until someone decides to sell a home, whereas cash always has a defined value.
  • Instead of using cash to pay for renovations, that cash could be invested. Gains can either be used to help pay for the monthly payment associated with borrowing funds or gains are simply adding to the existing investment.

Traditional thinkers may disagree with most of the points of my argument. It’s understandable as it can seem silly to willingly pay money on interest when you could avoid it. The summary of my argument revolves around the idea of making the saved-up cash work for you in a better way.

If you’d like to discuss your particular options, give me or my team a call.

This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268