12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
Using a Home Equity Mortgage Responsibly
By Richard BarringtonNFNS Columnist
For every story you
hear about a home equity loan gone bad, there are probably thousands of home
equity loans which have not only been successfully paid off, but which
benefited the borrower. It's worth looking at some constructive uses of home
equity.
Reinvesting Home
Equity
Naturally, if interest rates have fallen, a home equity loan
could be used to refinance a mortgage or other existing debt. But even absent
an interest rate differential, there are other constructive ways to use a home
equity loan.
Specifically, if the home equity loan is used to make improvements to your property, you can view this as reinvesting your home equity. Some examples:
- Cosmetic changes which would make you home more appealing to potential buyers
- Square footage additions, which should have a positive impact on the value of the property
- Upgrades to the yard or garden
- Making
the home more energy-efficient--this may confer a direct payback via your
monthly utility bills
Successful Mortgages
Start with a Reality Check
As with any mortgage, a home equity loan requires sound
decision-making because your home is used as collateral. This means that a home
equity loan should start the way any successful mortgage should start -- with a
reality check.
In the case of a home equity loan, a reality check may include the following:
- While improvements may generally raise the value -- or your enjoyment -- of the property, don't expect a direct and immediate payback from them
- Before you borrow, run a practice budget for a couple months to prove you can put aside the amount you'd need to make the loan payments
- If you
take out a loan with variable terms or balloon payments, "stress
test" your payment amounts to make sure you could afford them under
all circumstances
With a sound purpose and a reality check, you can use home
equity responsibly to reinvest in the value of your property.
About the Author:
Richard Barrington is
a freelance writer and novelist who previously spent over twenty years as an
investment industry executive.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.