I recently had the privilege of being a parent chaperone for a class of fourth graders during a three-day trip to the South Fork American River.
As we spent time together at this outdoor learning center, digging deep into gold rush history, I noticed a particular poster hanging in one of the historic buildings.
It read, “They came to California to make their fortune and then go home. Few knew anything about gold or mining. Men would descend into the hearts of mountains, in back-breaking toil. Stand waist deep in icy waters. Put up with many unbelievable hardships. All in anticipation…the hope of striking it rich!”
You might say that today’s newly acquired home equity, mainly the result of a run up in appreciation, is equivalent to striking it rich back in the gold mining days of the 1800s.
Well, sort of at least. You didn’t have to pan in icy waters or trek through mountains. All you needed to do was endure a hand-cramping amount of documents to sign when you purchased your home.
Now with tens of thousands of dollars and, in some cases, hundreds of thousands of dollars, right at your fingertips today, you are simply a stack of papers away again from accessing the “gold” in your home.
Here are a few ways you can smartly enjoy your equity:
1) Move and buy a new home to improve work, family or retirement goals.
2) Finance a second home with an ocean view, place to ski or adjacent to the green.
3) Purchase an investment property for monthly cash flow or to fix up and flip (sell for a profit).
4) Lower your current payment by extending your amortization schedule, taking an adjustable product, attaching an interest-only feature or buying down the rate.
5) Consolidate your debt to eliminate credit cards, wrap together auto, school, medical and personal loans or finally payoff that second mortgage.
6) Take cash out to make improvements to your home, pay for school, go on vacation, purchase an automobile, fund your retirement or do whatever you want with it because it’s your cash.
7) Keep your payments from rising by determining the length of time you plan to stay in your home.
If it’s over 10 years, then a fixed rate option is best like a 15-, 20-, 25- or 30-year term. If it’s 5-10 years in the home, then an adjustable product with a 5-, 7- or 10-year initial fixed lower rate option could be a great fit.
But before you do anything, you better have a plan, because you may strike it rich only once.
For example, you need an experienced, licensed and well-qualified financial adviser to consult with prior to taking money out of your home.
In addition, your tax professional needs to be part of the conversation too. If you are thinking about buying another property, don’t pick just any Realtor. You need to work with a seasoned and active agent.
There’s just too much “gold” at stake.