“Four popular reasons to tap your home equity” |
| Four popular reasons to tap your home equity Posted: 07 Oct 2010 08:13 AM PDT
According to the Board of Governors of the Federal Reserve, total mortgage debt for the second quarter of 2010 was $14,019,735,000,000. That's a lot of zeros. Add that to the total debt per person of $10,168 -- not including mortgages and home equity loans -- and you can conclude that Americans are big-time debtors. Owing money isn't a good thing, and can lead to financial distress, foreclosure, and bankruptcy if you take on more than you can handle. But if you control your debt and keep it at manageable levels, there are certain times when borrowing money, especially from the equity in your home, can be very helpful. Here are the most popular reasons people choose to tap into their home equity for necessary cash. 1. Renovation The mortgage crisis has made it difficult to sell homes. Therefore, people are opting to improve their properties and stay put. In a recent survey by ServiceMagic, 77 percent of respondents who were undergoing a home remodeling project said that they were making their improvements to increase their quality of life, while 17 percent were electing to increase their home's value. With a renovation, you'll increase the market value of your property and enjoy all the improvements yourself until the day that you sell. 2. Financing big-ticket items A home equity line of credit (HELOC) gives borrowers an adjustable-rate credit line that they can draw against for large-ticket items, like purchasing a new car, or sending a child to college. The interest you pay will be significantly lower than other alternatives, like a credit card. Since most HELOCs allow you to pay interest only during the draw period, you can control how much principal you pay back on a monthly basis. Some people also use this type of funding to finance vacations, or purchase large-screen TVs. If that's you, make sure that you have a disciplined payment schedule to pay back your loan in a timely manner. 3. Debt consolidation The idea makes sense -- if you owe a lot of money on credit cards and/or car or personal loans, roll them into a home equity loan or mortgage refinance and consolidate into one monthly payment with one, hopefully fixed, interest rate. The challenge for many consumers is the temptation to take on even more debt once their credit coffers have been cleared. 4. Emergency fund With unemployment skyrocketing, many Americans have been struggling to make ends meet. Property owners have an advantage over renters because they can use a HELOC or home equity loan to help pay their monthly expenses until their work situation improves. The only challenge is that most home equity borrowing requires that you have current and steady income to qualify. It's essential that you have your debt instrument in place before you need to use it. Tapping into your home equity to fund some of the above projects isn't necessarily a bad thing. Make sure, however, that you have the discipline to repay the debt comfortably on a fixed schedule. Then relax, knowing that you're not one of the negative statistics. Mortgage Rates at MortgageLoan.com View the original story here: http://www.mortgageloan.com/four-popular-reasons-tap-your-home-equity-7943 This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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