| Interview: Barbara Corcoran |
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What is the biggest misunderstanding about home equity loans? |
 I think most people only think of it as when you're really desperate. It's almost sacrilegious to tap into that before you're ready to sell your house. So I think it has a negative connotation in most people's minds. I think most people assume that it ends in trouble, and for many people it does; it depends upon what people use it for.
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What are the best uses of an equity loan or line of credit? |
I
know two couples where the husband lost his job, and
I think the best use of it is as an insurance policy
to bridge the gap in a job loss. I think that's the
single best use. The second best use, I would say,
is for college tuitions, because it's very hard to
accumulate that kind of cash for your kid. For one
of these couples, it made the difference between the
kid going to a great school that they qualified for
and going to a state college. I thought that was a
great use of it. And the third best use is for home
improvement -- if someone is tasteful. I've seen many
people use it for home improvement without the right
taste level and it doesn't improve the value of the
home. It depends on the taste level whether that's
wise.
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And the worst uses? |
I have one brother-in-law who really has used his home equity line as an ATM machine, for frivolous expenses. And probably the absolute worst use of it, and many people justify this, is to pay off credit card debt. There's nothing wrong with it if you use the left brain because it is roughly half the interest rate than what the credit cards are going to cost you; you can consolidate and get one bill at half the interest rate, my God, who wouldn't do it? But most people who use it in that fashion really, in short order, feel they are credit card free and they run them up again. I never think that's a good use of it, even though it sounds like it's a good use of it.
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