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Mortgage
As ATM
Join our writer, James
H. Dimmitt, in a look at how equity loans might be a trap worth
avoiding. Learn to say no to temptation when an equity loan is
not be right for you.
Be Cautious When
Using Your Nest Egg as an ATM
About five years ago
I moved from the ranks of being a renter to that of being a homeowner.
Now, not a week goes by that I don’t receive some type of offer
through the mail encouraging me to refinance my mortgage, open a
home equity line of credit (HELOC), or apply for a home equity loan.
Payoff High Interest
Credit Card Debt! Lower Your Monthly Payments! Buy A New Car! Refinance
And Get Money Now! scream the slogans splashed across the envelopes.
The promotional letters
inside point out how easy it will be for me to “get the extra
cash you need NOW!” They promise “no out of pocket costs”
with a newly refinanced 30-year loan.
Could I use some extra
cash NOW? You bet I could! Who needs high interest credit card debt?
Not me, no way, no how! Buy a new car? Hmmm, I like that new Pontiac
G6 I’ve seen on tv, maybe in a sleek titanium color with black
trim?
For thousands of U.S.
households “Home Sweet Home” is rapidly being replaced
with a new sentiment - “Home Sweet ATM.” According to
the latest Federal Reserve study, 45% of homeowners who have refinanced
their mortgages pulled cash out and 74% wound up lengthening their
mortgage by about six years. Only 17% shortened their loan term
opting to downsize to a 15-year mortgage.
In a period of six years,
Americans have more than doubled the amount owed on home equity
loans and lines of credit, nearing $766.2 billion, according to
the Federal Reserve.
If you’re in your
40’s and you refinance on a new 30-yr. loan, you’ll be
in your 70’s by the time your loan ends. Even if you shave
off a few years by paying down your principle, you’re still
risking not owning your home “free and clear” as you approach
retirement age.
What happened to the
era when your home was considered your nest egg to be used only
for life-threatening or life-changing events like paying for a child’s
wedding or for a medical emergency? And worst of all, many new homeowners
are using their home’s equity as another source for financing
new debts.
Think twice before using
home equity to pay off credit card balances. If you’re already
overspending on your credit cards now, what makes you think anything
will be different after you pay them off with a loan or line of
credit? Many people just wind up deeper in debt or facing bankruptcy
because they couldn’t resist charging their cards up again.
Keep this in mind before
tapping your home’s equity - Your loan or HELOC is secured
by your home. Default on the loan and you could lose your house,
even if you declare bankruptcy!
The best use for home
equity is to make improvements that add value to your home. Remodeling
a kitchen or bathroom, adding an extra room or creating a master
suite are just a few of the “hot” improvements that can
really pay off when it comes time for you to sell.
If your home truly is
your nest egg, be smart about how use its equity. Make sure that
it fits in with your overall financial plan and golas. Otherwise,
you could be left without a nest and just the egg!
About the Author
© 2005 James H.
Dimmitt
James H. Dimmitt is
editor of "TO YOUR CREDIT", a free weekly newsletter with
tips to help you manage your personal finances. Subscribe today
and receive his e-book “IDENTITY THEFT- How To Avoid Becoming
the Next Victim!” and other free bonuses by visiting
http://www.yourfreecreditreportnow.com
The Equity Loans website
is an information site devoted to helping people make the right
decision in regards to taking out equity loans. Equity loans are
not right for everyone so it is best for everyone individually to
weigh the pluses and minuses in regards to equity loans regarding
each and every individual situation.
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