One of the biggest financial mistakes I made was treating our home equity like a personal piggy bank. I suffered huge repercussions from this mistake when my first husband and I divorced. Together we purchased a home in 1996 for $600,000 and as part of our divorce settlement we sold the family home for $1,300,000 in 2010. In fourteen years the home appreciated 120%. We did an extensive home remodel (paid for with equity), but this was also sold it in a tough housing market in California! We should have each walked away from that sale with at least $200,000 each (subtracting the remodel costs). In reality after paying off the mortgage, paying off the home equity line, and paying the closing costs and other real estate transaction fees, we each walked away with just over $12,000 each. Basically nothing from a home valued at 1.3 million.
My ex-husband was a realtor and his best friend was a mortgage broker. We refinanced our home often. Yes, I signed the papers, and yes, I just followed my husband’s lead. It wasn’t until he walked out, and I started paying the bills that I really realized where we sat financially with our home. I was shocked to see that we had a mortgage that allowed us to pay interest only, and for years we only paid the interest on our home loan. Between using the equity line of credit and paying interest only, our home was fully mortgaged to the maximum limit and then some because of falling home values.
I did not anticipate the divorce; I did not anticipate the falling market. In life there are factors that we simply do not have control over. In hindsight I should have thought more about the actions I did have control over.
That was a hard lesson learned and a mistake that I will not make again. Do you have a home equity line of credit? What expense do you believe warrants spending the equity in your home?
I often wonder the same question. We have borrowed to pay for college tuition as the home equity APR is lower than any loan we could have secured toward tuition. I am not sure it is a great idea but we hope that the house continues to appreciate and we won’t regret the choice.
Suzanne, I have a number of friends that have taken your approach and used equity for college tuition. I don’t know that any of my friends regret their decision. The timing of the unexpected sale of our home compounded the issue for us. That home today is worth much more today than when we sold. That being said I wish we had taken a different approach. Live and learn!