4/26/2017

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Spend Your Equity Wisely

Homeowners always find themselves in need of money to do repairs or upgrades on their homes, to send their children to college, to pay down high interest credit cards, or to pay medical bills or other expenses. For any of these reasons, and others, borrowing against your home may be the right decision for you, but you should borrow and spend your equity wisely.

Before refinancing your home, you should have a solid plan for repaying the loan. Never put yourself, your family, and your home in jeopardy of going into foreclosure by taking on more debt than you can handle. It is imperative that if you do decide to take out a loan for any reason, it should be done with the utmost care.

Take your time and shop around for the appropriate loan with the best interest rate available and the best repayment plan that fits into your budget. Don't let the lender talk you into a loan that is not in your best interests. If you can get a fixed rate loan and you can qualify for it and afford it, it may be better in the long run than an adjustable rate mortgage.

Once you get the loan, use the money for the intended purpose. If you are borrowing to put on a new roof, then put on the new roof. If you are borrowing to pay off outstanding debts, pay them off. Whatever the reason, make sure you spend the money wisely because once it is spent, you will still have to repay the loan.

Prior to the real estate market meltdown of 2008, it was estimated that Americans had accumulated trillions of dollars of equity in their homes. Up to that time, home values had risen at a phenomenal rate making home ownership one of the easiest ways of increasing wealth.

Increased property values gave millions of homeowners around the country the opportunity to move into bigger homes and better neighborhoods. Those were great days for the real estate market and many of those who took advantage of the opportunity made a lot of money.

But as with all times of economic prosperity, trends developed and many people followed the advice of those who encouraged them to refinance their homes and use the money to either move into more expensive homes or invest the money in stocks and bonds.

This was a good idea for many people because property values were increasing and the stock markets was doing great. But in the end, millions of people borrowed more than their properties were worth. They were given adjustable rate loans that substantially increased their mortgage payments over a short period of time.

Not many people gave consideration to the fact that there would come a time when the bubble would burst and home prices would fall, the stock market would go bust, and the general economy would go into a recession. When it happened, many home owners, who had gambled on the premise that the economy would remain strong, took a big hit.

Much or all of their equity disappeared almost overnight and many could no longer pay their mortgages because the interest on their adjustable rate loans continued to go up dramatically.

But not everyone got caught up in the refinancing and borrowing frenzy. Many people remembered the economic problems of the 1980's and were cautious about borrowing on the equity in their homes. Many of them still have equity and should continue to make wise decisions when it comes to refinancing and spending their equity.

The economy is rebounding slowly from the recent recession and the stock market is showing signs of positive growth. Investing in stocks is still a great way to enhance your financial wellbeing, so the best stock picks are very important to your long term financial goals.

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