Equity Loans – Still Worth Having?
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Prior to the piercing of the housing bubblemarket and the crisis of the sub prime it was a normal arrangement for property owners with a great deal of equity in their property to use some of that equity to pay for large home improvement projects, second homes or cars or sometimes even on extravagant family vacations. Indeed with hindsight it seems as though a lot of families believed that their homes would continue ever higher in value and that they would have a permanent credit line in their equity to call on. Now of course things are not quite the same. That same hindsight has revealed that constantly tapping their equity and extending home loans could not go on indefinitely without some kind of problem.
Now of course, individuals are far more reluctant to take home equity loans and are even less likely to take them for non-essential luxuries such as cars or vacations. This is no bad thing. The fall in property prices and the realisation that there is no money train has made folks far more prudent. But the real question is, are there still scenarios where home equity loans make sense? And yes, there probably are.
Traditionally, home equity loans were designed for individuals to make improvements to their houses. There was a certain logic and grace to such loans – if individuals wanted to renovate their homes then they would use some of the value of their own home to fund the renovation. Not only were families effectively investing in themselves, but they also knew that any money they took out of the value of the house would be invested straight back into it and as long as their renovations were done well, they would normally see an improvement in the value of the property when it came time to sell. In addition, and just as importantly, they were investing in a better place to live for their family. Consequently, such property loans still make sense today, even in tough times.
Another traditional use for property equity loans that is still applicable today was when folks took some money out to pay for their children's education fees. Again, there is an irrefutable logic to this too. You are investing in the future of your family and your children and using the house to make sure they get a good start in life. With college fees constantly on the rise, this too still makes sense.
Finally, there is one other scenario where property equity loans are logical, although this one is more pragmatic. If folks are struggling to pay debts and have got themselves in a bit of trouble, home equity loans can be useful to start again. It may be that folks have accumulated credit card debts, store card debts and other loans. The interest on these could be too much and they could be getting deeper and deeper into trouble. The immediate step to take is to go and listen to some independent debt advice, but if these people still have a great amount of equity in their property it is likely the advisors will tell these individuals to clear all of their high interest repayments and loans into one place. Once again, if they know that they will never get into debt again and that they can never call on their equity again, this too can be a good use of home equity.
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Author Resource:-
Alexander Domopopolous is a financial journalist and expert in mortgage protection and remortgage rates . He can currently be found blogging at www.remortgage.com.
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By :
Jessie Stone
Submitted
2011-07-01 17:41:22 |
Article From Article Mayhem
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