My father has always been the primary provider in my family. One night a neighbor told my father she planned to pay off her mortgage early. My father fell in love with the idea. That night he came home and told my mother that he planned to pay off the house as soon as he could. With a limited income, and two children with two college educations, he managed to pay off his house 7 years early.
Three factors went into my father’s decision to pay the house off early. First, he knew that he would save money. Second, if anything happened to him, he wanted to know that my mom, brother, and I could remain in our home. Third, he knew that my mother did not have a head for numbers. (My mother is dyslexic.) In case anything happened to my father he wanted to ease my mother’s distress by letting her know that she would not lose the house and didn’t have to generate the income to continue paying the mortgage.
Because of this decision, my father has occassionally been forced to treat his house like a bank. Most of the time he makes extra deposits, but a couple of times he has been forced to make withdrawals. Since he invested his savings in the house he had little money stowed elsewhere. It’s not that he didn’t have any savings. He did have money in other accounts, but the majority of his wealth was in his home. So whenever a large expense fell upon his shoulders, like college tuition, he turned to the trusty HELOC.
I find this reasoning and logic quite interesting. The goal is to find comfort in the fact that your house cannot be taken away from you. But then you take money out of the house, via a HELOC, which again puts your home at risk.
My father recently took out a new home equity line of credit on the house. To my knowledge he has no plans to use the line, he simply opened it in case an emergency arises and he needs the money. But I can’t quite figure out why he chose a HELOC at this stage in his life. I know he has money set aside in both retirement and non-retirement accounts so he should never need to tap this line. I wonder… after all these years of having a HELOC as his safety net, does he feel at risk without one?
I only bought a house a month ago (in fact, my very first mortgage payment is due today!) so I haven’t had much time at all to think about this issue. But when I do think about it, I think of my house as an investment in my retirement. The equity that I will build in this house will help me buy house #2, #3 and so on, until I am at retirement age and wish to downsize to a smaller house. At that point (hopefully) I will make a significant amount of money because I will be buying something much less expensive. This will be the point when my “investment” in homes pays off. I would only use a HELOC in a serious emergency where I had no other option. I am working on having 3 months of income in my emergency fund, so the emergency would have to be pretty severe to tap that out, I think. Otherwise, I don’t plan to touch the profits I make on homes until I retire.