Yesterday I received another letter from the bank offering me the opportunity to borrow more money.
"Dear Mr. Heavens: Would an extra $198,863 come in handy this spring? Based on an automated value system, your home is estimated to be worth approximately $462,250 -- giving you the power to get the money you need, at a fixed rate as low as 7.09 percent APR."
I called my wife.
"Do we have anything coming up this spring that would require an extra $198,863?" I asked.
"Who is this?" she replied.
I explained the letter offering this "FlexLock Home Equity Line of Credit" (she had gotten one as well), adding that the bank was suggesting that the money be used "for a landscaping makeover to brighten your surroundings," or "a renovation project to add room and value to our home," or to pay off high-interest credit cards.
"That's an awful lot of landscaping," she said. I've been planning to have some tree trimming done in the next month or so, but so far the estimates have been coming in no higher than $800, so I'd end up with $198,063 extra. In addition, the previous owners did a lot of landscaping over the years, and the perennial-filled gardens I added to the front the house a few years back are blooming mightily and look just fine.
So what about the extra room to add value? Well, the older son lives in California and isn't planning to come back except for a couple of weeks at Christmas, and we've just bought the younger one a new bed with drawers and are planning to replace his desk and add some lighting, but if the whole thing costs us more than $1,500 divided by two paychecks we'd be a bit surprised.
In addition, we don't need to add any more value to this house, apparently, because we have almost $200,000 in equity already. Part of it comes from paying down the mortgage more rapidly by attaching a couple of hundred bucks a month extra on the principal side. The other is that between the time we bought the house at the end of 2001 and today, values in our community have risen faster than in the previous 20 years.
We bought at the right time, at the right price, and in the right location, and the mortgage is 5.375 percent fixed and we like it that way. I wish everyone were as lucky, because then we wouldn't have a foreclosure rate that statistically seesaws every month but, over the longer term, continues to rise.
Consider also the recent visit by the tax assessor (we're reassessed every 10 years and it's time), and you will understand why I'd rather not add on to our house. The annual tax bill is one third of our annual mortgage payments now. Every one of our neighbors, however, has doubled the size of their houses over the last decade, and they are shaking in their boots. So we are guessing that our assessment might stay the same, since the previous owners' renovation projects were part of the last assessment.
The only thing that is intriguing about the bank's HELOC offer is the interest rate at 51 basis points below the 7.74 percent prime rate. That would be a bargain for someone, but, compared with our mortgage rate, not us.
Most of all, we prefer owning the house and not having it own us. Too many people overextended themselves to buy homes in the boom market, and now are paying the price. I'd rather know that my house is worth more than I paid for it than pay through the nose every month for that knowledge.
In many areas of the country, the real estate downturn grinds on longer than the housing economists had been predicting (go figure). According to a recent teleconference with numbers crunchers from the National Association of Home Builders and the Joint Center for Housing at Harvard, spending on remodeling is also dropping, but just 1.5 percent after adjustment for inflation.
According to NAHB chief economist David Seiders, the slower growth of remodeling this year and next would be more evident in highly discretionary jobs like remodeling kitchens and baths and adding rooms.
So now I know why the bank made the offer and suggested adding a room.
The spending on remodeling will likely be confined for at least a couple of years on what I call "home center jobs" -- the majority of purchases made on weekend mornings at Lowe's, Home Depot and Menard's.
That makes sense. You might be able to put off the new kitchen for a couple of years, but if the stove goes, or the faucet breaks or the plumbing leaks, you are going to have to spend and fix now.
That reminds me that I need to call the plumber to install the new seal around the dishwasher. And while he's pricey, he still won't cost $198,863, even at 51 basis points below prime.
