Take this test to see whether
your
home equity habits are naughty or nice.
1. Do you understand that a home equity
loan agreement allows the lender to take your home should
you default?
2. Do you use your home equity line
of credit to buy holiday presents, vacations, gas, etc.?
3. Do you stretch out your payments
as much as possible on your line of credit?
4. If you used an equity loan or line
of credit to eliminate credit card debt, have you cut up those
cards or kept them free of new debt?
5. Is your overall debt load, including
your first mortgage and home equity loan, greater than the
value of your home?
6. If you took out an equity line of
credit for emergencies, have you kept it free and clear?
ANSWERS
1. This is perhaps the most important
question to which a home equity loan borrower should know
the answer. If you didn't say "Yes," you shouldn't be getting
this kind of loan.
2. If you say "Yes," you might be headed
for trouble. Borrowers shouldn't sacrifice their homes for
a long weekend in Aruba -- no matter how nice the beaches
are!
3. A "No" answer here is best. Even
though the interest rate charged on a home equity line is
generally lower than the ones charged on credit cards, that
car can be awfully expensive if you pay for it over the course
of 15 years.
4. Please, please, please say "Yes"
here. You'll save financial planners and consumer advocates
many sleepless nights.
5. You might find yourself in this
situation if you consolidated debt with a so-called "125"
or other high loan-to-value equity loan. Pay it off -- fast
-- if you said "Yes."
6. If not, you should have. Don't pay
more than the roughly $50 annual maintenance fee if an emergency
cushion is what you got the line of credit for in the first
place.
