Home Equity Loan Addiction

Posted by: Sophie H. | Mar 06,2008

You’ve got to be careful with borrowing off home equity just as you need to be careful with credit cards.  I know a fair number of people who live off their equity to a startling degree.  There is a misconception that a home equity loan is guilt free debt.  You are, after, borrowing money off money you’ve already spent paying down the mortgage.  Only hold it: look what you’re doing.  You’re basically going back to where you were when you started paying the mortgage in the first place.  

Basically, you’re not really owning your home any longer.  I could see some justification in this – with home value on the decline, you want to get the most you can in the short term.  The equity you build up may be worth less in the future, even if you leave it be and don’t cash it out.  This, of course, depends on where you live.  Generally, though, borrowing off of equity time and again is just putting yourself into deeper debt. By borrowing a sizable amount off of equity, you’re potentially paying more for your mortgage.  

This is not to say by any measure that a home equity loan is a bad idea.  It’s actually one of the great ways to get some quick cash – but only in moderation.  I would be borrowing off of equity in the same category as credit cards.  They’re both great, but they should not be overused.  If you have to borrow off of equity merely to scrape by, this is a very clear signal that you need to budget more effectively or figure out a more aggressive way to pay off your current debt.  This is similar to living off of credit cards to pay everyday expenses – something that should be avoided.

A home equity loan is very useful when used for smaller purchases.  There’s no problem borrowing off of equity to go on a vacation or to complete a home improvement project (possibly the best way to use a home equity loan, as it will increase a home’s value).  But to borrow off the bulk of equity time and again should be avoided whenever possible.  If you’re interested in a home equity loan, I’d recommend going to Lower My Bills to find the best rate available.  

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