de Moraes column: Your home should not be an ATM
For those of you reading this article who are old enough to remember the real estate hey days of 2006/2007/2008, brace yourself. As for the rest of you, listen up.
Many think and would agree that our market has rebounded from the real estate bust that took place in the late 2000s. These levels have also rebounded at a much healthier pace and it has taken 9-10 years for this to happen. Between 2006 and 2008, home values were increasing at stupid rates and the general mindset of people was that if they didn’t get into the real estate market, they would never be able to and be stuck renting forever if they wanted to stick around.
New developments were popping up throughout the area and the developers were basically order takers like in a restaurant. I can recall at one point, some developers stopped taking orders because the properties were increasing at such drastic rate that they were leaving too much money on the table. We even had developers trying to get out of contracts for the same reasons as well as offer purchasers money to buy them out of their contracts so they could turn around and sell it for more to someone else.
Thank god we’re not there again!
However, with the dramatic drop in prices after the crash, many folks were able and did buy homes, that in today’s world, were heavily discounted now resulting in an enormous amount of equity based off of today’s values. As the market has now settled down and prices have remained flat and in reality likely dropped off a bit in the 2nd half of 2018, now is the time for those home buyers to remain smart.
It is tempting to take advantage of the equity one has accumulated by doing a cash-out refi at these still low interest rates. A homeowner trading in a low interest rate of 4 percent for a 5 percent keeping a $400k loan would result in not only however many more years of payments, but also instead of paying $287k in interest over 30 years, your now paying $373k in interest just from that 1 percent.
Now for those that want to use their home as an ATM and take out $50k during that cash-out refi, the new $450k loan at 5 percent will result in a nice checking account bump today but will cost you $419k in total interest over the next 30 years. That $50k cash-out refi, just cost you $132k in interest if you stay in your home for the next 30 years.
Hope your enjoying that boat now!
Sean de Moraes is an agent with Roaring Fork Sotheby’s. He can be reached at firstname.lastname@example.org.