When the bills are piling up and there doesn't seem to be any way out, a home equity loan can seem like the answer to your prayers. Home equity loans can also be a great way to jumpstart a business or investment portfolio. However it's important to realise that in some circumstances, a home equity loan may in fact make your life a whole lot worse.
A home equity loan is like a second mortgage on your home. If your home is currently worth $130,000, and you have a mortgage against it for $70,000, then you have $60,000 of equity available. Some home equity loans may allow you to borrow up to 80% of your home's value, others may go higher in special circumstances. In this example, you would be able to borrow another $34,000 as a home equity loan and still have only borrowed 80%.
Before making the decision to borrow more, though, it's important to sit down and really think about what you're doing. Firstly, and most importantly, why do you want the money? This is a really crucial part of your decision making. Many people use a home equity loan to fund necessary repairs to their home, or make improvements and so improve their home's value. In that situation, a home equity loan is a great idea, as the extra borrowings will most likely be offset by the increase in your home's value ? as long as you can afford the extra repayments.
Borrowing to fund a business may also be a good use of home equity loan funds. It's important, though, not to put your money into a business without any track record, because you may well be throwing it away. Also, never use a home equity loan to try and resurrect a business that's losing money rapidly. You'll just end up with a bigger mortgage payment headache and nothing else. But if you have a business that is thriving and desperately needs some funds to expand, a home equity loan may well be the solution if banks aren't interested in giving you standard business finance.
Investing is another possible use of your home equity loan funds. Again, it's important to think carefully about what you plan to invest in. You could use the home equity loan as a deposit on an investment property. Or you could use it to be good quality shares. You may well regret it, though, if you buy the latest hot tip speculative share! Choose carefully and wisely, and a home equity loan can be a great way to start your investment portfolio.
Debt consolidation is another popular reason for taking out a home equity loan, and can be beneficial, but only if done wisely. There's no point increasing the debt on your home to clear your credit card debt, only to turn around and spend, spend, spend until all your cards are at their limits again. You need to close all of the cards as soon as they're paid off, or only keep one with a small limit for necessary purchases.
There are other reasons for a home equity loan which can make it a useful source of funds, but in these situations it's really important to be sure that you have no other options, and you can afford the repayments. These may include educational expenses, unexpected medical expenses or a family emergency.
There's also one reason that is very rarely a good reason to put your family home in further debt ? big ticket items. Maybe it will feel really good to have that long vacation, or buy that expensive television and furniture, but ask yourself if it's really necessary or important. If spending the money on unnecessary things means that somewhere down the track you lose your home, you'll have paid for those things with a lot more than money.
If you think carefully about a home equity loan, and assess your reasons for borrowing more against the family home logically rather than emotionally, then you will be able to make a sensible choice. A final thought ? always assess your ability to repay the loan based on reality and perhaps even "worst case scenario" values, rather than optimistic estimates of overtime at work or a promotion. That way you'll be able to make the payments and enjoy your family home for many more years to come.
Copyright Felicity Walker 2005
Investing and finance are two passions of the author. To find out more, check out http://www.homeequityloanzonecentral.com for more information.
Commercial mortgages are similar to residential mortgages. Usually taken by... Read More
Adjustable rate mortgages can be very tempting to home buyers,... Read More
When you refinance your home mortgage, lenders often tempt you... Read More
Buying a home after a foreclosure is not an impossible... Read More
Getting home loans is possibly the biggest step in an... Read More
Mortgage cycling is a system that relies on solid budgeting,... Read More
There are many types of mortgages, and the more you... Read More
Okay, you've decided to buy a home and are trying... Read More
Wanna know a little secret? There is an ingenious method... Read More
Home equity loans and lines of credit are useful tools... Read More
When it comes to a reverse mortgage, wise consumers weigh... Read More
Sub prime lenders come in two groups: reasonable and unreasonable.... Read More
Here in Spain the concept of a mortgage period of... Read More
Most consumers are aware that a history of paying bills... Read More
In today's overheated housing market, lenders are making it easier... Read More
Mortgage rates typically are based off the current rates of... Read More
If you have a poor or bad credit history with... Read More
A 2nd mortgage is a secured loan on your property,... Read More
It is likely to be one of the largest purchases... Read More
Do you know what it takes to qualify for mortgage... Read More
If bulls and the bears of the stock market have... Read More
From time to time, we hear a story about a... Read More
What happened to the days of a 15 or 30... Read More
Types of UK MortgagesYou may be wasting your money with... Read More
"You can save time and money by applying for a... Read More
So how have you planned the repayment? Don't tell if... Read More
You are comfortably wedged in a mortgage deal, paying the... Read More
The purchase of a new home is one of the... Read More
How much interest are you earning on your home equity?... Read More
Chances are you may need a little extra money to... Read More
A house is just that, a house, until someone lives... Read More
Let's start by taking a look at 7 key elements... Read More
Today, FHA will loan up to 97 percent of the... Read More
Are you looking for the best buy to let mortgages... Read More
In decades past, most people who were interested in obtaining... Read More
Buying a home after a foreclosure is not an impossible... Read More
Home mortgage interest rates hit record lows in 2004 and... Read More
There are several reasons that might make someone consider refinancing... Read More
Self-employed mortgages, as the term implies are mortgages designed for... Read More
Procuration fees paid by some sub-prime lenders are too high.Fact.There... Read More
Being self employed has many benefits. When you are self-employed,... Read More
Here in Spain the concept of a mortgage period of... Read More
Buying a home remains the great American dream. Home ownership... Read More
Presently council tenants are able to purchase their rented property... Read More
In many ways a commercial mortgage is just like a... Read More
Home ownership has risen sharply in recent years, and the... Read More
Almost two thirds of first time buyers accept the first... Read More
Buying and financing a home today can be overwhelming. Here... Read More
Searching for a mortgage refinance company can be a daunting... Read More
1. Never discuss your household finances over the phone with... Read More
Whether you're looking to buy your first home, or trading... Read More
Here is a useful guide to the different types of... Read More
Home equity is your own personal money machine. If you... Read More
So you're thinking about building your own house, are you?... Read More
With the recent sharp increase in property values your current... Read More
Persistence is the key working toward getting approved for a... Read More
You may have heard people, especially mortgage lenders, extolling the... Read More
Interest rates are at an all time low, making now... Read More
Refinance NOW-before it's too lateIf you haven't found the time... Read More
The financial stories remain similar over the months and the... Read More
It is a curious fact of human nature that people... Read More
Most Americans tend to live on a paycheck-to-paycheck basis, and... Read More
Sub prime lenders handle high risk mortgage loans that traditional... Read More
Bridging finance, also referred to as "bridge loans" and "bridging... Read More
Mortgage elimination programs are all the rage these days. In... Read More
Choosing a home loan has never been tougher. Yes, with... Read More
Mortgage Refinance |