What Does The Money Guy Show Think About HELOCs?

Next, we have Alex, who says, “How do the Money Guys feel about financing home upgrades, such as with a HELOC, as long as total home expenditures don’t exceed 25%? I’d like to keep a 2.5% mortgage as long as possible, so it sounds like this person is in the—I think you’ve got it—like a gilded cage, Brian, of the low-interest mortgage. So how should they think about that? A lot of people are in this position right now. We bought our homes a couple of years ago, have these super low-interest rates on our primary mortgage, but housing prices have skyrocketed. So it’s like we have this gigantic piggy bank just sitting there inside of home equity. A lot of folks think, ‘Well, I can’t move, so you know what I need to do? I got to put in the pool, I got to add the deck, I got to finish the bonus room, I got to do that, I got to, I got to, I got to.’ And while there is nothing wrong with doing those things, I think that just because you can doesn’t mean that you should. Just because you have home equity doesn’t mean that you should tap home equity for improvements. I think there are probably times where using home equity as a means to do improvements could be justified, but there are other times when it’s completely voluntary and it’s completely something that you just want to choose to upgrade your house. I don’t know that debt should be the way that we do those. I don’t disagree, but I also do think we’re in unique times where I think people are in these gilded cages now, and the fact that if you have a 2 and 1 half 3% mortgage, you’re loving the mortgage but you’re hating that the house might not meet your growing family needs or where things are going. So you’re looking around going, ‘Well, how do I make the best of this situation? I have a super low-interest rate on my mortgage; this house was good in this moment in time, but I could actually make it better without having to move.’

I think that’s going to happen. I see that going on. We live in an expensive marketplace here in Nashville, and I’ve seen—we actually know people who have done this. They’ve looked at their house and said, ‘You know what? The bones on this are really good. This house meets 70% of what I need, but you know what would really help me is if I added another bedroom or if I added a garage over here or if I redid the kitchen because it just doesn’t—I actually, I don’t know. I don’t know if it’s disagreeing, but I do think if it allows you to stay within the parameters of your housing, it is still going to be less than 25%, even with a home equity line that’s probably getting interest rates over 7%. That it’s okay if you have a plan. It’s all like all other things; you’ve got to have a plan to take into account how do I accomplish this with my retirement goals as well as making sure that I keep the kids clothed and everything else. And that’s why the financial order of operations is so powerful. But it is one of those things where have a plan that’s going to pay it off in a very quick period of time, so that you’re actually—I don’t want you carrying this for 15, 30 years on the home improvement. I would kind of stress yourself a little bit by trying to make this maybe a five to seven-year payoff goal, and you’re even hoping that you get a little push of the wind in the back if interest rates go down in the future. So I’m not going to say no to doing home renovations because I think there are going to be people that are going to be in houses that they like but they just don’t fit their life or their growing family’s needs. So instead of getting rid of the 2 and a half% mortgage, maybe they should just do a home improvement but do it in a very financially realistic way so that you don’t go invest and here put too much money into it. Because I don’t want you to have the house that’s, you know, remember the Home Makeover show with Ty Pennington, where they’d go in—yeah, where they would have—it wasn’t dream, but it was—anyway, they would go into neighborhoods and take people’s houses and say it was a reasonable house at the time. Realize this was a few decades ago where maybe the houses on the street were $150, $200,000, and they’d all of a sudden blow these houses and have a $700,000 house. And now the people had the most expensive house on the street; they couldn’t afford the utilities; they couldn’t afford all the other stuff. That’s the only thing: don’t create a Ty Pennington situation where you have the most expensive house on the street. You also have more toys than you can even afford. The cost of this much bigger thing, so always keep your life grounded to know where you’re going with your financial decision-making. For more information, check out our free resources.