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When NOT to Tap Your Home Equity

May 18, 2018 by Mike Brooks

Take out home equity loans for expenses that will increase your net worth.Tapping into the equity of your home is only an advisable option in specific circumstances. You have worked hard to gain equity, so don’t tap into it unless it’s a necessity. Cash-out refinancing is on the rise yet again. In the second quarter of 2017, equity cashed out increased $1.2 billion from the first quarter. Experts believe the current upward trend is due to the higher home values of most American homes. Before tapping into your home equity line of credit, consider a few points.

It’s important to remember to value the increase in your home’s value, but not use the increase as a financial windfall. Receiving a home appraisal value higher than one expected can be surprising and exciting, but many homeowners put too much weight into high appraisal rates, not always understanding that the value is only on paper. Although appraisals are an accurate representation of your home value, it does not necessarily directly translate into home sale value. When a home is appraised at $350,000, the home sale amount may only end up being $325,000, depending on the current market.

Expenses to Avoid 

Tapping into home equity is not a good idea for financial investments or business funding. Your home must be a solid investment of its own that you should not tap into unnecessarily. Here are a few examples of when you should not tap into home equity:

1. Wedding expenses
2. Vacation funding
3. Business funding
4. Investments or stocks
5. Vehicles
6. Luxury items
7. If you plan to sell your home soon

If you are considering taking out a home equity loan for expenses that will not increase your net worth, it is not advisable.

Advisable Expenses

Home equity loans should be an investment in the future. Never spend home equity money on items that will depreciate or are high risk. Consider a home equity loan if your purchase will appreciate or help your family in the long run. Examples include:

1. Educational expenses
2. Home improvement projects that add value to the home
3. Emergency medical bills
4. Buying rental property

The examples listed are all investments for your future financial situation. Debt consolidation is another option for tapping into home equity, although you should make this decision carefully. Talk with one of CBC’s financial representatives about interest rates and payments involved with the consolidation process. An expert opinion can help you to determine if the trade-off value is in your favor.

CBC Home Equity Loans

The employees here at CBC are locals, and we have the best interests of our clients at heart. If you are considering tapping into your home equity, please contact us. Our mortgage experts work with you to discuss the best options for your financial future, and never pressure customers into loans or mortgages that are not in their best interests. Our friendly professionals are here to help with all your financial needs, providing you with a partner for all your investment strategies.

Deciding which mortgage product is best for you will depend largely on your unique situation, and there is no one correct answer. Our mortgage experts work with you to discuss your best options for your financial future. Our friendly professionals are here to assist you with all your financial needs and provide you with a partner for all your investment strategies. We have your interest at heart while building a relationship that lasts.

Categories: Mortgage Lending