HOME EQUITY AGREEMENT +
Risks and benefits.
Sometimes we need money. Maybe it is for college tuition, other times it is for 3 dental crowns (that can add up to $8,000 these days). In any case, you may be looking for a way to NOT add anything to your credit card balance (that’s a good thing usually).
You can SELL part of the FUTURE VALUE of your home.
Right there, if you are smart, you can see one of the risks. In the past 50 years home values have risen, up to 45% in one year in certain locations. The average HELOC loan rate can be gotten for less than 9%. It is POSSIBLE to give away as much as three to five times the value you would have spent with a traditional HELOC loan. In fact, the longer you own your home the greater the risk. A few lenders limit the “interest” to 20%. But seriously! Would you take out a loan for 20% on your home? I definitely would not.
That value should be yours. After all who is paying for the taxes, upkeep (mowing, snow shoveling, window washing, and trimming bushes), maintenance (like a new roof), and improvements? Clearly YOU, not the bank that gave you the “loan,” should reap the benefit of increased value. However, they reap the benefits, and you get stuck with the bills.
For that risk you do receive benefits. First, there are no loan payments. Second, you don’t need a great credit score. Third, there are fewer inspections, fees, etc. When you re-finance, sell, or die … they get paid. Thus, you should only do this if you plan to re-fi or sell in the next 5 years.
Otherwise, I put it in the same category as Reverse Mortgages for Senior Citizens. The owner gets some cash now and their heirs (or charities) receive nothing later. I have only known one person with a Reverse Mortgage who “won.” She lived to age 98 and had no children. The bank got a run-down house in need of major repairs.
Banks wouldn’t offer this if there wasn’t something in it for them. If I could consistently achieve a 8-20% return on investment like that it would be my sole investment.
SOCIAL SECURITY vs PERSONAL INVESTMENT
After studying this for 35 years I can definitely say that personal investment (the way it is recommended and how I do it) FAR EXCEEDS the reward promised by Social Security.
First, your Social Security “grows” only at the rate of inflation. Check it out if you don’t think so. When you research “your” Social Security account the money you put in 30 years ago is now only “worth” what you put in plus inflation. Average annual inflation for the last 50 years is 3.2%. Bingo, that is the amount your “investment” is credited. $1,000 “invested” 30 years ago is credited as $3,500 which has the same purchasing power now as your investment then.
However, stock investments have averaged above 7% return during the same period. A $1,000 investment 30 years ago at 7% would be worth $17,400 or almost 6 ½X the increase in value of your SS account.
Second, Social Security is facing uncertainty and hardship. Your benefits may be reduced by 20% forever. Nothing you can do about that.
However, your personal investments are YOURS forever. No one can take them away from you or randomly reduce their value.
Third, in regard to that … Social Security is misnamed. It is not secure.
However, your investments … over any 5 year historical period in the stock market has NEVER lost money. Even if you bought stock just before the 1929 crash, if you had “held” your money would have grown. More recently, during COVID the market dropped significantly. Yet 5 years later those who “held” their investments found that they had grown by over 40%.
Fourth, Social Security is NOT yours. You can’t keep it. If you die at age 61 all the benefits disappear. Your family does not inherit a penny of it.
Yet, with a personal account, whenever you die your family inherits all remaining in the account. They get a head start instead at starting again at zero, like you did.
Finally, did I mention that you don’t get the amount of your account in Social Security. That amount is merely used to determine your benefits. Generally speaking, the Administration counts 80% of the first $9k, then 32% of the next amount, then 16% of the next amount, then 8% of the next, then 0% of any over that. If you were poor all your life it is a great program; if you were middle class it is less than satisfactory; and if you were wealthy it is a hole into which you threw your money. The only “winners” are the poor … if they live long enough. However, I can tell you that even the poor can’t live off of the benefits.
The rich get sucked dry and the poor still get almost nothing. If instead the money had been invested in business we wouldn’t now be running out of money. That’s the dirty little secret. The SSA would be fully funded for the next 100 years.
The ONLY complaint the opposition has is this: “Investments are risky!” But has Social Security been non-risky? No. They’ve changed the rules for recipients more than 5 times since 1970, because it would not be THIS secure if they hadn’t.
So, if I had the option of investing the thousands in a personal account instead I could have 25% more payout monthly and would likely leave a chunk of change to my children. Facts are facts.
The ONLY risk you have is how long will you live. Social Security will keep paying for every full month you survive, but a personal account could run out. COULD, but unlikely, because it could be structured to pay out until you reach 110.
The risks are tiny and the rewards are tremendous, especially for the next generation.
Copyright 2026 Donald Whelpley
[PLEASE NOTE that Don is always open to discussing the thoughts and opinions he shares here and welcomes comments as shared in the comment section. He doesn’t use other social media platforms and won’t see whatever you’d like to share with him if you post it elsewhere.
ALSO, Don is always open to offer his thoughts on various topics. If you have a specific request, you can let him know in a comment; he reads – and replies to – them all. ~ Sherry]
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