Speaker 1: Welcome to How the Money. I'm Joel and I am Matt,
Speaker 1: and today we're discussing cashing in on the home equity explosion. Yeah. Actually,
Speaker 1: anybody who owns a home and who has the app
Speaker 1: redfin or Zello on their phone knows that they've seen
Speaker 1: some dramatic increases on on their home value. We've seen
Speaker 1: it for a while now. But the question we're asking
Speaker 1: today is what should you be doing about that. I'm
Speaker 1: looking forward to this episode. We're gonna tell you what
Speaker 1: to do. But but Joel, you've got you've got like
Speaker 1: some looks like you've got some junk boss. You always
Speaker 1: telling people what to do. This is what we're gonna do.
Speaker 1: You know, this is what you're gonna do. Dang it,
Speaker 1: and you better like it. Uh way. We will tell
Speaker 1: you what we think you should do with your home
Speaker 1: equity after you know, just a little bit. But before
Speaker 1: we get to talk about using using your return envelope mailers,
Speaker 1: I've already done that. We've already mentioned that on the show.
Speaker 1: I do occasionally do that. But no, I want to
Speaker 1: talk about something I did get in the mail, and
Speaker 1: this was from a loan servicer. They wanted to notify me.
Speaker 1: I guess maybe I had either applied for a mortgage
Speaker 1: with this company in the past, and they reached out
Speaker 1: via snail mail to tell me that there's been some
Speaker 1: sort of breach. Some of my information has been compromised
Speaker 1: by an unauthorized person. And what information, you might ask, Well,
Speaker 1: my name, my address, my loan number and so security
Speaker 1: number were in these files. That's the one that matters
Speaker 1: social that's the one you really Yeah. Unfortunately didn't say
Speaker 1: anything about mother's name, but yeah, you know that could
Speaker 1: have been in there too, So to me, like, the
Speaker 1: interesting thing was, they offered me free credit monitoring, and uh,
Speaker 1: you know, you and I we've talked on the show
Speaker 1: about kind of how we feel about credit monitoring. It's
Speaker 1: it's kind of overrated. It's kind of like I was
Speaker 1: gonna let anybody know that it was your favorite thing.
Speaker 1: Yeah right, well, no, craft beer is my favorite thing ever.
Speaker 1: But uh, yes, so credit monitoring. I'm not going to
Speaker 1: take them up on this offering. I'm not going to
Speaker 1: sign up for this. It's like, even though it's free,
Speaker 1: you're offering me, offering me monitoring, but you're the one
Speaker 1: who actually compromise my information in the first place. It's
Speaker 1: like your dog coming to you and being like, hey,
Speaker 1: youn need guard that slice of pizza because the last
Speaker 1: one got eaten by me. I'll make sure it doesn't
Speaker 1: happen again, right right, Well. And the problem though, with
Speaker 1: credit monitoring, the thing we've talked about forever, This is
Speaker 1: classic in every breach scenario now which I think we
Speaker 1: have all experienced breach fatigue, we kind of believe and
Speaker 1: truthfully believe that all of our information is kind of
Speaker 1: already out there. Thanks Equifax back in for that, but
Speaker 1: we're not gonna let that one go never. We will
Speaker 1: never let that one go. And and so you know this,
Speaker 1: this just doesn't matter. This credit monitoring is kind of
Speaker 1: sort of worthless. The problem isn't this free offer. The
Speaker 1: problem is that people often pay for credit monitoring when
Speaker 1: it is an inferior product. And so I just want
Speaker 1: to remind people I saw this in the mail and
Speaker 1: I kind of chuckled a little bit, ha ha, not
Speaker 1: ending up for that because credit freeze are the best,
Speaker 1: and credit freezes are free. Yeah, you guys are barking
Speaker 1: up the wrong tree. That's that's sort of like if
Speaker 1: if I got a coupon in the mail for like
Speaker 1: Whole Foods. It's like, you guys know I don't go
Speaker 1: to Whole Foods. You know that I love Aldi in
Speaker 1: the Circular fil and I actually have a great article
Speaker 1: on credit freezes, how you do it for free, how
Speaker 1: how easy it is. By the way, federal law mandates
Speaker 1: that you get acts have access to freezing your credit
Speaker 1: for free, but there are a lot of pitfalls along
Speaker 1: the way ways that you could get taking advantage of
Speaker 1: by the credit bureaus, of course. And we'll put a
Speaker 1: link to that article in the show notes for today's episode. Done,
Speaker 1: But Matt, let's mention the be that we're having on
Speaker 1: this episode. This one is called Let's do It Above
Speaker 1: the Threshold of Hell by Burial Brewing. There's so melodramatic
Speaker 1: with their beer names. For anybody who has heard us
Speaker 1: mentioned the name of other Burial beers on this show,
Speaker 1: all of the names are something like this. They're ridiculous.
Speaker 1: But I am looking forward to enjoying this one, and
Speaker 1: we will share our thoughts on the specific Asheville, North
Speaker 1: Carolina Brewery at the end of the Yes. Well, but
Speaker 1: let's get onto the subject at hand. Cashing in on
Speaker 1: the home equity explosion. And I know this might be
Speaker 1: hard for you to believe. It's not hard for you
Speaker 1: to believe for my best friend, you know, you know everything,
Speaker 1: But for everyone else out there, I was not popular
Speaker 1: in school. Like they're shocked right now, their minds are blown.
Speaker 1: I was at wasast not the popular kid, and randomly
Speaker 1: actually in sixth grade, for just about a week and
Speaker 1: a half, I was randomly popular at the beginning of
Speaker 1: sixth grade. Why it was it was kind of a
Speaker 1: week and a half. I don't know why. But before
Speaker 1: they had you figured it out. They're like, I think
Speaker 1: they were like, maybe that guy's cool, we'll include him.
Speaker 1: Were wrong, he's pretty tall. Maybe he's just amazing on
Speaker 1: the basketball court. Was that it had you like shot
Speaker 1: up like a foot. Maybe that's it. Maybe maybe they
Speaker 1: assumed I had can this guy dunk athletic talent? But
Speaker 1: a last I did not. Then they watched you play,
Speaker 1: they're like, oh, but in the end it didn't even
Speaker 1: have the Scott It was. It was this mirrage, right.
Speaker 1: It lasted for a short period of time and then
Speaker 1: they figured me out and they were like, no, wait,
Speaker 1: he's nerd material. No longer in the cool club, and
Speaker 1: so it just it didn't last long. And uh, just
Speaker 1: like middle school, Joel, something similar has actually kind of
Speaker 1: happened to millions of Americans when it comes to their
Speaker 1: home equity. They bought a house, they are thinking the foundation,
Speaker 1: the walls, and the acreage that they purchased for shelter
Speaker 1: that and and then for community too. Well, now that
Speaker 1: starts to look more like a piggy bank thanks to
Speaker 1: the rapid growth in home prices. I don't know if
Speaker 1: that's a really good correlation. I think I just wanted
Speaker 1: to tell everyone I was I'm a loser. But except
Speaker 1: that in this case, we don't think that we're gonna
Speaker 1: see values come back down. We'll actually talk a little
Speaker 1: bit more about that later on in the show. It's right, yeah,
Speaker 1: but the the average homeowner actually saw their homes value
Speaker 1: jump dollars last year alone, like when one single year,
Speaker 1: And uh so, yeah, what should you do with this information?
Speaker 1: What should you do with this newfound riches with more money,
Speaker 1: with their home being worth so much more. We're gonna
Speaker 1: get to the bottom of that in this episode. Yes
Speaker 1: we will. Yeah, home equity it normally moves that more
Speaker 1: of a glacial pace, but you don't really need us
Speaker 1: here to the point out that it's become more cheatah like,
Speaker 1: over the past couple of years, there is over twenty
Speaker 1: five trillion dollars in equity hanging out doing not much
Speaker 1: of anything except for making recent home buyers feel like
Speaker 1: they are real estate moguls. Like I'm of course brilliant
Speaker 1: because I bought at the exact right time. I'm a genius.
Speaker 1: I know exactly what I'm doing. But there's a problem here.
Speaker 1: As you've seen your equity balloon, you might be tempted
Speaker 1: to do something with those newly found funds. You might
Speaker 1: starting to to get the itch to finally maybe buy
Speaker 1: that boat or to go on a lavish vacation or something.
Speaker 1: Or maybe you're just more of a money nerd right
Speaker 1: and you just hate to see that equity sitting there
Speaker 1: under utilized. Either way, though, you might be facing a
Speaker 1: money decision with a number of zeros after it, and
Speaker 1: we want to help you to think about it well.
Speaker 1: We want you to make the right decision that's right.
Speaker 1: And essentially, everyone who purchased a home in the last
Speaker 1: ten to twelve years has done really well for himself.
Speaker 1: It's not just the last two years. It's like the
Speaker 1: last decade, but in particular the last you know, twelve
Speaker 1: to fifteen months have been outside. We've seen outside gains.
Speaker 1: But really, if you've owned a home for the last
Speaker 1: dey gate, you're doing great. And and then anyone who
Speaker 1: hasn't bought a home, then Matt on the flip side
Speaker 1: but wanted to buy a home, they're just bumped. They're
Speaker 1: sitting on the sidelines and they're probably fuming. They're a
Speaker 1: little piss that they've missed out on some of these games,
Speaker 1: which I understand because they're on the outside looking in
Speaker 1: at an abundance of what we call tappable home equity,
Speaker 1: which you mentioned the overall amount of home equity, but
Speaker 1: the tappable amount is just hit a record of nine
Speaker 1: point nine billion dollars last year. And what do we
Speaker 1: mean when we say tappable, Well, that means the amount
Speaker 1: that you can snag while still keeping equity in your home.
Speaker 1: And that means that the average homeowner has access to
Speaker 1: something like a hundred and eighty five thousand dollars in
Speaker 1: home equity, which is astounding. That's a lot of money
Speaker 1: that you have access to. So um and you wonder
Speaker 1: our homes for most Americans are the number one asset
Speaker 1: where they have most of their net worth stocked away. Yeah,
Speaker 1: and that's not what we want to see for folks.
Speaker 1: We want to see folks have more money in their
Speaker 1: retirement accounts than they have in a home equity. But
Speaker 1: you're right, most people, that's why, are in a situation
Speaker 1: where they've got more money in home equity than they
Speaker 1: have in their former one case in i RAS. And
Speaker 1: how much you you have access to obviously depends on
Speaker 1: your specific situation, how long you've owned your home, and
Speaker 1: what's been happening in your specific market. For instance, if
Speaker 1: you live in Denver or Miami, two of the hottest
Speaker 1: real estate markets of the past couple of years, uh,
Speaker 1: the average home equity increase you saw was in the
Speaker 1: neighborhood of dollars in just one year. If you live
Speaker 1: in l A or San Francisco, it's closer to ten
Speaker 1: thousand dollars. So, um, yeah, where you live. If you
Speaker 1: live in let's say Huntsville, Alabama, you've probably seen decent
Speaker 1: appreciation to but but nowhere in that ballpark. And this
Speaker 1: this abundance of equity has led to I think some
Speaker 1: of our friends and neighbors talking about selling their homes
Speaker 1: as well, you know, like cashing out, Why not sell
Speaker 1: when the market is near the top, right, Well, the
Speaker 1: thing is this strategy is going to create some problems, namely,
Speaker 1: where are you gonna live If you end up selling
Speaker 1: your house, chances are that you've locked in a pretty
Speaker 1: low mortgage rate, and if you want to buy another
Speaker 1: property with a mortgage, you'll be doing so at today's rates,
Speaker 1: which have arisen quite a bit, and that could be
Speaker 1: a tough pill to swallow. So it's it's obviously okay
Speaker 1: to downsize, to move to a new city or you know,
Speaker 1: or if you have other good reasons to do so,
Speaker 1: but it is not necessarily a smart idea to move
Speaker 1: with the main purpose of grabbing some of that home equity.
Speaker 1: There are other just so many more important factors to consider.
Speaker 1: For instance, what will selling your house due to relationship
Speaker 1: with your partner or to your family, you know, like
Speaker 1: what kind of opportunities are going to be available for
Speaker 1: your kids, what kind of lifestyle do you want to live,
Speaker 1: or like, if you are someone who is more religious,
Speaker 1: there are factors of faith that you probably also want
Speaker 1: to consider as well. There are. I don't know, it's
Speaker 1: what you do. Want to consider the numbers and see
Speaker 1: how things actually end up shaking up, But there are
Speaker 1: so many other important considerations that you want to keep
Speaker 1: in mind as well. Yeah, the numbers are one thing,
Speaker 1: but then yeah, loving where you live and being attached
Speaker 1: to a place. There's a great article in The Atlantic
Speaker 1: recently about that how homeownership can provide a deep attachment
Speaker 1: to a place that's hard to come by in other ways,
Speaker 1: and I was like, Yeah, that's exactly what I feel,
Speaker 1: because we've been in the same neighborhood for thirteen years
Speaker 1: now and we feel deeply rooted here and that means
Speaker 1: something well. And similarly, you might decide to sell and
Speaker 1: then rent in order to snag those dollars for other purposes.
Speaker 1: So let's say you're like, listen, I want to cash
Speaker 1: out take advantage of this home equity by selling my house,
Speaker 1: and I'm just gonna go down the street. I'm gonna say,
Speaker 1: in the same neighborhood, but I'm gonna rent something instead,
Speaker 1: wait for the market to maybe correct, and then maybe
Speaker 1: swoop in and grab a deal. That's definitely in the
Speaker 1: mind what some folks have in mind and that sounds reasonable,
Speaker 1: but we all know that rents have sword in the
Speaker 1: past year across the country too. If you have a
Speaker 1: fixed rate mortgage, that's not gonna budge except for those
Speaker 1: annual changes to your property tax rate and homeowners insurance
Speaker 1: rate hikes. But your rent is of course far less predictable.
Speaker 1: And again, if this is a lifestyle decision, then it
Speaker 1: can be a reasonable choice if you're just tired of
Speaker 1: the maintenance and you'd prefer to live in a home
Speaker 1: that requires less effort, or you're downsizing because the kids
Speaker 1: are getting older and they're going off to college. I
Speaker 1: get it, But doing it in order to take equity
Speaker 1: dollars off the table, uh, Thinking that you're gonna save
Speaker 1: money in the long haul by becoming a renter instead
Speaker 1: of an owner, that doesn't necessarily make the most sense. Um,
Speaker 1: it's so much of it depends on your particular market
Speaker 1: as well, and how much cheaper maybe it is to
Speaker 1: rent them to own or vice versa. But those are
Speaker 1: the kind of things you're gonna want to take into
Speaker 1: consideration before you just say I'm gonna, you know, all
Speaker 1: my home equity back and I'm gonna start becoming a renter,
Speaker 1: because that's going to be the better financial decision. Exactly. Yeah,
Speaker 1: it's It's also important to mention that the housing market overall,
Speaker 1: that it's a pretty healthy place at the moment. Like
Speaker 1: we think that it's a good thing that rising rates
Speaker 1: are mellowing out the different bidding wars that we've heard
Speaker 1: of this pass spring, creating a less frothy environment, But
Speaker 1: that doesn't mean that there's gonna be a meaningful downward
Speaker 1: home price correction in store for us. We still just
Speaker 1: don't have enough supply of homes for all other folks
Speaker 1: who want to buy one, and that problem it is
Speaker 1: not going to get fixed overnight. There's just no way
Speaker 1: of knowing what will happen in the future, and the
Speaker 1: housing market it might continue to cool a little bit,
Speaker 1: uh compared to what we've seen over the past year.
Speaker 1: A massive supply increase combined with a massive decrease in
Speaker 1: demand leading to significant decline and prices. This isn't something
Speaker 1: that we expect to happen. I feel like, just generally speaking, dude,
Speaker 1: this is one of the most common conversations I have
Speaker 1: with my neighbors. It is like, it's like, when this
Speaker 1: bubble gonna burst, yeah exactly. It's like, is this actually
Speaker 1: gonna happen? I'm like, no, I don't think it is.
Speaker 1: And I start talking through just the demographics of our country, right,
Speaker 1: like the millennials are coming into home buying age or
Speaker 1: they're looking to upgrade their homes, right, And so you
Speaker 1: have this entire generation looking to buy homes, by the way,
Speaker 1: a generation that's larger than Gen X, it's the generation
Speaker 1: that's larger than the Baby Boomers. Uh. And they all
Speaker 1: want homes and so that demand is there. They've got
Speaker 1: high paying jobs. Uh. And then you can look at
Speaker 1: the different stats that the FED provides and they're showing
Speaker 1: that just the quality that the credit quality of new
Speaker 1: mortgage borrowers, it's sky high. This this is nothing like
Speaker 1: the Great Recession back in you know oh six or
Speaker 1: seven oh eight, when you look at the credit score
Speaker 1: from back then and they were in the dumps compared
Speaker 1: to what we're seeing today. And combined with just the
Speaker 1: overall shortage of homes we have in the country and
Speaker 1: a larger supply of people who want to buy them,
Speaker 1: and and this is something that doesn't get corrected overnight
Speaker 1: because homes take time to build, especially in an era
Speaker 1: of supply shortages and increased lumber costs. This is not
Speaker 1: something that's going to get corrected overnight, and so this
Speaker 1: is not something that we see. You and I aren't
Speaker 1: fortune tellers, although I don't even think those people are
Speaker 1: accurate most of the time. You've got imagine Gate Bob
Speaker 1: and New Crystal Ball, and there's certainly a chance that
Speaker 1: rates escalate so quickly that it does actually start to
Speaker 1: bring home prices down, not just moderating them. But yeah,
Speaker 1: all of all the signs point to the fact that
Speaker 1: this is not some sort of bubble that we're in.
Speaker 1: We might continue to see sustained prices over the near
Speaker 1: term future. So what should your reaction be, though, If
Speaker 1: you're the recipient of some of this new found wealth,
Speaker 1: if you've got more home equity than you know what
Speaker 1: to do with, well we're gonna talk about how to
Speaker 1: use it wisely in just a bit, but we gotta
Speaker 1: get to the downsides actually of this this extra money
Speaker 1: that that you've got on hand. And that might sound surprising,
Speaker 1: but no, there are some real downsides to having more
Speaker 1: it's home equity, and we'll get to the reasons why
Speaker 1: that's the case, right after this break. Alright, we're back
Speaker 1: from the break and we're gonna continue our conversation about
Speaker 1: home equity. Uh. So you're listening to us right now.
Speaker 1: You own a home. You purchased it in order to
Speaker 1: have a place to live, to write a family. That's great,
Speaker 1: But now you're in this position where you've got that
Speaker 1: home equity that you didn't bank on having. Well, I
Speaker 1: hate to break it to you, but there are actually
Speaker 1: some downsides to your home increasing in value. And you
Speaker 1: might be you maybe saying to yourself, like, sure, Matt,
Speaker 1: I just made fifty dollars just for owning this home
Speaker 1: last year. I see no downside. You're an idiot, dude.
Speaker 1: Uh And I promised like, like, we're not trying to
Speaker 1: take the wind out of your sales here. I actually
Speaker 1: might be an idiot, but we should still talk about
Speaker 1: the potential pitfalls of owning a more valuable home. That's right, Okay,
Speaker 1: So let's dig in and talk about some of the
Speaker 1: downsides now that come along with that home price Inflation
Speaker 1: and property taxes are at the top of the list,
Speaker 1: because that's one of the main things you need to
Speaker 1: watch out for as your home is increased in value.
Speaker 1: And and from from everything I've read, Matt, actually, it
Speaker 1: seems like most counties around the country they haven't actually
Speaker 1: raised tax rates commensurate with your current home value. And
Speaker 1: so your home might have gone up value, but your
Speaker 1: taxes might have only gone up six or seven percent,
Speaker 1: which is fortunate for you. They're they're lagging behind, but
Speaker 1: trust us, uh, they're gonna catch up quickly because the
Speaker 1: tax man cometh he or she always cometh. And so yeah,
Speaker 1: depending on where you live and how in tune your
Speaker 1: county has been to value changes, you might see a
Speaker 1: rapid increase in the amount of tax you're paying every
Speaker 1: single year for on your home. And and here's the thing.
Speaker 1: If you feel like your local municipality has given your
Speaker 1: home too higher value, maybe maybe they haven't been lagging
Speaker 1: in You're like, wait a second, that's more than it's
Speaker 1: actually worth. It makes sense to challenge that tax bill.
Speaker 1: The process. It's not the exact same everywhere, but there
Speaker 1: are ways to fight a bill if you believe that
Speaker 1: it's inaccurate, and and sometimes winning that case can actually
Speaker 1: lock in a lower tax rate for future years too,
Speaker 1: which can save you a ton in taxes. I I
Speaker 1: just recently did this on a couple of rental properties,
Speaker 1: Matt and I could. You could do it yourself. You
Speaker 1: can hire someone else to do it on your behalf.
Speaker 1: But either way you you swing it. Typically there can
Speaker 1: be substantial tax savings if you feel like the assessor
Speaker 1: has has it wrong and they're overvaluing your home. But
Speaker 1: that is definitely one downside is that you might be
Speaker 1: paying a thousand dollars extra a year um in taxes
Speaker 1: because your home just went up in value. That's right.
Speaker 1: And the thing is this, I mean, not all taxes
Speaker 1: are bad, right, Like, we're not the ones out here
Speaker 1: saying that you should not pay any of your taxes.
Speaker 1: They're necessary in order to make society functions, specifically property
Speaker 1: tax that they're used to fund schools, public schools in
Speaker 1: your city. And so we don't want you to think
Speaker 1: that we're completely against taxes. But that's definitely something to
Speaker 1: keep in mind, Joel. Something else we touched on this
Speaker 1: briefly earlier, but a legit downside of home equity that's
Speaker 1: just off the charts is that you might find this
Speaker 1: money burning a hole in your pocket. This is when
Speaker 1: you feel like that you have to do something with it.
Speaker 1: But of course you don't. Luckily, pulling that equity out
Speaker 1: of your house isn't as easy as like, you know,
Speaker 1: like just transferring funds around using an app on your
Speaker 1: phone something like that. But there's also something called the
Speaker 1: wealth effect, which basically means that as your assets go
Speaker 1: up in value, you start to feel much wealthier. You
Speaker 1: feel like a baller who has way more cash on
Speaker 1: hand than you can actually spend. I always feel like
Speaker 1: a ball that It's just it's a it's that mentality,
Speaker 1: you know, like if you believe it, it'll spend like one.
Speaker 1: But I always feel like one. But even though that
Speaker 1: money isn't super liquid, it's there in theory. And so
Speaker 1: you start spending you know, your your actual liquid cash,
Speaker 1: as though your home equity dollars we're currently in your
Speaker 1: savings account. It's kind of like counting your chickens before
Speaker 1: they've hatched. Um. And so we mentioned that because it's
Speaker 1: great that your home is now worth more. But don't
Speaker 1: start spending like a maniac, because you just feel like
Speaker 1: your newfound home equity has made you like warm buffet wealth.
Speaker 1: It's like, oh man, I've got like hundreds of thousands
Speaker 1: of dollars more now I can afford take out every
Speaker 1: night of the week. Whatever. Whatever it is that you
Speaker 1: might mindlessly spend grow hub in perpetuity just because you
Speaker 1: feel like that you've got more wealth on hand. Yeah,
Speaker 1: you know, that wealth effect is real. It's almost kind
Speaker 1: of like I liken it to just having made a
Speaker 1: Costco run. And you know, I've talked about this before.
Speaker 1: What if you load up on top, do you do
Speaker 1: you over eat or over consumed just because yes, you
Speaker 1: get that fresh bounty. And you know, we've had so
Speaker 1: many groceries on and I found that to be true
Speaker 1: in my own life at times. So I always think
Speaker 1: back to when I was a teenager and I would
Speaker 1: always drive terribly after I filled up the car. I
Speaker 1: would swear that anytime I filled up the jeep, it
Speaker 1: just felt like it just went faster, which doesn't make sense, right,
Speaker 1: because when you've got twenty gallons of gasoline slashing around
Speaker 1: in the tank, technically the car should be much heavier.
Speaker 1: But it's just because of that lead foot. Dude, Like
Speaker 1: I knew mentally that that tank was just full of gas.
Speaker 1: I didn't need to conserve gas at all. But these days, man,
Speaker 1: we're all driving like a Grandma, just like slowly accelerating. Yeah, well,
Speaker 1: I think the wealth effect is real. It's worth mention
Speaker 1: ng And sometimes yeah, just just feeling like you have
Speaker 1: access to more money makes you start spending in a
Speaker 1: way that you didn't before. And and let's talk about too,
Speaker 1: you know, a sizeable chunk of home equity just another
Speaker 1: downside to having more of it. It might mean that
Speaker 1: your finances are now a little more unbalanced, right, you
Speaker 1: might now have an inordinate amount of your wealth tied
Speaker 1: up in one single asset, which is your home. And
Speaker 1: we talked about this just a little bit earlier. How
Speaker 1: that's not actually the best thing ever, even though that
Speaker 1: is the reality for so many Americans, Um, that's not
Speaker 1: something that we want to see happen for how the
Speaker 1: money listeners. So even if your home is in a
Speaker 1: location that's likely to appreciate further and you're planning to
Speaker 1: own it for the long haul, it's still important to
Speaker 1: stay diversified. And and that means that we want to
Speaker 1: see you not just banking on your home as a
Speaker 1: wealth building asset, but investing in other other ways at
Speaker 1: the same time, investing in the stock market through tax
Speaker 1: advantaged retirement accounts. I mean, that's I mean, that's the
Speaker 1: number one way we suggest doing that. There obviously other
Speaker 1: ways too, but just note that your scales might be
Speaker 1: getting a little out of whack if you're heavy on
Speaker 1: the home equity, light on the IRA funds or roth
Speaker 1: IRA funds for instance. Exactly. And there's a difference to
Speaker 1: what we'll say, between investing in real estate, for in
Speaker 1: specific properties that you have as rentals or as you
Speaker 1: know that where you're actually investing in it, as opposed
Speaker 1: to a home that you are living in. Because the
Speaker 1: more properties that you have from an investment standpoint, obviously
Speaker 1: that diversifies your portfolio overall. It's also important to mention
Speaker 1: the tax consequences of grabbing your home equis. Were already
Speaker 1: talking about property taxes, but there there's another tax angle
Speaker 1: we have to mention. Exactly. Yeah, if if you're doing
Speaker 1: a cash out refinance, there are no real negative tax
Speaker 1: consequences that you need to consider that cash is not
Speaker 1: considered income and you're able to deduct the mortgage interest
Speaker 1: of that new loan if that's something that you want
Speaker 1: to do. But if you're pulling money out in the
Speaker 1: form of a helock of a home equity line of
Speaker 1: credit or in the form of a home equity loan.
Speaker 1: Whether or not that money is tax deductible depends on
Speaker 1: how it is that you use it. Uh. And so
Speaker 1: according to the i R S, if those funds are
Speaker 1: used to quote unquote by build or substantially improve the
Speaker 1: property that you're taking the equity out of, then you're
Speaker 1: able to deduct the interest paid on that loan or
Speaker 1: on that line of credit. Otherwise no deduction is allowed.
Speaker 1: And so keep in mind that this is on the
Speaker 1: financing of that money that you are considering taking out,
Speaker 1: not the entire amounts itself, but the interest paid on
Speaker 1: that loan. Yeah, and those those rules changed to back
Speaker 1: during the Trump administration when the tax cuts and Job
Speaker 1: Act cut passed. And so this is one of those
Speaker 1: things where you used to be able to pull that
Speaker 1: money out willy nilly, take a vacation, buy a boat,
Speaker 1: and you could still deduct that interest. But that's not
Speaker 1: the case anymore, only if it's used for those specific
Speaker 1: purposes at least until right And we'll see if that
Speaker 1: gets extended or if that's something that gets reversed very
Speaker 1: much that that will depend on who who our president
Speaker 1: is like, who's in Congress? Do you want to make
Speaker 1: any calls? No, I don't think I'm gonna make any
Speaker 1: political predicted predictions, no other predictions at this point in
Speaker 1: our age of insanity. But let's let's talk about the
Speaker 1: smart uses of home equities. So we talked about the downside.
Speaker 1: You've accrued more home equity in this in this home.
Speaker 1: Your your home is worth more than you thought it
Speaker 1: would be, even just two years after buying it. Well,
Speaker 1: how can you use it intelligently? Well, before we specifically
Speaker 1: start talking about how and why you might use those
Speaker 1: dollars for other purposes, I think we should match stress
Speaker 1: that you should probably think of your home equity dollars
Speaker 1: similar to the way you think about something like taking
Speaker 1: on debt for college, Because using a little in an
Speaker 1: intentional way can be great. It's like adding a little
Speaker 1: bit of salt to a dish, like while you're cooking, Well,
Speaker 1: a little bit of spice. Smart use of college debt
Speaker 1: can get you a degree that then allows you to
Speaker 1: massively increase your income and provide you a joyful career
Speaker 1: that maybe you get to pursue for decades. It enhances
Speaker 1: the flavor, but too much of it. Nobody likes that
Speaker 1: except for my mom. My mom loves salt like you
Speaker 1: could put so much, like you could put a mountain
Speaker 1: of it and she would still eat it. She is
Speaker 1: oh g, just got called out. She's a rare bird.
Speaker 1: But uh, but cashing it all out can lead to
Speaker 1: future financial hartshat. It's right, especially if we you know,
Speaker 1: do experience let's say, a pull back in home prices,
Speaker 1: one that we're not predicting, but that is possible. And
Speaker 1: so yeah, pulling pulling money out of your home is
Speaker 1: something you want to do very cautiously. You only want
Speaker 1: to tap home equity if you can do it wisely,
Speaker 1: that's right. Yeah, And that means not taking out more
Speaker 1: than you need and also not using it for dumb stuff. Right,
Speaker 1: And so like what do we mean by dumb stuff? Well,
Speaker 1: our homes, Like we we do not need to treat
Speaker 1: our own like piggy banks. Uh. And if you use
Speaker 1: it as such, you're putting yourself in a potentially difficult situation.
Speaker 1: Let's say, Uh, let's say rates continue to rise and
Speaker 1: that actually does make home prices contract a little bit,
Speaker 1: and you've borrowed against your home, maybe to buy some
Speaker 1: fun toys and you know, to take cool vacations. You
Speaker 1: might be underwater if you have to sell that home,
Speaker 1: putting you in a financial bind. Of course, sure like
Speaker 1: you've you've had some great experiences with that money, but
Speaker 1: using your home to fund trips and goofy purchases is
Speaker 1: just financially stupid. In short, we want you to use
Speaker 1: that money, not to consume h We want you to
Speaker 1: use that money to invest wisely, because basically, right now
Speaker 1: that equity is tied up in your home right and essentially,
Speaker 1: since you're not making payments on that equity right, you
Speaker 1: have not borrowed it. Basically, it's saving you money. But
Speaker 1: once you take that money out and you start paying
Speaker 1: a premium for access to those funds, a premium being
Speaker 1: the interest that you're paying on the money, you need
Speaker 1: to make sure that you're going to see return that's
Speaker 1: much higher than what it is that you're currently paying
Speaker 1: on that mortgage or on that home equity loan, or
Speaker 1: on that helock. But even still, just because you're making
Speaker 1: a little bit more, that does not make that a
Speaker 1: slam dunk decision. But just generally speaking, I think that's
Speaker 1: a good way to think about ways that you use
Speaker 1: the money that you pull out of a home. Yeah,
Speaker 1: meaningful guaranteed rates of return are hard to come by
Speaker 1: right now in this current interest rate environment, right, and
Speaker 1: so at the same time, while saving these accounts are
Speaker 1: earning next to nothing, we know that it's getting actually
Speaker 1: more expensive to borrow against our home. So you know,
Speaker 1: our advice might have even changed a little bit from
Speaker 1: what people would have done four or five months ago
Speaker 1: when interest rates were closer to three percent. So, yeah,
Speaker 1: now that we've talked about what would generally be a
Speaker 1: smart use of home equity funds, how to think about it, next,
Speaker 1: we're gonna discuss some of the specific ways that you
Speaker 1: can use that money that might actually make sense. There
Speaker 1: are already a few specific purposes where home equity dollars
Speaker 1: makes sense to actually pull out and start to start
Speaker 1: using them. We'll talk about those specific instances and in
Speaker 1: the best ways to actually withdraw those funds, because there
Speaker 1: are a few different methods of doing so we'll talk
Speaker 1: about all that right after this. All right, we're back
Speaker 1: from the break and Joel, like you said here, in
Speaker 1: a second, we're gonna talk about how you actually do it,
Speaker 1: how to cash out, how to get that money. This
Speaker 1: was like a one long setup. And you know what
Speaker 1: the name of our show is how to Money, so
Speaker 1: we should probably get We will tell you how to
Speaker 1: do it, but first I do think it is important
Speaker 1: to talk about some of the specific situations where when
Speaker 1: it makes the most sense. Uh So, let's cover a
Speaker 1: few scenarios when it's smart to use your home equity.
Speaker 1: And the first one we want to mention is renovating
Speaker 1: your home, making an improvement on the home that you're
Speaker 1: pulling equity from. This is the classic use of home equity,
Speaker 1: putting that money from the increase in value directly back
Speaker 1: into the property. That's what we're talking about here. It
Speaker 1: is possible to overdo this, of course, Historically it's it's
Speaker 1: pretty difficult to increase the value of your property dollar
Speaker 1: for dollar as you make improvements. Though we are living
Speaker 1: in some crazy times right now, but it is regardless,
Speaker 1: it's going to be smart to pay attention to the
Speaker 1: kind of return you might see as you consider how
Speaker 1: to improve your house. You know, and doing some of
Speaker 1: those renovations purely for your own enjoyment is is totally fine.
Speaker 1: We want you to leave your life and enjoy uh.
Speaker 1: Set a specific lifestyle that you think is going to
Speaker 1: work for you. But again, borrowing too much can put
Speaker 1: you in a bind. Uh, This isn't a terrible reason
Speaker 1: to take out some of your home equity dollars, but
Speaker 1: just make sure that you do not go overboard. Yeah,
Speaker 1: you mentioned that this was the classic use of home equity,
Speaker 1: which when I think classic, I think Chuck Taylor All Stars,
Speaker 1: because that's the classics who choice of baby any millennial
Speaker 1: these days, I think, and I still have a couple
Speaker 1: of pairs, and really I've never actually seeded millennials too,
Speaker 1: I think so Chuck Taylor's They're just people of all
Speaker 1: ages can certainly enjoy them. Do they make also like
Speaker 1: wide all Stars? Because I will say, I out of
Speaker 1: Paara Chucks, uh maybe a decade ago, and I can
Speaker 1: never wear them because my feet are too fat, They're
Speaker 1: too wide, And whereas some tennis shoes like they break
Speaker 1: in and they will widen with your foot, that never happened,
Speaker 1: and instead my pinkytoe is just rubbing up against that tough, hard,
Speaker 1: raw rubber on the inside of the shoe. I'm sorry,
Speaker 1: I don't know what to say to that, but you
Speaker 1: started us down this path I'll talk to the folks
Speaker 1: at Nike who now own the truck Taylor brand. I believe,
Speaker 1: do they really? Yeah, And so we'll see what they
Speaker 1: can do. Um, I love Nikes. Make a wider a
Speaker 1: wider truck tailor for you. But yes, brought to you
Speaker 1: by Nike. But that is that is a classic use
Speaker 1: is for home equity and it can be done well,
Speaker 1: but it can also be done poorly. But but just
Speaker 1: another another reason you might be willing to take home
Speaker 1: equity dollars out of your home is to just do
Speaker 1: some traditional investing. And we did a whole episode on arbitrage.
Speaker 1: I don't remember the number of that episode rough top
Speaker 1: of my head, but basically, there are ways to use
Speaker 1: your money to make more money. There are ways that
Speaker 1: you can find a deal and turn that into cash.
Speaker 1: And so taking money from your home, let's say it's
Speaker 1: at a super low interest rate, and then you know,
Speaker 1: investing in the market for higher returns will that could
Speaker 1: allow you to build wealth at a faster clip. And
Speaker 1: here's the thing, though, this is our least favorite of
Speaker 1: the potentially decent ways to use your home equity because
Speaker 1: your monthly payments are going to increase while those investment
Speaker 1: dollars are basically locked away for your future. And so
Speaker 1: I guess the question is can this increase your net
Speaker 1: worth over time? Well, yes, the answer would be yes,
Speaker 1: But but it could also put you in a precarious situation.
Speaker 1: If let's say your income drops and you've got this
Speaker 1: higher loan payment and paying off that home equity loan
Speaker 1: or line of credit, it just becomes more difficult. And yes,
Speaker 1: maybe you you've got to spread on the interest rate
Speaker 1: and you feel like you're gonna make more money in
Speaker 1: I bonds let's say, which is guaranteed or in the
Speaker 1: market over the decades, which is not guaranteed. You're you're
Speaker 1: hoping at that point they're gonna make more money. It's
Speaker 1: a little bit more of a gamble to take this
Speaker 1: this route. Yeah, And the thing is too, is that
Speaker 1: it depends this all counts and comes down to you
Speaker 1: actually doing that investing right. And so that's where it
Speaker 1: falls apart because basically, like at the core of arbitrage
Speaker 1: or at the core of business is arbitrage, right, Like
Speaker 1: you have found some sort of niche for you to
Speaker 1: have your business. You're taking, uh, these different products, you're
Speaker 1: piecing them together and you're able to sell them at
Speaker 1: a profit at a premium. But you're doing that because
Speaker 1: you've actually launched a business. And the problem with us
Speaker 1: as individuals is, I think we could take that first step, right,
Speaker 1: we take that money out thinking that we're gonna actually
Speaker 1: see it through, but then we don't do that. Uh
Speaker 1: and so so much of this depends on what you
Speaker 1: actually end up doing with that money. It ultimately comes
Speaker 1: down to the follow through. Yeah, it sounds nice when
Speaker 1: your daydreaming about about that arbitrage, right, Yeah, we're just
Speaker 1: gonna pay this money out at four and a half percent,
Speaker 1: I'm gonna get nine percent in the market. But if
Speaker 1: you withdraw the funds and then you take a long
Speaker 1: time to stick any of it in, you sit on it,
Speaker 1: maybe you get scared a little bit, and maybe you
Speaker 1: do use some of that money since you would like
Speaker 1: if I take a little bit, I'm still got the
Speaker 1: sweet arbitrage deal going on, and and uh and then yeah,
Speaker 1: you you can't predict the future and you can't know
Speaker 1: what your personal financial situation is going to look like,
Speaker 1: even just a few months down the road. There is
Speaker 1: risk involved, and so there yeah, it is a risky scenario.
Speaker 1: It is one that can and has worked for some folks,
Speaker 1: but it's like proceed with caution sort of thing. Totally yeah,
Speaker 1: And so investing in the market like that's one thing.
Speaker 1: But taking those dollars and then specifically using them to
Speaker 1: invest in real estate instead, that can actually be a
Speaker 1: bit less risky, especially if you have a lot of
Speaker 1: experience and you're very familiar with rents and the market
Speaker 1: that you're considering. If this is your first time, I
Speaker 1: think it's best to be at a bit more cautious
Speaker 1: and save up those dollars from your paycheck instead. And
Speaker 1: the reason this form of investing isn't quite as risky
Speaker 1: is because rental real estate allows you to reap some
Speaker 1: of those financial rewards now in the form of unpick
Speaker 1: cash flow. You're growing your your money for your future,
Speaker 1: you're growing that equity, but you're also receiving dividends along
Speaker 1: the way. And so sort of what I was saying
Speaker 1: as far as like that follow through. If you are
Speaker 1: committing to purchasing a home, I think it's much easier
Speaker 1: to actually see those dollars do something good because you
Speaker 1: have purchased a property, right you're basically going all in
Speaker 1: there's no You're not like it gonna be on the
Speaker 1: fence about like, oh, maybe I'll invest a little bit
Speaker 1: of the money in the market and then I'll maybe
Speaker 1: i'll dollar call savage. I see it as a it's
Speaker 1: it's sort of like a form of accountability essentially, And
Speaker 1: you know, I'll confess to I think one of the
Speaker 1: reasons we we mentioned real estate specifically, it's because it's
Speaker 1: something that's worked for us. Right, We've got a lot
Speaker 1: of expertise, We've got a lot of experience in our
Speaker 1: local real estate market. But at its core, uh, investing
Speaker 1: in real estate it's a business, right, Like you are
Speaker 1: looking for an opportunity, and for somebody else, their expertise,
Speaker 1: their experience may be say less in real estate, and
Speaker 1: maybe it's more in creating some sort of business. And
Speaker 1: so I guess what I'm saying here is that I
Speaker 1: think it's okay to consider some funds from a home
Speaker 1: to fund another business that you are very proficient and
Speaker 1: the thing is a man with real estate. It's just
Speaker 1: such a proven way to invest your money. That's one
Speaker 1: one of the other reasons why we like it. Like,
Speaker 1: in my mind, it's like the difference between starting a
Speaker 1: restaurant from scratch and you have to figure everything out
Speaker 1: and who knows exactly what's going to happen, as opposed
Speaker 1: to starting like joining a franchise or something right like
Speaker 1: where it's just like, Okay, I want to be a
Speaker 1: check Filo owner, or I'm gonn a starter taco Bell
Speaker 1: or something like that. There's a proven model, which by
Speaker 1: the way, Chick fil A, not the franchise model in
Speaker 1: case you're wondering, well, that's right, Yeah, they choose you.
Speaker 1: Uh so, let's make it a taco bell and a
Speaker 1: dairy queen or something else else like that. But in
Speaker 1: those instances, in those examples, there's a proven model, right like,
Speaker 1: they have very specific items that are going to be
Speaker 1: on the menu, they have name recognition, they have all
Speaker 1: these things that are proven, and it's easy to slot
Speaker 1: yourself into that formula, as opposed to just build something
Speaker 1: from the ground up, which is what I feel like
Speaker 1: starting your own business is more like yeah, so I agree.
Speaker 1: I think there's a complete difference in putting that money
Speaker 1: in the market and hope of future returns which are
Speaker 1: likely to occur, whereas buying a piece of rental real estate,
Speaker 1: you kind of have. There's more solid numbers behind your
Speaker 1: ability to do that. And I gotta say, it's actually
Speaker 1: harder to pull this off right now because it's harder
Speaker 1: to find good deals right now. So even though this
Speaker 1: might be a good use of home equity, it doesn't
Speaker 1: necessarily mean that you should pull money out and be like,
Speaker 1: all right, we're all in the real estate bandwagon, because
Speaker 1: if you can't find a deal with that money, then
Speaker 1: it's not worth pulling it out, right But I agree,
Speaker 1: I think there is just a little more of a
Speaker 1: known quantity when you're buying a rental property with those
Speaker 1: funds than when you're trying to invest in other ways.
Speaker 1: But so let's just quickly reiterate all these reasons, uh
Speaker 1: that can make sense for for snagging some of your
Speaker 1: home's equity. We talked about renovating your home, maybe investing
Speaker 1: or buying our rental property. But but even if you're
Speaker 1: taking out your home's equity for a quote unquote good reason,
Speaker 1: some of these ones that we mentioned, you still need
Speaker 1: to do it carefully because leveraging your home to make
Speaker 1: improvements or investing to build more wealth, it's it's a
Speaker 1: strategy that can increase your wealth generating abilities. But it's
Speaker 1: crucial to use leverage judiciously. It is possible to overdo
Speaker 1: it and so um, it can come back to bite
Speaker 1: you in the butt. If you use it flippantly and
Speaker 1: you haven't planned things out, you don't know what you're doing,
Speaker 1: it's possible for leverage to eat you alive. That's right, dude,
Speaker 1: All right, now, let's talk about how to tap your
Speaker 1: home equity fly if it does makes sense for you
Speaker 1: to take some some out cash out refis they these
Speaker 1: were these were uh moves that were hot for a minute.
Speaker 1: But now that rates they've you know, they've taken off
Speaker 1: faster than a bottle rocket. Those are making lessons for
Speaker 1: a lot of folks today. If you're currently sitting pretty
Speaker 1: with a rate, you know, in the twos or in
Speaker 1: the threes, you likely don't want to refinance out of
Speaker 1: that into something that's closer to five percent just to
Speaker 1: pull some cash out of that home. It's like an
Speaker 1: itchy trigger finger when you're like, I want my home
Speaker 1: equity so bad, I'm willing to sacrifice my two point
Speaker 1: seven five right to go to five pc rate. Don't
Speaker 1: do it, or actually potentially even higher, right, now don't
Speaker 1: say any numbers. Yeah, seriously, in a few days, this
Speaker 1: is gonna potentially be out a date. But you'd be
Speaker 1: shooting yourself in the foot, you know, were you to
Speaker 1: do this. And so the best options are likely going
Speaker 1: to be that home equity line of credit, that helock,
Speaker 1: or that home equity loan, like we mentioned earlier, on
Speaker 1: which you opt for is it's mostly influenced by how
Speaker 1: quickly you'll be able to pay that loan back. That's right, Yeah,
Speaker 1: because the helock. Let's go into which one makes sense
Speaker 1: in what's scenario? Well, yeah, cash out refis are rarely,
Speaker 1: rarely makes sense for most folks right now who own
Speaker 1: a home in order to tap that home equity, except
Speaker 1: for Matt is actually messaging with a buddy of mine
Speaker 1: who we go to the same church, and he was
Speaker 1: talking about doing a cash out refinance and I was like, whoa, whoa, whoa, whoa, whoa,
Speaker 1: slow your role. What's your current interest rate? And he
Speaker 1: said six percent because my card it was trash went
Speaker 1: up and I was like, Okay, you're one of the
Speaker 1: rare folks where a cash out refinance actually might make
Speaker 1: the most sense for you because you could potentially lower
Speaker 1: your rate while you're pulling money out, and so I
Speaker 1: bought fifteen years ago and never refinance. Well, that could be,
Speaker 1: that could be the same to somebody else to be
Speaker 1: in that scenario. But for him specifically, it was his
Speaker 1: credit was wrecked and he's built it up, you know,
Speaker 1: he's built it back into being decent, and so he
Speaker 1: might be able to get a rate lower than six percent,
Speaker 1: which is incredible. What what's crazy, though, is that my
Speaker 1: natural reaction, in my natural inclination, is to hear six
Speaker 1: percent and just like cringe, cringe. Yeah, like I WinCE
Speaker 1: when I hear that. But what's nuts is that could
Speaker 1: very well be in our future and that's still it's
Speaker 1: not been great over the past decade, but it's still
Speaker 1: historically a reasonable rate. It's yeah, historically great. But you know,
Speaker 1: hopefully you listen to us last year, when I don't
Speaker 1: know how many times we said, we said so many times,
Speaker 1: please refinance if you have not already. I almost felt
Speaker 1: like I was we were lying, and uh, We're like,
Speaker 1: rates are gonna go We're gonna go up at some point.
Speaker 1: And then finally they climbed and were like the Fed
Speaker 1: finally got to it proven true. It's happening right now.
Speaker 1: Yeah what Okay, So the cash our refine not doesn't
Speaker 1: make sense in most scenarios. The helock is great because
Speaker 1: you don't have to take all the cash at once,
Speaker 1: whereas with the home equity line or with a cash
Speaker 1: our refinance, that money gets stuck into your bank account.
Speaker 1: You're paying interest from the moment that you close on
Speaker 1: that loan. You're only going to pay interest, however, on
Speaker 1: the funds that you take out when it comes to
Speaker 1: a helock. So you might have a line worth of
Speaker 1: a hundred thousand dollars worth of equity that you can
Speaker 1: take out, but until you actually pull the money from
Speaker 1: the line, you're not paying interest. And so that is
Speaker 1: what makes that such a great vehicle. It's great. Yeah,
Speaker 1: you don't even have to use the whole thing if
Speaker 1: you don't want sends helock. Yeah, you might have a
Speaker 1: hundred thousand dollars and you only pull ten ran out
Speaker 1: for a specific purpose. But the rate is also going
Speaker 1: to adjust, and that can happen as frequently as every month,
Speaker 1: and so with with especially the way things are looking today.
Speaker 1: When yeah, in a rising rate environment, that could potentially
Speaker 1: mean that your rate is uh quite a bit in
Speaker 1: just a year's time, and we're pretty sure we're only
Speaker 1: going to see rates uh and continue to increase over
Speaker 1: the course of the year. Yes, agreed, And so it
Speaker 1: could get nasty pretty quick having a helock on hand.
Speaker 1: But with a home equity loan, you take out the
Speaker 1: entire amount in one fell swoop. So, like I said,
Speaker 1: those interest charges they do begin immediately, but the interest
Speaker 1: rate is locked in, so that's kind of a plus
Speaker 1: of that product. So much of which one you decide
Speaker 1: to go with depends on how quickly you feel like
Speaker 1: you're gonna be able to pay that loan back, because
Speaker 1: the helock is going to have a lower starting rate,
Speaker 1: and so you might say, well, I'm gonna pay this
Speaker 1: off in eighteen months, I know I can do it
Speaker 1: well then, or if you know you'll need like you mentioned,
Speaker 1: like if you only need to tap say ten thousand
Speaker 1: dollars or a couple of thousand or five thousand, there's
Speaker 1: no need in taking out an entirely new home equity loan.
Speaker 1: So it also comes down to the amount that you
Speaker 1: are needing access to you right now, that's right, and
Speaker 1: home equity loan typically comes with some closing cost wars helocks.
Speaker 1: You can find them with zero closing costs from a
Speaker 1: lot of lenders. And by the way, when we're talking
Speaker 1: about where to get one of these products, local credit
Speaker 1: unions are are typically the best place to go. Yep,
Speaker 1: best best rates, they offer the best products, and so
Speaker 1: I would shop with a few credit unions in my
Speaker 1: area if I were all. If you're if you're looking
Speaker 1: to get one of these products and you are looking
Speaker 1: to tap some of your home equity, check out two
Speaker 1: or three credit unions. Oftentimes those rates are posted on
Speaker 1: their website, so you don't even have to necessarily go
Speaker 1: in and meet with somebody. You can kind of at
Speaker 1: a glance figure out. You know what these products are
Speaker 1: and which one is going to suit you best. Click
Speaker 1: you that today's rates. Okay, So what about using home
Speaker 1: equity to pay off higher interest rate debts. That's a
Speaker 1: good question because a lot of people kind of think
Speaker 1: about doing that from time and time to Like, I
Speaker 1: got a credit card debt, can I consolidated exactly? And
Speaker 1: you know, we totally we we get it all right,
Speaker 1: Like I get this urge. But being said, there are
Speaker 1: a lot of ways that taking out home equity to
Speaker 1: pay off a credit card, let's say, can actually make
Speaker 1: things worse. Why is that, Well, you know, let's talk
Speaker 1: about secured versus unsecured debt. For a second. Part of
Speaker 1: the reason that you get a better interest rate for
Speaker 1: borrowing against your home is because you're borrowing against a
Speaker 1: valuable assets your home, uh, and this is called a
Speaker 1: secured debt. Credit cards are the opposite. You're not putting
Speaker 1: up any collateral, and so that's why credit cards are
Speaker 1: unsecured debt, and you have a higher interest rate associated
Speaker 1: with those quote unquote loans. And so the downside of say,
Speaker 1: not paying your credit card bill for months on end,
Speaker 1: is that your debt is going to go to a
Speaker 1: collections agency and it's going to wreck your credit. But
Speaker 1: let's say you borrow against your home and you fail
Speaker 1: to pay the credit union. The consequences here become much
Speaker 1: more dire, potentially even losing your home, because you put
Speaker 1: your home up as collateral for that loan. So that's
Speaker 1: why we're trying to stress again, Joel, you said the
Speaker 1: judicious use, and that's such a great way of saying it,
Speaker 1: because that's how we want you to approach these types
Speaker 1: of loans. That's how we want you to a coach
Speaker 1: home equity. We don't want you to go overboard, and
Speaker 1: that means while using home equity to pay off high
Speaker 1: interest rate debt. It can work, but there's enough risk
Speaker 1: involved that you might not want to try it. Yeah, exactly,
Speaker 1: because the risks are just completely different. Losing your home
Speaker 1: versus wrecking your credit those are two completely different outcomes.
Speaker 1: One feels much more dire than the other. And I
Speaker 1: don't want to play my risk at home just to
Speaker 1: consolidate my credit card debt, whereas some people might recommend
Speaker 1: that um and for some people in certain financial circumstances,
Speaker 1: it can work out. It's just not a slam dunk,
Speaker 1: and it's not something that we want to tell people
Speaker 1: willy nilly, uh talking to two tens of thousands of
Speaker 1: people like you, go go do it, no problem. It's
Speaker 1: just a scary proposition. It depends a lot of It
Speaker 1: depends on how you arrived with all of that credit
Speaker 1: card debt as well. Right if it was just if
Speaker 1: it's behavior and that's just how you've always been, and
Speaker 1: it's what you're going to continue to do. What's gonna
Speaker 1: change if you continue to go down this path. Uh,
Speaker 1: it's likely that you will continue in those same behaviors,
Speaker 1: within those you know, in those same actions. Uh. And
Speaker 1: so I see that being a situation where you wouldn't
Speaker 1: want to do it, versus a situation where maybe let's
Speaker 1: say you didn't have an emergency fund set up, and
Speaker 1: maybe you never carry a balance on your credit card,
Speaker 1: but maybe you hit some rough patches over the past year.
Speaker 1: You put a lot of expenses, you charge a lot
Speaker 1: to your card. But things are turned around, You're on
Speaker 1: the straight and narrow. You do now have some margin
Speaker 1: in your life. You have some money set aside in
Speaker 1: an emergency fund. I could see that being a situation
Speaker 1: where you might want to tap some of that home
Speaker 1: equity because that was sort of a blip. It was
Speaker 1: a one time thing. You're never ever going to do
Speaker 1: that do that again, and you just want to eliminate
Speaker 1: like at that point it becomes a numbers game, right,
Speaker 1: and you want to eliminate the high interest rate debt.
Speaker 1: I think you need to have a plan to do
Speaker 1: two things. Yeah, change your behavior, like plan like exactly,
Speaker 1: that's the thing. You have to have a plan, but
Speaker 1: it needs to be a plan to one change your behavior,
Speaker 1: because you can't say I'm gonna take this money out
Speaker 1: pay off the credit cards. You have to have a
Speaker 1: plan to not use those credit cards again, to change
Speaker 1: the way you treat them. And then you also have
Speaker 1: to have a plan to then pay off the debt
Speaker 1: that you've just incurred against your home and to do
Speaker 1: that in short order as well. So, yeah, you want
Speaker 1: to make sure you're doing you have a plan to
Speaker 1: do both quickly or else this could un awl and
Speaker 1: it could end up in really, really crappy circumstances for you.
Speaker 1: And by the way, if you need help with your money,
Speaker 1: if you need to talk to somebody and you feel
Speaker 1: like you're in that situation we're tapping home equity to
Speaker 1: pay off high interest rate credit card debt because it's overwhelming,
Speaker 1: is the only solution for you, Well, I would suggest
Speaker 1: speaking to a nonprofit credit counselor at NFCC or Money
Speaker 1: Management International. Will post links to both of those in
Speaker 1: our show notes. But those are places I would turn
Speaker 1: because sometimes they are able to work with your creditors
Speaker 1: to give you lower rates that you can't get on
Speaker 1: your own. And and by the way, here's the thing,
Speaker 1: there's almost no upside. Back to the home equity thing,
Speaker 1: Matt to dwelling on the increased value of your home.
Speaker 1: I think sometimes people keep refreshing Zillo or red Fin
Speaker 1: every day and they're like, just for that little pick
Speaker 1: me up. Yeah, let's see how much this estimate has
Speaker 1: increased my value. What's what's the redfin estimate? Exactly? There By,
Speaker 1: the way is always more, it's always higher, the red
Speaker 1: Fins always higher. Yeah, I really have you found that? No,
Speaker 1: I don't check enough, to be honest, I've noticed that.
Speaker 1: But I know that some people love checking, and they're like,
Speaker 1: I've been I've been just sitting here eating bond monds
Speaker 1: and I just made three k uh and that feels good.
Speaker 1: That makes people feel pretty swell that they didn't have
Speaker 1: to do anything and they just made some money. But
Speaker 1: but here's the thing, doing nothing is actually the best
Speaker 1: course of action in so many circumstances. I'm not I'm
Speaker 1: not saying sitting on your couch, but but um, if
Speaker 1: you're in great financial shape, if you're if you're living
Speaker 1: life how the money way, the way Matt and I
Speaker 1: talked about your saving and investing for your future in
Speaker 1: a meaningful way, Well then we would say tapping your
Speaker 1: home equity wisely in order to pursue a renovation or
Speaker 1: some of these other financial goals that you've got. It
Speaker 1: could make sense because his home equity has skyrocketed. More
Speaker 1: folks are thinking the exact same thing. But but as
Speaker 1: rates have gone up, it's not necessarily a slam dunk decision.
Speaker 1: There's a lot that you need to consider, and if
Speaker 1: you're kind of doing it out of desperation, the consequences
Speaker 1: could be severe. They could be bad. And so there's
Speaker 1: just a lot that goes into thinking through whether or
Speaker 1: not you're going to cash in on some of that
Speaker 1: home equity or not. We want people to be careful,
Speaker 1: proceed with caution, and in some situations you could further
Speaker 1: your nutual goals. In other ways, it could end up
Speaker 1: harming you. This whole conversation, it kind of reminds me
Speaker 1: like we've our kids are a little bit younger, but
Speaker 1: we we have folks who have kids who are older
Speaker 1: and they're starting to have the big talk with their kids,
Speaker 1: and it's sort of like, wait about investing. If only
Speaker 1: it was that easy. Here's what a four one heay is, sweetie, um,
Speaker 1: But basically what I'm saying, I'll have that one. I'll
Speaker 1: let my wife handle. Like I'm thinking about the fact
Speaker 1: that there may have been some folks who weren't even
Speaker 1: aware that this was something that they should be paying
Speaker 1: attention to, or it's something that it may not have
Speaker 1: even been on the radar, but by talking about it,
Speaker 1: all of a sudden, you've thrust in front of them
Speaker 1: and you're like, hey, this is something that you gotta
Speaker 1: watch out for, and now we hope you make the
Speaker 1: best decision possible. Right Like in the same way with
Speaker 1: with home equity, It's like, I bet there were some
Speaker 1: folks were it wasn't even on their radar at all
Speaker 1: that this was an option for them, And now they've
Speaker 1: gone to Zello and they're like, they're like, look what's available.
Speaker 1: Uh now they've got those Uh they got the dollar
Speaker 1: signs and their eyes. But it's still we think it's
Speaker 1: still important to talk about it and just be something
Speaker 1: in Vegas with this to be something that you're aware of.
Speaker 1: We want this to be something that you're thinking through
Speaker 1: in a healthy way. That is what we do here
Speaker 1: on the show. We talk about money in a way
Speaker 1: that it's where you know where it's not ABU. We
Speaker 1: want to help you through some of these different financial
Speaker 1: seasons of your life, and hopefully we were able to
Speaker 1: do that today. And this is of course just a
Speaker 1: top of mind discussion as you're seeing these headline numbers
Speaker 1: and you're you're wondering if you're a homeowner, like, well,
Speaker 1: what do I do with this newfound money? Well, for
Speaker 1: most people, nothing is the best best course of action.
Speaker 1: So are Matt. Let's move back. Let's get back to
Speaker 1: the beer that we had on this episode. This one
Speaker 1: is called Above the Threshold of Hell by Burial Brewing Company.
Speaker 1: That was a pretty good metal voice, just that's how
Speaker 1: it's written out on here with its super metal design.
Speaker 1: Is just kind of a ridiculous name, but for a
Speaker 1: great I p A. Yeah, what were your thoughts on
Speaker 1: this one? It was fantastic. I don't think we've ever
Speaker 1: had an I p A from Burial that wasn't amazing.
Speaker 1: This was a double dry Hops I p A. And
Speaker 1: I will say a lot of times some of their
Speaker 1: beers can be kind of thick, difficult to drink, but
Speaker 1: I felt like this one was a little bit lighter. Um,
Speaker 1: it was lighter. I think in the Hops and the
Speaker 1: flavor it was nuanced. It wasn't just like you know,
Speaker 1: they weren't smashing the guitar on the stage. They were
Speaker 1: just up there playing like a normal person. And for
Speaker 1: them specifically, I feel like that's a nice change of pace.
Speaker 1: You know, like like a lot of times it's like
Speaker 1: to be abrasive. They've always got it cranked to eleven.
Speaker 1: And it's really cool to see a brewery like Burial
Speaker 1: dial it back just a little bit. Sometimes you want
Speaker 1: to bear that's a little bit easier to drink, that
Speaker 1: doesn't smash you over the head nearly as much. Maybe
Speaker 1: got some more of the hop nuance that's going on
Speaker 1: in this beer because it wasn't over the top, because
Speaker 1: it wasn't just like hopped to the gills. It was like, oh,
Speaker 1: I feel like I can taste the flavor profile of
Speaker 1: the hops a little more because it was a little
Speaker 1: more laid back, so in my mind was a touch
Speaker 1: more like fruity. I feel like you could taste more
Speaker 1: of the fruit flavors with within the hops that they
Speaker 1: tend to evoke. I dug this one, and I dig
Speaker 1: pretty much everything Burial makes. They're awesome, all right, that's
Speaker 1: gonna do it for this episode. For folks who want
Speaker 1: the show notes will have links to some of the
Speaker 1: resources we mentioned. You can find those up on our
Speaker 1: website at how to money dot com. That's right, and
Speaker 1: don't forget if you have not signed up for our
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Speaker 1: actually our first legit newsletter, came out yesterday, So all
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Speaker 1: you got to enjoy that. But if you're listening and
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Speaker 1: scroll down to the bottom of the homepage. Best newsletter
Speaker 1: in the history of money, Newsletters in the history of money,
Speaker 1: and we just started. Uh it's a tall claim, but
Speaker 1: we're gonna stand by it. That's gonna be it for
Speaker 1: today though, until next time, Joel, best Friends Out, Best
Speaker 1: Friends Out,