What if one of them gets sick and can't work? Miss a couple of payments the next thing they know they'll be in foreclosure. Yes they can sell but real estate is illiquid so there is no guarantee they will get their equity back.
It is just a lot of risk to ME (obviously other people might have a higher tolerance for risk) but for 400 sf more, some granite and stainless steel appliances is it worth it? They say their previous 2000 sf home across the street wasn't big enough for the 5 of them. We grew up with Grandma, parents and 5 siblings in a 1100 sf bungalow and turned out fine. If you think about it they paid $250k + interest for 400 sf and granite.
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Originally Posted by squiggs96
I'm not saying he has thought his life and retirement through well. I'm saying the house is still not the worst thing he could do. If in 15 years, the house has not increased, he'd have $340k in equity. I'm guessingm based on the ages of the kids, he'd need to have the house for at least 20 years. At that point you can sell it, downsize to a condo by paying cash and live off the pension. It's obviously not the best solution, but he isn't going bankrupt. I'm going to guess the house is going up in value in the next 15-20 years, so there will be additional equity to take out then.
I'm going to guess their monthly payment is around $2,600 or so. I'm not seeing how the house is causing him to spiral out of control. They still need a place to live and still would have to pay either mortgage or rent. They could downsize, but that doesn't seem prudent with a growing family.
From the brief synopsis, and of course there is much more to the story I don't know, it doesn't appear the house purchase was the bad idea. It was all the decisions made before hand. If they downsize the house now and put the difference between their mortgage payment and the new rent/mortgage payment into savings, mutual funds, etc. they are taking the risk that their investments will increase more than the value in their house will increase. Being that the house's value increases without income tax consequences, they are already behind.
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