Access equity with care, homebuyers cautioned

No guarantee interest rates will remain low or that prices will continue to rise, local investment advisors say.

Local homeowners who have seen the values of their homes skyrocket over the past year should nevertheless be cautious when considering whether to access that increased equity, financial planners say.

Trying to make a quick buck can be tempting but hazardous, they say, but with no guarantee on how the market will react over the next year.

The value of a typical Abbotsford house has risen by more than $100,000 over just the last year, according to the Fraser Valley Real Estate Board. That, predictably, has some local homeowners considering how they can cash in on the increased value.

“Some people are getting excited because they’re seeing this increase, which is happening basically on a weekly basis, if you think about it,” said Robby Toor, a personal account manager at Envision Financial’s Town Centre branch.

Toor said there’s nothing wrong with being pleased by the increase in your home’s value, but that there is risk in putting more money into the housing market assuming prices will continue to rise.

“A lot of people have this thing in their heads … that [the market] is never going to come down.” That’s not necessarily true, Toor warned, and interest rates too could rise and squeeze homeowners who have over-extended themselves.

That’s not to say that money can’t be made, but Toor and his counterparts at other financial institutions say long-term planning is the key.

At Prospera Credit Union, vice-president of personal banking Dan Whalley says clients have been looking to access equity for a range of regions, from home renovations to debt consolidation to money for their children seeking homes.

In such cases, Whalley said advisors ask clients: “Is the reason they’re looking to access those funds to help improve their overall position?”

If the money can be used to increase their long-term financial outlook, Whalley said accessing that equity can be beneficial. But the possibility of a market slow-down or interest rate hike mean homeowners shouldn’t push their resources to the limit.

And homeowners should be especially wary of using that equity – which is long-term debt – for ever-present temptations like holidays or toys like motorcycles, ATVs or boats.

It can be a good strategy to accept rising home prices and take peace of mind in the fact that the value of their house – most people’s largest asset – is rapidly appreciating.

Kshitij Bhupendra, bank manager at Scotiabank’s Abbotsford Banking Centre, said homeowners shouldn’t allow themselves to “be swayed by the market.”

“People never want to miss out on the market, and sometimes they’ll make a purchase expecting the market to go up.”

 

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