Be smart with equity
Though they're less widely available in a soft housing market, home equity lines of credit are still a valuable tool for homeowners who can get them. Homeowners will need to have a lot of equity in their home and will typically be able to borrow against 70 percent to 80 percent of the home's appraised value.
Home equity lines of credit, second mortgages that allow you to borrow and repay money much like a credit card, are a particularly convenient and relatively inexpensive form of credit. They work much like the revolving line of credit you have with a credit card, with one big exception: If you don't repay the home equity debt, the bank could foreclose on your home. They can't do that with a credit card. And imprudent use of a home equity line of credit can erode the equity you have in your home. Shine warns clients against them.
However, if you manage them carefully, having access to such lines of credit can be a lifesaver. They are a good source of funds for remodeling (which adds back equity to your home) or emergency credit -- at better terms than your credit card. If you tap your equity to pay for vacations or new furniture, however, your home equity line of credit can actually destabilize your overall financial picture, as many people realized in the recent housing bubble and subsequent fallout.
Get a loan that fits your financesThe key to finding a good mortgage or a home equity line of credit, is first to understand your own financial picture thoroughly. Know what you can really afford to pay, and have a realistic estimate of how long you expect to live in that home. If you're certain that a job relocation will cause you to move in five years, for example, there's no need to pay extra for the security of a mortgage with an interest rate that's fixed for 30 years.
Conversely, if you can barely afford the payment during the first year of an adjustable-rate loan, it would be foolish to commit to a payment that is all but certain to grow.
"It's like so many things nowadays," says Shine. "People are busy and they don't pay enough attention to contracts, and this is a contract. Or they'll read it and not understand it."
If you don't understand the terms of any loan, you owe it to yourself to find a lender or a financial adviser who will take the time to explain them all to you.
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