| Why buy a home? | | Page | 1 | 2 | |
| Be
smart with equity
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: "You shouldn't be bailing yourself
out of consumption with your No. 1 asset," she
says.
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.
Get
a loan that fits your finances
The 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.
Elizabeth Razzi is a freelance personal
finance reporter and author of "The Fearless
Home seller." She is based in the Washington,
D.C., area.
 |
How about you? Are you concerned about your mortgage?
Pleased with the one you have? Ready to buy? . |
-- Posted: March 19, 2007 |
| 
