I have written a number of posts about home ownership. Generally, I think owning a home is a good thing. However, there are a variety of costs that can make it more costly than renting depending on the situation. In fact, I have argued that if you can’t save or have trouble saving that you could view your home as “forced” savings. In other words, paying down the mortgage and the home value going up gives you the ability to potentially use that home, because it is typically an appreciating asset.
In my case, I like having the home because it also adds to our overall net worth and it makes me feel good about our overall position. Yet I have had some evolving thoughts about this particular home. Part of those thoughts have to do with the ongoing saga in our household over student loans. Mrs. ROB and I have a lot of student loan debt. We are both on the PSLF program. But it is possible that one or both of us may not get to PSLF because of the nature of our jobs, we could lose them or whatever. That is probably more true for Mrs. ROB because of the tenuous nature of her position and she might want to do something different. If that is the case then what do we do about her student loans? Do we just pay them off over the next few years? Do another form of loan forgiveness? Move to another country and never return to the United States? Those are questions that keep me up at night. I fully admit to spending some time trying to expedite the debt payoff as soon as possible. I have thought about trying to leverage our home to get a home equity loan that is greater than the home is worth. I have thought about taking out various 0% credit cards to pay off the balance faster and then pay off those cards faster. I have thought about taking a combination of loans to eliminate the debt and then pay off those loans over time.
All of those situations and more are complicated and difficult. It keeps me up at night, stresses me out, and there is no good solution. The “best” solution I have found, unless Mrs. ROB gets a job in the public sector where she would be eligible for PSLF (and that is a possibility and my home) is to find that money elsewhere. And where could I find that money?
Answer: My Home.
Paying off my mortgage would allow me to have enough equity in my house in order to pay off Mrs. ROB’s student loans and vanquish them from our lives. That is the good news.
The bad news is that the logistics of this are difficult and a long slog. Here are some of the problems I see with this strategy (although it is one I may pursue).
First, we have to pay off the house. My mortgage is still in the six figures. I don’t have enough equity in the home and the mortgage to get enough of a home equity loan to pay off Mrs. ROB’s student loans and pay them off. Additionally, in order for that to work you would have to have a loan to value ratio of 80% to value of the home. In other words, I have to borrow a threshold where there is at least 20% difference between the amount borrowed and the value of the house. In order for that to occur I need to pay much more down on the mortgage.
Second, this strategy will not happen right away. Paying down the mortgage to use the equity will not happen overnight. In fact, it is a strategy that will take a couple of years if not more. It will mean that I need to make a concerted effort to pay it down and use any and all extra money to this effect. Additionally, we need to still make student loan payments for both of us. That will be a slog. It will be difficult, but it might be possible.
Third, we might want to use the equity for something else. I do think that the current home that we own is not our forever home. I hope that we will find something different whether that be in a town with a better school district or moving to another part of our current state or another state for another job or whatever it will be. What to do then?
Finally, it can be dangerous to put additional debt on our home. By paying down the mortgage and adding more debt we could put our home in danger primarily because we might not be able to sell it for what it is worth. That is a potential danger, but is not something that would occur right away. I would not do something like that if I didn’t have a good idea that it would be better for us in the long run.
The Bottom Line: Debt drives me crazy. It keeps me up at night. It is a form of slavery. And we have enough of it that it causes me to have heightened state of anxiety. What is the best way out? I don’t know. Paying down the mortgage, taking out a HELOC or home equity loan and/or selling a house maybe the quickest strategy, but it might not be the best.