CAUTION... Use Your Home Equity With Care
Now that home prices are on the rise in many cities across the nation, homeowners are once again gaining equity – and that equity is like cash in a savings account. Actually, if prices continue to rise, it’s better than cash in a savings account, because it is appreciating in value at a higher rate.
According to Realtor.com, the overall average increase in home value for homes in the U.S. in the year ending in May was 4.7%.Your equity is also a hedge against disaster should something like the crash of 2007 happen again.
Should you pull equity out of your home here in Davie?
That depends on the reason why. If you use it to make your home more valuable or more marketable, it could be a wise investment. Remodeling a kitchen or bath, adding a deck, finishing the basement, or building an addition will add value to your house. In essence, it will move the cash equity into “house value equity.” You’ll get the added benefit of enjoying your home more in the here and now.
If you need it to pay off devastating credit card bills, send a child to college, or grow your own small business, it might also be a wise decision. These are expenditures that will in some way give you a return on investment.
The equity in your home should never be used for discretionary spending.
An alarming article by Realty Times recently reported that approximately half of those aged 30 to 34 who have been in their homes for more than 3 years are taking out equity loans.
A Discover Home Equity Loans survey revealed that 43% of those borrowers planned to use their home equity to fund vacations. Others saw their home equity as a way to pay for a wedding.
These are expenditures that leave you with nothing but the memory of a good time – and a monthly payment, perhaps for ten years or more. Is a good memory worth that cost?
Think twice before taking that step.
If you’re thinking of a home equity loan, do talk it over with 2 or more lenders and learn the facts. Just as with first mortgages, different lenders have different programs and different fees.
There are two types of home equity loans - one that's a lump sum, just like your first mortgage. The other is a line of credit, that essentially turns your home into a credit card with a large limit that you can access any time you need extra funds. As with a credit card, you only pay interest on the balance you've spent.
Do be aware that rates are higher for second mortgages than first mortgages, and you will still have to qualify, pay for an appraisal, and pay fees and closing costs. Different lenders offer different programs, fees, and rates of interest, so shop around before making a decision.
Meanwhile, if you’re wondering how much value you might add to your Davie home by remodeling or adding on, give me a call. I’ll be glad to show you the difference in recent selling prices so you can make an informed decision.
Michael Peron
954-779-6106
Mike@MichaelPeron.com
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