Home Equity Loans - Are They Right For You?
by: Dean Shainin
The bills are out of control and you need a new car. “Maybe we can get a new carpet and paint the house”, you say to yourself. These are just a few reasons why home equity loans can seem like the solution to all your problems and are so popular.
Home equity loans can be a fantastic way to start your own business or to take advantage of an investment opportunity. They can also make your situation worse than it was before you got the home equity loan.
The reason’s for taking advantage of home equity loans are the most important part of the process. Take the time to sit down and ask yourself, “Do I really need a home equity loan? Do I want to go on a spending spree or am I really trying to improve my life?”
A home equity loan is like having a second mortgage on your home. Suppose your home is worth $200,000 and you have a mortgage against it at $150,000, you will have $50,000 of equity available. Home equity loans allow you to borrow up to 80%, and sometimes more in certain situations, of your home value. In this situation you could borrow $80,000 as a home equity loan and still have only borrowed 80%.
This is why it is so important to take a good look at your situation before making a decision. You can see how easy it could be to get carried away with home equity loans.
Let’s say you only need $20,000 for that new car and some home improvements. You decide to borrow another $15,000 of equity for that vacation to Hawaii you have been dreaming about. First of all, a vacation to Hawaii would not cost $15,000 unless you went on a first class, spare no expense vacation.
Using a home equity loan to buy a car may not be a great idea with today’s 0% interest rates and no money down loans. There is no sense in risking losing your home to buy a new car with these type of loan programs that are available in todays market.
On the other hand, a home improvements may be a great idea. This will add value to your home as long as you can afford the higher loan payments.
A business that’s doing great that you want to expand may be another good use of a home refinance loan. As long as the business is already in profit and is not losing money.
Some solid investments can be a good idea if you have done your research before hand. The latest IPO may or may not be a great idea.
Consolidating high interest credit cards may be a great idea as long as you close the accounts and don’t run them back up. You really only need one or two credit cards in case of an emergency.
Educational expenses may be a good reason to take a home equity loan to get your children started in the right direction. Someday this type of an investment can pay off.
These are just a few things you can do with home equity loans. It’s very easy to borrow too much, only to find yourself having a tough time making the new payments.
The important thing to remember with home equity loans is to be logical and don’t let your emotions get the best of you. Again, take the time to sit down and research all your options. This way you can rest well at night and not have to be concerned about losing your home. You can enjoy the things you do with your home equity loan knowing you’ve made a wise decision.
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