: views from the Hill

Monday, April 25, 2005

Home equity

Perhaps it's the Puritan ethic that courses through the all-American bloodstream.

Perhaps it's memories of a long-ago marriage and a receipt found over the weekend for a stereo system we couldn't afford even with two salaries but which F. really really really had to have back then. The stereo we had just wasn't up to snuff, wasn't what he deserved. We put a hundred or so dollars down and promised to pay something like $23/mo for two years and walked out of the store with a system that was up to his high standards.

The clock radio turns on at 6:30A, tuned to KCBS News Radio with Stan Bunger and Susan Leigh Taylor for a mix of news, sports, weather and traffic.

Lately around 7A, KCBS plays a Bank of America home equity loan ad. The ad tells you that a home equity loan has the advantage of a stable interest rate and a stable monthly payment. That's good, right?

What grits my teeth is the come-on for the loan which goes something like, "Sometimes your kitchen needs remodeling. Sometimes a family of three becomes a family of four. Sometimes it's taking longer than expected to pay off last year's vacation." PITCH: get a home equity loan.

Sure, using home equity (a second mortgage on your already mortgaged house) to remodel a kitchen sometimes makes sense. Often, though, your kitchen doesn't need remodeling. You want to have a spiffy new kitchen, you deserve a spiffy new kitchen, even though the remodel will set you back $30K and you have a mortgage and credit card debts and no savings to speak of. No problem! BofA will give you a home equity loan!

Home equity loans to pay for another child? Sounds odd to me.

The oddest, though, is the pitch for a home equity loan because it's taking longer than expected to pay off last year's vacation. Unfortunately, from the sample of home equity loan users I've known, that home equity loan will be used to pay off last year's vacation, and remodel the kitchen, and buy a boat, and buy a new pickup to haul the boat, and maybe pay for a patio and a new barbecue as well. At the end of the day, the money's gone, the house is mortgaged to the hilt and can't be tapped for future emergencies, and those monthly payments are an expensive reminder of the perils of using the easy money of a home equity loan for depreciable fun and frolic.

Shouldn't we be living within our means? Shouldn't we not be booking vacations that we'll be paying off for months and months after? Maybe we should go on daytrips or camping or just veg instead of booking a resort on Maui?


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