| First, what is a home equity loan? Well a home-equity | | | | Don't waste the cash. Please be aware you're |
| loan is a second lien against your home's equity. | | | | attaching a new lien on the home, moving closer to the |
| I always consider my home equity as a safety net for | | | | risk of foreclosure. If you do not make your payments |
| those difficult times, such as, a job loss or family illness. | | | | on time, the lender has the right to foreclose on your |
| My rule of thumb for debt management has always | | | | home. |
| been centered on how much equity I had in my house. | | | | Don't accumulate more debt than you can handle. As I |
| I would never have my debt exceed my equity. | | | | mentioned earlier your total debt should not exceed |
| Now let's get back to the question. Is a home equity | | | | your homes total equity. |
| loan a good idea? If you manage your money wisely | | | | Evaluate the tax benefits carefully. Review the IRS |
| home equity loans are a good idea but only if you | | | | Publication 936 for details. |
| spend the proceeds on items that are a necessity and | | | | Avoid lines of credit unless you have the discipline to |
| carry a higher interest rate that the home equity loan. | | | | make the principal payment on time. |
| A good example would be home improvements or | | | | In conclusion: |
| educational needs. These items usually are quite | | | | It is important to carefully consider how you plan on |
| expensive and require long pay-off periods. By using | | | | using the equity in your home. If it is for home |
| your equity you will be able to write-off your purchase | | | | improvements, education like college or medical |
| interest on your federal and state taxes. Another | | | | expenses then you are adding even more value to |
| example would be to pay-off high interest credit card | | | | your home and personal growth and well being, which |
| and personal loans debt but you must make sure that | | | | is good. If you are using it for daily spending, vacations, |
| once the debt is paid you can not accumulate any | | | | cars or other items that quickly depreciate in value, |
| more credit card debt or you will become financially | | | | then you could be risking your nest egg and run the |
| strapped. | | | | risk of owing money on your home far longer that the |
| Below are some guidelines if you're thinking about | | | | average 15-30 year mortgage. |
| borrowing against your home's value: | | | | |