 | Randy Vickers is the owner of Priority Mortgage Corp of Wichita, which opened in Jan. 1989, is the oldest locally owned mortgage company in Wichita. Randy has been in the real state business since 1983 and is a licensed real estate broker as well as a licensed mortgage broker. Priority Mortgage Corp of Wichita KS Lic #1996-0122. Randy can be reached at 316-721-7700 |
Real Estate
2007-01-01 14:58:00
Homes can help pay for expenses
How can I use my home to pay for expenses?
ANSWER: In many cases a home is a family's largest asset and can be used to pay for things like vacations or Christmas. Many banks and mortgage companies now offer lines of credit that draw on the equity in your home to pay for emergencies or other financial needs. This product is usually called a HELOC or Home Equity Line of Credit. This loan is pretty easy to apply for, usually allows the interest to be tax deductible, and in most cases the interest rate is lower than that paid on credit cards. A HELOC can be a great financial tool, but can also create a tough situation if the equity is all used up and the home needs to be sold. In some cases the line of credit will go all the way to 100% of the appraised value, which is cause for concern when the costs of selling a home are included.
There are other options to be considered, depending on the rates and terms of your current first mortgage. If you're current mortgage is an adjustable rate, or has a rate above 6%, it may be worthwhile to refinance and use the "cash-out" option to consolidate other credit, or be used for home improvements or investment. In the past 5 years this has become more popular because mortgage rates are the cheapest way to borrow money and the interest is tax deductible in most cases. FHA has come out with one of the most competitive programs which allow cash-out up to 95% of the property value at very competitive rates and terms. This program allows amortization periods up to 30 years, are fixed for the entire term, and have proven to be a good option for many people.
The key to using any of these programs is to prudently manage your credit and don't let yourself get in over your head. Lenders have become fairly aggressive with home equity products and more and more people use this form of credit to manage their finances. It is a good idea to have a HELOC in place for emergencies or special situations. It is also ok to consolidate credit into one mortgage, but after this is complete the biggest mistake is to run revolving credit cards back up. Real estate is a great tool because it is fairly easy to finance and generally moves up in value so your equity will continue to grow. This allows great leverage while a family is moving through life and has expenses that sometimes exceed income. The real trick is to prevent yourself from using all the equity and just tapping into this fantastic asset when you really need to.
As in most things in life moderation is the best way to go, so enjoy your vacations and holidays, but keep the financial burdens manageable.
