Home equity can come in extremely handy for keeping you financially afloat during retirement or long-term illness. However, it should not be regarded as an ATM to be emptied whenever you feel like it.
According to the Associated Press, American homeowners are sitting on approximately $6 trillion of home value. Lenders are more than happy to access that capitol through home equity loans, home equity lines of credit or cash-out refinancing. However, homeowners need to be careful about such arrangements.
Treat it like a last resort
Despite the fact that rates may be lower and interest could still be tax deductible, putting that equity at risk means potentially losing your house if you cannot pay back the loan. Good financial planners will frown on using the equity for paying credit card debt, investing or buying luxury items, such as a new car. One only need look at the 2008 financial crisis for proof of what happens when homeowners recklessly accrue home equity debt where lenders would give up to 100 percent of home value.
Three issues to consider
While we have spoken in general terms, here are some additional thoughts to consider:
Real estate is one of your biggest investments
The biggest investment for most homeowners is their home. It is always wise to speak with financial advisors and attorneys if you are considering new financial agreements involving your property. Legal guidance in particular can help you understand the terms and whether they are desirable.
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