Thinking Conservatively About Your #1 Asset

HOME SWEETER HOME

Here are five things you can do to better manage your number one asset

• THINK DIFFERENTLY
It's a house, not a retirement fund. Stop thinking of your house as an investment, and recognize it for what it really is: an expensive installment-plan purchase that promises you a hefty rebate down the line. The best way to make a true profit on a home is to pay as little for it as you can. That means buy cheaper, buy quicker, buy smarter.

• PAY EARLY, PAY OFTEN
Speed up your mortgage payments. A typical home today will end up costing its buyer $1 million over the next 30 years. The first way to significantly cut that cost is to reduce interest costs. Add $100 a month to a 6.25%, $300,000 loan payment, and you will shave almost four years of loan payments and save $57,000 of interest. Add an extra $500, and you will pay off the house in just 17 years and save $170,000. Caution: Don't defer retirement savings in favor of rapid mortgage payments. Do both.

• SHARE THE BURDEN
Buy a two-family house or a house with a rental unit as your first home. [I wish we had these kinds of properties in our local market area. ~~ RK] Pay it off quickly, bulking up your monthly payments with your tenants' rent and paying off your mortgage early. Then use that house to buy your dream home. You will get out of debt more quickly, have more money to pay for your new home, save more in your retirement fund and use less of your regular income for future housing costs.

• WATCH THE RENOVATING
Build a new kitchen -- or bath or bedroom -- because you want it or need it, not because it will make you a profit or enhance the value of your home. According to Remodeling magazine's annual report on the costs and value of home renovations, a top-of-the-line kitchen remodel like you see on TV or in shelter magazines will cost you $108,000 and return just $82,000 -- a loss of $26,000. Borrow the money, and your loss will be worse.

• DON'T MOVE SO OFTEN
It's the best way to build equity and enjoy the benefits of rising values. According to a study by Harvard's Joint Center for Housing Studies, 15% of homeowners move every year -- or the equivalent of every U.S. homeowner buying and selling a home every seven years. Few homeowners have paid off more than 10% of their loan principal by that point. But they will have paid four times as much in interest. When they buy their new house, they start the mortgage clock all over again.

--David Crook