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Should You Tap Into
Your Home Equity?
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If you are staring at a
high credit card bill wondering how you are ever going to get out from
under the debt with the high interest payments, you may have thought about
using your home equity to help. It may be a good idea. However, if you're
looking for a way to fund that impulsive Caribbean cruise, think again.
While home equity may be a good way to help finance home improvements,
education, or debt, it's not intended for impulsive or extravagant
purchases. Now that we have that out of the way, let's assume you have a
good reason to take out a home equity loan.
There are a few different ways of tapping into your home equity. A straight
home equity loan (HEL) is a lump sum with a fixed interest rate. A home
equity line of credit (HELOC) offers the flexibility of taking what you
need when you need it. However, the rate on a HELOC is variable.
Benefits of Using Home Equity
- The
interest rate is low.
Since you're sort of borrowing your own money, the
interest rate is often the lowest you will find anywhere. Think about
this: If you owe $10,000 on a credit card with a 14% interest rate,
you will pay about $3,500 in interest over four year's time.
Meanwhile, an 8% rate on your home equity will cost you about $1,300
in interest in roughly the same time frame. (That does not include the
tax advantages.)
- Up
to $100,000 of interest on your loan is tax deductible.
That can translate into some major savings at tax time. If you're
sending a child to college, not everyone can write off student loan
interest, but almost everyone can write off home equity loan interest.
- It's
a good way to finance needed home improvements.
Since many home improvement projects usually add value to your home,
you may get the money back when you sell your home, if
that is your goal.
Risks
- The
collateral is your house.
Yikes! You always knew that you could lose your house if you stopped
paying your mortgage. But, your home equity loan is also a mortgage,
so your house is at risk if you stop paying that, also. It is worth it
for a fabulous new bathroom or some fancy landscaping?
- It
can be a slippery slope.
If you use it to pay off credit card debt and you think you may be apt
to repeat this, think again. Approximately 45% of all home equity
loans are taken out to pay off credit card debt. Perhaps a credit card
with a short-term super-low interest rate will be better for you to
pay off the debt, as it won't tempt you to keep piling up the
purchases.
- Bigger
bills.
Obviously, taking out a loan for whatever reason is going to increase
your monthly bills and give you less wiggle room. If you have the
option of not taking on more debt, consider it.
What you should do depends greatly on your
situation. If you are considering a home equity loan, give me a call and
I'll be happy to work with you and help you to make the decision.
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November's Home Value Improver
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Making the Most of Small Spaces
Although mortgage company advertisements may make you think that everyone
lives in huge houses, reality is a little different. That is especially
true in the Boston area where many of the homes are older and smaller and
real estate prices are considerably higher than most of the country.
However, small spaces do not have to be cluttered spaces. With some good
planning and minimal investing, you can fit yourself and all your stuff
into a smaller space comfortably and efficiently. Careful planning and using
all the space you have is key. Consider some of these ideas:
Kick Back - On Some Storage
The right ottoman can serve two, three, or even four purposes. An ottoman
with storage inside of it will hold items that tend to make a mess such as
blankets, toys, or whatever else clutters your room. You can also put your
feet up on it when you're lounging, and with a tray, it can serve as a
coffee table. It can also be a perfect seat when you have company.
Built-In Ideas
A wall of built-in shelves looks cool and can hold an amazing amount of
stuff. If you're worried about the wall looking like a cluttered mess,
invest in some containers that you can put on the shelves. Just remember
what you decided to put in which containers!
Make the Most of Your Closet Space
There's a reason why professional closet organizing companies are so
expensive - organized closets offer much more storage than your typical
hanging bar with a couple of shelves. If a professional closet organizing
system is not in your budget, try placing clear drawers on the floor
beneath where your clothes hang. Over the door shoe holders can hold a lot
more than shoes, depending upon your storage needs. You'll save time as
well as space if you reduce the time you spend searching for stuff on your
closet floor.
Hook Up for Convenient Storage
An empty wall in a hallway or other area is wasted space (if the hallway is
wide enough). Hang hooks on the wall for added storage. If you're really
handy, or the person hanging your hooks is, try something stylish like old
doorknobs.
Examine Your Doorways
If you have an area that is really tight but has a lot of doors, think
about removing the doors. Space that allows doors to open and close can be
wasted space if you really need more storage. You may be able to put up a
tall shelf next to a doorway that previously was used to hold a swinging
door.
Keep What You Use - Not What You Don't
That big, bulky breadmaker may have seemed like a wonderful gadget when you
bought it in 1998, but when was the last time you made bread? Try to keep
only what you use frequently enough to warrant precious storage space. If
you're not up for holding a yard sale, consider a donation to a local
church, preschool, or other organization that is looking for flea market
items. Or log on to freecycle.org. You can list items there for free, and
someone who wants it for free will come and pick it up.
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Did you know that you may qualify as a first- time home buyer
even if you have owned a home?
The key is that you may fall under the definition of a displaced homeowner:
an individual who is an adult, who has owned a home only with a spouse, who
is legally separated from a spouse, and who does not currently own the home
previously owned with the spouse.
This information can benefit both men and women who are going through
divorces, since there are some really great programs available for
first-time homebuyers.
Please feel free to call or email anytime for more information on this or
any other mortgage topic!
Best regards, 
Debbie Siegel
President
Westchester Mortgage
P.S. You're receiving this E-Newsletter because you have a
prior relationship with me or with Westchester Mortgage. If I've sent this
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time, just click the SafeUnsubscribe link at the bottom of this
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Click here to read my
Mortgage Minute in ForeclosuresMass.com's monthly newsletter.
This month's column: No Closing Costs: Too Good To Be True?
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