The 2020 narrative of urban flight has turned some of the nation’s sleepiest housing markets into its hottest. Home values are skyrocketing in cities where growth rarely moves faster than the rate of inflation. Seeing their home equity grow under their feet, many homeowners in these markets are refinancing. Some are making much-needed repairs or renovations, others are making new investments, and some are using the cash to buy a boat or a sportscar.

So what should mortgage professionals do in these markets when their client calls with dreams of an Aston Martin? To find out, MPA spoke with Sam DiPiano, president of Haus Capital Corp, a mortgage brokerage based in Rochester, NY, that has just expanded into Buffalo.

Western upstate New York has been another 2020 surprise market as short supply and buyers fleeing New York City have driven home values way up. DiPiano has seen the temptation some homeowners face in using their new equity as a piggybank to raid. While he will still serve the customer, he offered a few tips and strategies to manage expectations and walk clients away from a potentially risky, frivolous refinance.

“We always ask clients how long they’ve lived in the house for a first question when somebody wants to refinance,” DiPiano said. “If the answer is less than two years, I advise them not to bother refinancing because it will take 18 to 24 months to recoup their closing costs from the transaction. Then we ask them what their goals are. For some people it makes sense if they’re going to stay in the house for a long period of time and they’re heavily weighed down with credit card debt, to use this as a one shot deal…But if you’re working and able to generate cashflow through bonuses, I think it’s better to not tie up equity in your house. I don’t believe in being mortgage heavy.”

DiPiano sees the equity in his clients’ properties as an equivalent to their savings accounts. They should treat dipping into that equity like dipping into savings.

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DiPiano’s market, too, doesn’t go through the major boom cycles of places like Florida, Vegas, or major metro areas. In a slow and steady real estate market, equity growth might correct when rates go up again or major cities become attractive post-pandemic. Frivolous refinances could end up costing homeowners hugely if the underlying equity shrinks again.

There’s risk for the loan originator, too, in these scenarios. If the market in cities like Rochester or Buffalo does correct and your clients are carrying more debt than their homes are now worth, they could go as far as to leave that liability entirely in the hands of the bank.

DiPiano stressed that not all refinances are frivolous. He firmly believes that remodeling, expanding, and repairing a property is almost always the right move. In addition, making investments in other properties can see a client move that much closer to retirement. That goals conversation, he said, will show them if the refinance is worthwhile or indulgent.

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If the refinance isn’t for the right reasons, DiPiano will shift the conversation back to that savings account analogy and emphasize that in his market another equity swing like this one might not come along to save them if the market changes for the worse. If they still want to go forward well, then, the customer’s always right.

“Ultimately, I can sleep at night knowing that I at least told the customer all their options,” DiPiano said. “I advise them that my opinion is taking money out of a house to buy a boat is a bad investment and a bad idea. Ultimately, though, it’s the customer’s decision. If they wish to do that and move forward  then, of course, I’m going to follow the customer’s wishes, but I always try to just disclose to them my reasoning and try to advise clients the best pathway.”