| |
| |
|
|
Real Estate |
|
Home Equity or Debt Trap?
Are you using the equity from your home to purchase everyday things? This is a dangerous trend growing more popular every month as millions of Americans tap into the value of their home to fund a lifestyle. How many times have you heard the saying "Your home is the best investment you'll ever make"? How many times have you also heard that your home will be the most valuable asset you will ever own? Both of these are as true, if not truer, today than at any time in the past. Unfortunately, spend happy Americans are looking at their home as just another type of ATM, and they are visiting it way to often. These homeowners are using money borrowed against their house to finance expensive vacations, new vehicles, even daily visits to the corner coffee shop. Our parents wouldn't think of buying furniture with money borrowed against their home. So why is this form of borrowing becoming so popular? Three events have converged to create this dangerous trend. 1. Cheap interest. The past two or three years have seen interest rates unheard of since the 1950's. These low rates encourage people to think they have basically free money to spend however they want to. 2. Real estate value increases. The Office of Federal Housing Enterprise Oversight (OFHEO) reports that their data shows market value of the average home increased nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw the value of homes double in less than 5 years. This increase in value is perceived by some people as being a bonus - they didn't have to work for the money, so it doesn't cost them anything. They are right about it not costing them anything, except they forgot that when they borrow money it has to be paid back. That is when the true cost of the debt appears! The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in outstanding mortgage debt was in new mortgage originations. This doesn't mean home equity loans are necessarily bad ideas. Using equity in your home to remodel and make additions can result in solid returns. Even debt consolidation can be a good choice, provided you have solved the problem that caused the debt in the first place. 3. Ease of borrowing. Twenty years ago, lenders wouldn't think of giving you a loan, even against your home, if it would cause your equity to become less than 20%. Some insisted in a percentage closer to 50% equity. Those days are long over. Today you can go online and find a lender willing to give you a loan equal to 125% the value of your house! If you have a credit of repayment, hold a job, and are still breathing you can probably find a lender willing to let you borrow against your home equity. The risk created by the convergence of these three factors is the loss of your safety net. As people buy homes at the top end of their range and base mortgages on two incomes something has to give. This "something" has been their savings. Putting aside part of each paycheck has become the low priority in the pile of demands barraging a family's income. Data released by the Employee Benefit Research Institute reports nearly 45% of all workers hold assets of less than $25,000 (excluding their home). Barely 67% of today's workers are currently saving money in a 401(k) or some investment program, according to a Thrivent Financial Survey. Does any of this sound familiar to you? The looming debt of mortgage, college, and credit card can seem overwhelming. How can you tip your financial life back into favoring a secure future for yourself and family? Here are five steps to escape the home equity debt trap. 1. Keep track of expenses. Keep a spending record of everything you spend for one month. The next month, do it again, and the next month too, until you see areas of spending you can cut back and use that money to fund your lifestyle goals, i.e. vacation, college, or a new lawn mower. 2. Create realistic debt reduction goals. List all of your debts with interest rates, outstanding balances and minimum payments. Create a plan to pay down the debt, preferably pay the same set amount each month no matter what the minimums are. Anything extra you pay should go to the smallest debt first. When a credit card is paid off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will help keep you motivated. 3. Preserve your home equity. Having home equity untapped in your house can provide a level of reassurance. Making wise uses of this equity will help you to not exhaust it. When you do tap into your home equity, make sure it is not used to pay for daily living. 4. Pay as little debt interest as possible. Consolidation of debts into low, or no interest loans i.e. credit cards, is acceptable as long as you refrain from incurring new debt and you are paying down the debts you do have each month. 5. Start saving regularly. A fund of money for emergencies will help avoid debt when life throws you a problem. If you consider saving a "non-optional" bill each month, you will develop the find habit of saving. The result is a growing asset base. The end result of taking these five steps? A minimal-debt life spent living in an affordable home of your own. Roger Sorensen is America's Financial Guide. Learn more at his website http://www.Slave2Work.com - ask and receive answers to your personal finance questions, read his writings, or join the newsletter Money Basics. "How-To Be Debt Free!" is now for sale, read about it today at http://www.Slave2Work.com/debtfree.html
MORE RESOURCES:
Real-Estate - Google News |
|
|
|
RELATED ARTICLES
New or Old House? A lot of buyers think that a new house is the way to go but it's important to have some knowledge of quality and of the builder. New paint, carpet, doors, windows and cabinets are a quick and easy sell. Your Home Equity Can Work for You "Use your home's equity to pay off your debt. It's easy and simple, no closing costs!" Every time I turn on the television, commercials bombard me telling me to take out a home equity line of credit. Content Ideas for Ads and Brochures When Selling Your Home Even in this hot real estate market, selling your home requires a bit of marketing effort. Ads and brochures are important and powerful tools. Flipping Houses for Gold: Three Tips to Help You Find the Perfect Fixer Many real estate investors enjoy "flipping houses," or buying and selling houses quickly for profit. Not all flips are fixers. Farm Expired Listings For Big Commissions Many real estate agents begin and sometimes sadly end their careers without a plan. And as the saying goes, failing to plan is as good as planning to fail. Renting Versus Buying A Home Renters are often in a quandary as to whether it makes sense to continue renting or buy a home. Buying a home makes more sense, particularly when taking a long-term view. Property Investing - Port Melbourne Life on the Edge Property investing prices pick up following a cooler winter last year. Susannah Petty Reports. Real Estate Appraisal - Rental Properties Real estate appraisal for rental properties isn't the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Buying A Holiday Home in Rural Ireland Ireland has recently witnessed an upsurge in the number of investors buying holiday homes in some of the country's most scenic areas. With stars like Jeremy Irons and Daniel Day-Lewis popping up in the quaint villages of West Cork, prices in many of these areas are at a premium. An Ideal Way to Purchase Your New Home without Strict Banking Regulations You've searched high and low around town looking for that special home for you and your family. Everyone agrees that "this is the one"! Your down payment for the home is large enough, but you know your credit is terrible, or worse, practically non-existent. The Bubble Effect Turn on the TV at almost any time day or night and you will find news and talk shows informing us that there is a Real Estate bubble. What is a "bubble" and how do they know? The simple principle of what goes up must come down is being applied in general thought now and many in the public are starting to buy it. Safe, Scenic & Secure Sussex County Delaware As I write this, there is a considerable concern about the dangers of urban life, triggered by the terrorist attacks on the USA. As some of you know, I have been a student of disaster preparations and a real estate consultant for those seeking "secluded and survival properties" for over thirty years. 5 Things to Look for in a Property Appraiser Homeowners who are seeking a property appraiser often ask "How should I choose which real estate appraiser to use?" When selecting a property appraiser, keep the following in mind:Always make sure a property appraiser is licensed or certified by the state to perform real estate appraisals. While state licensing and/or certification isn't always an indication of quality, it ensures that an individual is has met certain standards and been authorized to perform property appraisals. Negotiating A Short Sale - The High Road to Huge Foreclosure Profits Buying foreclosures can be extremely profitable for real estate investors. However, most of these homeowners are mortgaged to the hilt. Buying Beach Houses in New Zealand: Real Estate and Investment Opportunities Buying a beach house in New Zealand offers many possibilities.New Zealand is made up of two main islands, North Island and South Island, giving it miles of coastal lands and perfect beaches to live by. How to Become a Successful Real Estate Developer Real estate investment and development has never been a more popular pastime or career changing challenge; if you would like to learn seven secrets for consistently successful real estate investing through development or you would like to know how you can continue to profit from property even if the market takes a downward turn just read on?1) Do Your Location Homework - did you know that through successful and sustained location research professional property investors actually continue to profit during a market down turn? It's true - whatever the market conditions you can apply their location research approach to your real estate investments and also make consistent profits from property.Take the necessary time to learn all about a town or city you're considering for your next property development purchase and discover where the up and coming areas of that town are likely to be. Home Selling: Making It Easy On Yourself! It's a dream for many to buy and take ownership of a home. It's something one aspires for in their lifetime. Pricing your House to Sell Most Sellers set their initial asking price at an amount somewhat higher than they are actually willing to accept, fully expecting a buyer to open the bidding with a lesser amount.While price is the most frequently negotiated item in any home sale, you may be able to creatively provide financial value to your buyer - without lowering the price alone. The Pros and Cons Of Hiring A Real Estate Lawyer You're travelling in a foreign country and you get arrested for something that you didn't even know was against the law. The potential fine is huge, more than you earn in 10 years. How to Build Your Free House What if you could "place an order" for the construction your Dream House (made either for your family, or for monthly rental income) and have it built for you in only a few months, or maybe weeks?!What if you could get other people to do all the work..
|
||||||||||||||||||
