Financial meltdown: home equity
When is a house not a home? When it’s a piggy bank.Homeowners treated their houses like piggybanks or automated tellers during the housing boom years, withdrawing equity in the form of cash whenever they wanted to buy something. Many of these homeowners now owe more than their homes are worth, a condition known as having “negative equity,” or being “underwater.”
Negative equity limits your ability to sell a house to get out from onerous mortgage payments, or to move to take a better job or to relocate to a better school district.
Home equity loans can be risky, as many people learned in 2009. When used correctly, however, using your homes equity can provide a valuable leveraging tool for increasing the value of your home. When used poorly, though, it can create resale nightmares. The equity you have built up in your home is worth more than the actual dollar amount. It’s worth the freedom of being able to move when you need to, the value of retirement savings, and the possibility of leaving an inheritance to your family. Like any form of credit, it’s important to weigh the costs and rewards before putting pen to paper. So the next time you’re thinking about drawing on the equity in your home, keep an open mind and consider all your options and the consequences.
