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Ask Dave

Changing Dad's Mind

Shelly's dad is a determined guy, and he's about to make a big mistake. How can she talk to him about it?

QUESTION: Shelly is fighting with her dad. He just read a book saying that home equity is a mistake and you should get a mortgage and pay interest only and invest the money. Can Dave give her some arguing points to counter this? Dave says the argument starts by acknowledging that there’s no argument here.

ANSWER: When you only do the math of a situation, you leave out the stuff that can’t be quantified, like relationships or risk. Math can fail in a discussion. When you say you’ll borrow all you can on your home, you put your home, the place where your kids sleep, at risk. To run a formula that says you can borrow at 5% and invest at 12% and make that 7% every time, that’s a very naïve formula done by a smart man, in this case your father. He’s smart but not wise. Even with the math, your dad’s formula doesn’t work out. Investing at 12% will turn to 9.4% after taxes. Now you are comparing something with risk (the mutual fund) vs. the non-risk of owning your home free and clear. There’s no argument here. He probably can’t have his mind changed on this, but you can still love him and be father-daughter.