GIMME SHELTER- House-keeping: Homework makes a home work

Gary Albert
Agent, State Farm
PHOTO COURTESY GARY ALBERT

Q: How do I make my home work for me financially, especially in the so-called housing crisis we're in?

A: As the housing and financial markets move through this corrective phase (regardless of the scope debated by experts across the industry), the need for emphasis on fundamentals has never been greater. Those exposed to overly risky uses (outside their risk tolerance) of either equity in their real estate or other investable assets are having to weather the cash flow storm.  

The wording of the question is interesting– using the word "home" versus "house." Somewhere during last 50 years or so, as homeownership has become a reality for more and more people, emphasis has shifted to using the "home" as another investment, as opposed to a place that provides shelter and safety for one's family. There's no denying the financial gains that have been realized as real estate appreciation ravaged our neighborhoods. However, there are ways to invest in real estate through mutual funds and Real Estate Investment Trusts (REITs) without picking up the excess risk– also called unsystematic risk– of gambling with your own home.

That being said, there are a few recommendations homeowners can consider:

1) Interest rates are still at historic lows. If your current mortgage has a higher interest rate, or you'd like to shorten the term of the loan, ask your lender of choice for a "good faith estimate" that outlines the cost to refinance (closing costs, fees, etc.) and compare the savings to your payback period, or how long it would take you to recoup the transaction costs.  

2) Lock in your equity. If you've owned your home for a number of years, you've seen how generous the city or county has been at raising your property values for assessments. Use this to your advantage. You don't have permission to reach this equity gain unless you sell the property. In essence, all they have done is raised your credit line. However, most banks will allow you take out a "line of credit" against this equity without closing costs or fees. The interest rate is variable, but you pay interest only on the amount of credit you use. This would be a nice emergency credit line, using tax-deductible interest you have at your disposal. Be sure to check your bank for any fees and other important disclosures if you close the credit line early, or other requirements.

There are a lot of "experts" willing to give advice, but it's essential that the insurance and financial decisions you make are yours. It's also imperative that your tax professional, estate planner, and finance/insurance contacts are on the same page so you don't have competing strategies working against you.  

Turbulent markets are a time to pause to review current strategies. It may be a good time to make sure things are the way you believe them to be. If you're exposed to unnecessary financial risk, don't you want to know about it?

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