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| Courtesy
of ARA |
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It’s
your home, stop raiding the piggy bank
Most
Americans dream of owning
their home free and clear someday, part of their
retirement nest egg. Yet, for many, this dream
gets farther and farther from reality as they
break into their home equity piggy banks.
“I
am somewhat surprised at the number of our loan
applicants, even many of our excellent credit
quality customers, who have taken equity out
of their homes over the last few years via cash‑out
refinances or home equity loans,” says Gary
Miller, a 25‑year veteran of the credit
industry and CEO and co‑founder of FirstAgain
LLC, a financial services company based in San
Diego, Calif. “Now, with larger mortgages and
often less equity, particularly with the recent
home price depreciation hitting many areas of
the country, these people face a longer and
more difficult path to debt‑free home
ownership.”
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Before
you decide to borrow against your hard earned home
equity, consider the following:
·
Are you using
your home equity for something that actually adds
value (equity) to your home, such as a remodeling
project or a swimming pool or for something important
in your life such as a child’s education or unexpected
medical bills? This can be a prudent way to finance
such expenditures. Home equity loan rates are attractive
and the interest is usually tax deductible if you
itemize. However, if you are using your home equity
to finance vacations or pay your bills, think again,
as you may be overextending yourself.
·
Are you using
a fixed rate home equity loan with the shortest
term you can easily handle? Adjustable rates may
make sense for the financially well off (and financially
sophisticated) but for most people, a fixed rate
and a fixed monthly payment avoid future payment
shock and is the better alternative. Paying off
your loan sooner obviously builds your home equity
more quickly. Think of it as forced savings.
·
Cash out
refinances can make sense if you are improving your
overall mortgage terms and using the cash for an
appropriate purpose. Again, consider shortening
your loan term if possible.
·
Are you thinking
about a home equity line of credit (HELOC)? This
product is marketed like a credit card with adjustable
teaser rates, ease of use and other incentives,
encouraging you to use your home equity for just
about anything with long repayment periods. Be
careful. Having a HELOC in place may be prudent
for certain purposes (for example, a future emergency)
if you can be disciplined about not normally using
it and pay it down quickly if you do.
·
If you have
excellent credit, you may qualify for an attractively
priced unsecured loan that doesn’t require pledging
the equity in your home. This type of loan, such
as FirstAgain’s AnythingLoan, offers highly competitive,
fixed interest rates and an ease of use not available
with mortgage products. Entirely online and paperless,
you can apply in the morning and have $10,000 to
$100,000 in your account by the afternoon. It takes
just minutes versus the days required for a mortgage
loan.
“Given
the more difficult lending environment caused by
the recent sub prime meltdown, home equity products
have become both more expensive and more difficult
to obtain as lenders tighten their credit criteria
and loan to value guidelines,” says Miller. “Our
product represents a great alternative for those
with excellent credit who don’t have a home equity
loan option.”
To
learn more about FirstAgain and its AnythingLoan,
please visit FirstAgain.com.
Courtesy
of ARA content.
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