If you have built up a good amount of equity in your home, you might be considering taking out a home equity loan, but is this a good idea?
First, think of a home equity loan, also sometimes called a home equity line of credit as an investment tool.
If you will be using the money in order to make a significant improvement to your home that will increase it’s value, then this is probably a good investment. A good example is if you remodel your kitchen or adding on additional square footage to your home. These things will generally add to your home’s value, and you will get your money back.
It is not a good idea to take out a home equity loan to pay for luxuries or splurges, such as a vacation, especially in today’s economy. You could wind up losing your home, if you can’t pay back the loan.
Some people consider a home equity loan to consolidate high interest credit cards and other loans. The decision to do this must be taken carefully. It could be a good idea and help you get out from under high interest debt. But, if you wind up just charging up those credit cards again, you can find yourself in worse trouble.
While home equity loans were once easy to get, but the current financial situation, things have changed. You may find that you don’t qualify for a loan or that your home actually has negative equity in it.
Consider a home equity loan almost as a mortgage. You don’t want to put your home in jeopardy by taking out additional debt if you won’t be able to make that payment. You could be forced to sell your home, lose it for nonpayment, etc.
Mary Ann Romans writes about everything related to saving money in the Frugal Blog, creating a home in the Home Blog and caring for little ones in the Baby Blog. You can read more of her articles by clicking here.
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