Despite impressive levels of home equity among homeowners in California’s Bay Area, one local independent news outlet featured a series of financial planners who advise their clients against tapping into their properties.
“I hope people don’t have short-term memory loss and get in the habit of spending like the federal government and having a deficit,” financial planner Sean Kenmore told Berkeleyside, a publication that covers Berkeley, Calif. and its surrounding cities.
Kenmore expressed concerns that homeowners didn’t learn from the boom years of 2003 to 2007, when many consumers took out risky mortgages or home equity lines of credit only to find their homes underwater. That’s of particular importance in the Bay Area and California as a whole, where home values have exploded in recent years: The median price of homes in Berkeley, known for the University of California’s flagship campus and its proximity to San Francisco and Oakland, sits at $1 million, according to Berkeleyside.
“Prices are now greater than they were in 2007 before the real estate markets collapsed,” Oakland-based mortgage lender Vic Joshi told Berkeleyside, calling the current market in the area “completely unreasonable.”
The piece goes on to list the multiple pitfalls inherent in home equity loans, including annual fees and increasing variable rates. It also offers a quick dismissal of reverse mortgages, though Berkeleyside allows that the prevalence of Home Equity Conversion Mortgages is “expected to increase.”
“They tend to be expensive,” Jill Hollander, a financial planner in Corte Madera, Calif., told the publication. “The heirs don’t tend to like it because the bank gets their money out. When you die, the house gets sold.”
The piece does not mention the other options that heirs have for settling a reverse mortgage loan upon the death of the last surviving borrower.
To Berkeleyside’s credit, the planners quoted in the piece emphasize that their blanket advice shouldn’t apply to all potential borrowers, and that each homeowner’s situation is unique.
Read the full take, an interesting look into the perceptions of home equity among average prospective borrowers and their advisors, at Berkeleyside.
Written by Alex Spanko