Mainly because rising home values, many home-owners discover that they’re sitting on a record sum of home equity that they can access by refinancing or obtaining a second mortgage. However, all of us have been shy about making use of that wealth, in part mainly because the home prices decreases throughout the recession that left many owners underwater.
Just when is it Alright to utilize your homes equity?
However, a new survey from Bankrate.com of 1,000 consumers reveals that homeowners have sufficient legitimate reasons to take out a loan to unlock it.
Consumers’ “growing penchant toward debt might make it tempting to tap into their home’s value,” says Greg McBride, Bankrate’s chief financial analyst.
Nearly 75 % of home-owners recently surveyed state that home improvements or repairs are an appropriate reason to access the equity they have in their homes. The reality is, over half of those surveyed state that is the best reason to apply for a cash-out refinance loan or home equity line of credit (HELOC).
Survey respondents cited other reasons they’d try to use their home equity, including to consolidate debt (44%);
Pay for tuition or other educational expenses (31%)
Keep up with regular household bills (15%)
Make other investments (12%)
Big purchases (9% think it might be a smart decision to make use of the homes equity to obtain big-ticket items, for example (appliances and furniture)
Individuals with lower incomes were more likely than higher earners to say it’s OK to tap into home equity to fulfill ordinary expenses, the survey found; and millennials seem more ready to tap into home equity than older generations: 22% of millennial respondents say that borrowing from home equity to pay day-to-day bills is a possible option, in comparison with 12% of members of older generations.
Even homeowners with doubts about tapping in their home equity may be inclined to do so. Many households are overstretched financially, that may heighten the temptation to borrow. As outlined by a recent Federal Reserve report, 44% of Americans say they couldn’t cover a $400 emergency expense out of pocket.
“With the sorry state of emergency savings and increasing levels of consumer debt in a rising interest-rate environment, it’s a matter of ‘when’ not ‘if’ more homeowners turn to home equity to fund home improvements and repairs, or consolidate debt,” McBride noted in the survey’s report.
Using equity to fund home improvements that raise the value of your home could actually help rebuild any of the equity taken out, McBride says. The new tax law that went into effect this year also allows homeowners to deduct the interest they pay on home equity loans and HELOCs if the proceeds are utilized to finance improvements that add significant home value.
Still, financial experts recommend caution for homeowners considering borrowing against their home, especially because utilizing a home as collateral means they could lose it if they’re not able repay the lender.
“For a disciplined homeowner, using home equity to consolidate debt at a lower interest rate can be a savvy way to cut interest costs and accelerate debt repayment,” McBride says. “But for undisciplined homeowners, it ties up an asset that is put at further risk of foreclosure while the temptation to run up high-cost debt all over again proves difficult to resist.”
Have a questions or concern? Nick, Cindy & Nicholas Davis with RE/MAX Premier Group are here to assist you with all your Real Estate Needs. We are always available at 813-300-7116 to answer your questions or you can simply click here and we will be in touch with you shortly.
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