Are Home Equity Loans Good Debt or Bad Debt?
At this point, any complaint related to homeownership sounds like a humblebrag. Your mortgage payment might be painfully expensive, but at least every payment boosts your credit score and your home equity. You are in a better position than people who pay an equal amount in rent, but the money only enriches the landlord, and the credit reporting bureaus do not even acknowledge the tenant’s diligence and consistency in paying. All of those people trying to buy a house for the first time only wish they were in your position. Gratitude helps, but it does not change the fact that homeowners, like tenants, are struggling with debts. Unlike tenants, homeowners have the option of taking out home equity loans, effectively borrowing from themselves. While borrowing against your home equity may be a tempting option, it can make your debt problems worse unless you do it for the right reason and at the right time. For advice on getting out of debt without putting your homeownership at risk, contact a Miami debt lawyer.
It Is Safe to Borrow Against Your Home Equity to Increase the Value of Your Home
Home equity is the amount of your home’s value that you already own; it is the appraised value of your home minus the remaining balance on your home mortgage. For example, if the value of your house is $500,000, and you owe $200,000 on your mortgage, then you have $300,000 of home equity. A home equity loan is when you borrow an amount less than or equal to the amount of your home equity from a bank, and you secure your loan with the house. This means that, if you do not repay the loan, the bank can take your house.
Home equity loans are popular because they are less expensive than unsecured personal loans. It makes sense to borrow them to finance the cost of home renovations, because by doing this, you can increase the value of your home, thereby increasing your home equity.
Don’t Use Your Home Equity as Buy Now Pay Later for Major Purchases You Can’t Afford
You are in safe territory with home equity loans if you borrow only a small fraction of the value of your home equity and if you use the money for something that will increase your wealth. Using a home equity loan to pay for a car or leisure travel is risky. Using it to pay your bills until the next payday is even riskier. If you cannot afford a purchase without borrowing against your home equity, then you cannot afford that purchase full stop. To get an idea of how much trouble home equity loans can cause, browse the divorce court decisions on Google Scholar and see how many involve the couple fighting over who should be responsible for repaying the home equity loan.
Work With a Debt Lawyer About Home Equity Loan Debt
A South Florida debt lawyer can help you if a home equity loan made your debt problems worse. Contact Nowack & Olson, PLLC in Miami, Florida to discuss your case.
Source:
cnbc.com/2024/08/13/home-equity-wont-go-stale-expert-says-when-to-tap-it.html
