2/19/2018

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Use Your Equity Wisely

Before the mortgage meltdown of 2008, it was estimated that Americans had over 11 trillion dollars of equity in their homes. During the 1990's and on into the 2000's, home values rose at a phenomenal rate making home ownership very lucrative and one of the easiest ways of increasing wealth.

The rapid increase of property values provided millions of buyers around the country the opportunity to move into new homes and it created a climate of never ending prosperity. Those were heady days and many of those who took advantage of the times made a lot of money.

The problem was this. As property values grew, so did the opportunity for taking risks with their new found equity. Many people were convinced to refinance their homes and/or other properties and buy more expensive homes, or to borrow against their equity and invest the money in the stock market. The money was there so they took advantage of it.

Then the housing market went sour. Millions of people had borrowed more on their homes than their property was worth and they took adjustable rate loans without thinking about the possibility that home prices might fall, which it did. And on top of that, gas prices went up, the price of stock went down, and the general economy headed into a recession.

Poor economic conditions forced the closure of businesses, caused layoffs, and in many cases, took away the ability to pay the money back causing millions to file bankruptcy, default on their loans, and go into foreclosure.

Although many people got caught up in the borrowing frenzy, there were millions of others who didn't and maintained control of their equity. For reasons known only to them, they withstood the pressure and didn't refinance, which turned out to work in their favor.

Although property values did drop substantially, those who did not refinance may still have much of their equity. The need to take out a loan to do repairs or upgrades on their homes, to send their children to college, to pay down high interest rate credit cards, or to pay medical bills or other expenses may become necessary. At this time, borrowing against your property may be the right decision for you but you should use your equity wisely.

Before refinancing your home, you should have a solid plan for repaying the loan, while not putting your home in jeopardy. It is imperative that if you do decide to take out a loan for any reason, and there may be good reasons, do it with care.

Shop around for the most appropriate loan, the best interest rates, and then use the money for what the loan was intended for. If you are borrowing to put on a new roof, put on the new roof. If you are borrowing to pay off outstanding debt, pay it off.

With the economy the way it is today, it is foolish to gamble with your money so keep it where it is safe and will do the most good.

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