Finance/Children

Is a home equity loan a good idea?

Hey Taylor - Is it worth taking out a loan for some home renovations? I don’t want to take on more Taylor debt but I’ve Kovar been thinking I could go with a home equity loan and get the work done without paying too much interest. - Kylie When you finance home improvements, you put future dollars toward interest payments instead of investments. Invested money will grow, compound and continue to deliver returns, whereas a refurbished kitchen will only make a significant financial difference if you sell immediately. Otherwise, it’s just a cooking space that you use and devalues through wear and tear.

Hey Kylie - Those loans can look pretty tempting, can’t they? I always advise against taking on debt to buy a non-asset, so my short answer is no, it’s not worth borrowing. My longer answer will hopefully make my reasoning clear.

A lot of importance gets placed on resale value, but it really shouldn’t matter unless you’re about to sell your home. To justify taking on debt and making interest payments by citing the resale value of your home is disingenuous if you intend to keep living in that house after the remodel is done.

If you were planning to flip the home, all those lending options become much more acceptable. Since the debt you incur will be wiped out by the sale, a good loan can actually be used to make money. Unfortunately, homeowners twist this logic to pay for a fancy new bathroom that only they will use.

And, of course, lenders make it very appealing to get money for your remodel. I just put a piece up on GoFarWithKovar.com about five ways you can finance your home renovations if you really need to make some changes. From cash-out refinancing to borrowing from your 401(k), you have plenty of ways to pay a contractor. In each case, however, you’re stealing from Peter to pay Paul; in this analogy, Peter is your retirement. If possible, try to pay for any renovations with cash. If you can wait and save, you’ll be much better off than if you take out a second mortgage and increase your monthly repayments. I understand that circumstances will dictate how long you can put off the work, and if you have no choice but to borrow to fix a leaky roof, sometimes those are just the breaks.

The goal should always be to cover your expenses with money you already have. No matter how good the rate is on your loan, you’re decreasing your investment potential when you have to make payments to the bank. Hope this helps!

Taylor Kovar, CEO of Kovar Capital. Read more about Taylor at GoFarWithKovar.com Disclaimer: Information presented is for educational purposes only and is not an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. To submit a question to be answered in this column, please send it via email to Question@GoFarWithKovar.co m, or via USPS to Taylor Kovar, 415 S 1st St, Suite 300, Lufkin, TX 75901.

Q: Your recent series on punishment was thoughtprovoking. I agree children should have consequences when they misbehave. Nonetheless, would you please clarify when punishment becomes excessive? What is the line between reasonable and too much? When I was young, I was spanked with a belt on numerous occasions. I always felt, and still do, that they were completely unnecessary and over the top. Do you agree? A: Absolutely! Belts, paddles, switches, and other nefarious variations on that general theme are dangerous and unequivocally unnecessary. I don’t have a problem with spankings per se. The best research (that is, research done by people who are dispassionate on the subject) consistently finds that contrary to the ideological myth, when spankings are occasional, moderate (two to four swats on the child’s rear end), and administered by loving parents who spank with their hands only, they are not associated with psychological, behavioral, or social problems. Then we have well-intentioned claims that the Bible instructs parents to spank with a “rod,” but the biblical term “the rod of discipline” is clearly metaphorical. It refers not to beatings with sturdy sticks, but to parental authority that is reliable, righteous, just, and unequivocal. For more on that subject, interested readers are referred to the statement on spanking found on my website at johnrosemond.com. Before I answer your first question, allow me to address a misunderstanding. I do not believe that successful discipline is a matter of properly manipulating consequences and I

don’t believe it’s always necessary to respond to misbehavior with consequences. Consequences are overrated and often overused. The key to effective discipline is an attitude, a certain presentation style, not John consequences or punishment. Rosemond When parents act like their authority is legitimate, that they know what they are doing and why, children do what they are told. When parents explain, threaten, yell, plead, and the like, children take every opportunity to misbehave. My recent series on punishment was not an apologetic for a punishment-based approach to discipline. I merely said that punishment is an essential aspect of an effective disciplinary approach. Research – again, studies done by dispassionate individuals – confirms that assertion. It’s important to note that the “size” of a punishment does not determine whether it is excessive or not. That is determined by the parent’s attitude. Punishment is likely to be excessive when the parent is angry and using punishment as a form of “payback.” The parent in question is being impulsive and vengeful as opposed to calmly corrective. Whatever message the parent intends to send is blurred by his or her emotional reaction to the child’s misbehavior. Punishment that is driven by emotion accomplishes nothing and serves only to elicit emotion from the child. It accomplishes nothing of value; therefore, by definition, it is excessive. Family psychologist John Rosemond: johnrosemond.com, parentguru.com.

John Rosemond has worked with families, children, and parents since 1971 in the field of family psychology. In 1971, John earned his masters in psychology from Western Illinois University and was elected to the Phi Kappa Phi National Honor Society.