Should you borrow money using your house as collateral? (30:24-26)
“Four things are small on the earth, but they are exceedingly wise:
- The ants are not a strong people, but they prepare their food in the summer;
- The shephanim (like badgers/gophers) are not a mighty people, yet they make their houses in the rocks;
You might ask, “How does the text address the question of borrowing against your home?” Keep reading…
The text says four things are small on the earth. Can we learn anything from little critters? We should! The text contains a powerful expression: exceedingly wise. This expression is used only once in the entire Bible. Although four things are mentioned, I have highlighted the first two since the last two do not deal with financial matters. Note these two financial tips: 1. Save your resources in the summer (a time of abundance) to prepare for the winter (a time of scarcity), and 2. Make your house and home as secure as possible.
The first tip advises us to learn from the behaviour of the ants and is covered in Proverbs 6:6 What are two essentials for financial survival? We will now look at the second tip. How should the family home, often our largest single asset, fit into our financial strategy?
The family home should be a place for refuge, rest and refreshment. If we have nowhere to rest and get recharged, we won’t be able to perform well anywhere. We risk losing our livelihood. Furthermore, we endanger and weaken our entire family. Thus risking the family home, although often done, is very dangeous.
Translation: Shephanim
The Hebrew word שפןים (šā•pān•îm, pronounced “shah-phan-eem”) can also be translated as rock badgers, conies, or hyrax. It refers to any one of several small ungulate mammals of Africa and Asia with rodent-like incisors and feet with hoof-like toes. The text tells us that the šā•pān•îm are exceedingly wise because they make their homes safe and secure—“rock solid.”
Home Equity Loans—Holey Debt
A clear-title house (i.e. a house free of mortgage) is a very valuable asset. When we have significant debt against our home it’s as if the rock badgers had holes drilled into rock homes. Many financial planners encourage people to take out loans against their home on the basis that money tied up in the family’s principle residence is “idle money.” They say, “put your home to work!” According to the text this is a foolish financial strategy. The text advises us to ensure our home is protected from all invaders—including creditors. Foremost, home must provide appropriate personal shelter and then, as a second consideration, it may or may not be a “good investment.”
Different Direction with Tax Benefits
Canadian and American tax regulations give special incentives for residents to invest in principle residences. In Canada any increase on principle residences’ values are exempt from capital gains tax. In the U.S.A. mortgage interest on principle residences is tax deductible. These tax regulations often motivate residents to buy more houses than they need simply to reduce taxes. Unfortunately they usually use debt and debt compromises the asset. Hence tax regulations conflict with the exceedingly wise counsel in the text. Imagine if there were no tax incentives in Canada and America for personal residences. My guess is that many houses would be more humble.
Real Estate as an Investment
Rather than leveraging one’s large home it may be better to have a smaller home to live in but a second house as an investment property, that is, if you are confident house prices will rise. Unfortunately it would mean forgoing some tax benefits. I don’t believe we will see house prices rise during the first half of the 21st century, as they did in the last half of the 20th century, primarily because of demographic trends (aging population producing less children) and the simple fact that most houses built 1950+ are still habitable.
Exceptions to the Rule
Of course there are exceptions to this rule. Some have borrowed using their houses as collateral and been very successful in business. but I believe that many more have borrowed against their home only to regret it later.
- Memorize the text in your favourite Bible translation and think about it often.
- Work harder to gain clear title (mortgage-free) of your home than to build a large pension.
- Avoid expenditures that are primarily for “show.”
- Don’t avoid or build more house than you need for your family, especially if it requires a big mortgage.
Which of these steps, if any, does Jesus want you to take now? Ask Him.
You might ask, “How does the text address the question of borrowing against your home?” Keep reading…
The text says four things are small on the earth. Can we learn anything from little critters? We should! The text contains a powerful expression: exceedingly wise. This expression is used only once in the entire Bible. Although four things are mentioned, I have highlighted the first two since the last two do not deal with financial matters. Note these two financial tips: 1. Save your resources in the summer (a time of abundance) to prepare for the winter (a time of scarcity), and 2. Make your house and home as secure as possible.
The first tip advises us to learn from the behaviour of the ants and is covered in Proverbs 6:6 What are two essentials for financial survival? We will now look at the second tip. How should the family home, often our largest single asset, fit into our financial strategy?
The family home should be a place for refuge, rest and refreshment. If we have nowhere to rest and get recharged, we won’t be able to perform well anywhere. We risk losing our livelihood. Furthermore, we endanger and weaken our entire family. Thus risking the family home, although often done, is very dangeous.
Translation: Shephanim
The Hebrew word שפןים (šā•pān•îm, pronounced “shah-phan-eem”) can also be translated as rock badgers, conies, or hyrax. It refers to any one of several small ungulate mammals of Africa and Asia with rodent-like incisors and feet with hoof-like toes. The text tells us that the šā•pān•îm are exceedingly wise because they make their homes safe and secure—“rock solid.”
Home Equity Loans—Holey Debt
A clear-title house (i.e. a house free of mortgage) is a very valuable asset. When we have significant debt against our home it’s as if the rock badgers had holes drilled into rock homes. Many financial planners encourage people to take out loans against their home on the basis that money tied up in the family’s principle residence is “idle money.” They say, “put your home to work!” According to the text this is a foolish financial strategy. The text advises us to ensure our home is protected from all invaders—including creditors. Foremost, home must provide appropriate personal shelter and then, as a second consideration, it may or may not be a “good investment.”
Different Direction with Tax Benefits
Canadian and American tax regulations give special incentives for residents to invest in principle residences. In Canada any increase on principle residences’ values are exempt from capital gains tax. In the U.S.A. mortgage interest on principle residences is tax deductible. These tax regulations often motivate residents to buy more houses than they need simply to reduce taxes. Unfortunately they usually use debt and debt compromises the asset. Hence tax regulations conflict with the exceedingly wise counsel in the text. Imagine if there were no tax incentives in Canada and America for personal residences. My guess is that many houses would be more humble.
Real Estate as an Investment
Rather than leveraging one’s large home it may be better to have a smaller home to live in but a second house as an investment property, that is, if you are confident house prices will rise. Unfortunately it would mean forgoing some tax benefits. I don’t believe we will see house prices rise during the first half of the 21st century, as they did in the last half of the 20th century, primarily because of demographic trends (aging population producing less children) and the simple fact that most houses built 1950+ are still habitable.
Exceptions to the Rule
Of course there are exceptions to this rule. Some have borrowed using their houses as collateral and been very successful in business. but I believe that many more have borrowed against their home only to regret it later.