Mortgages weren’t the only financial instruments that helped to cause the Great Recession. Home equity loans also played a role in the massive economic decline. Lenders and homeowners both had a hand in creating the volatile situation. Both also bore a huge brunt of the fallout.
So, why are home equity loans again on the rise?
What makes home equity loans so attractive?
Home equity loans put hundreds, at times thousands, of dollars within a homeowner’s reach.Although interest rates are rising, they continue to be low in most areas. Get a home equity loan while rates are low and you’ll yield short and long term savings on the repayment side of the loan.
Another reason why more homeowners are getting home equity loans is because having the money to upgrade, repair or renovate a house can be a significant plus,especially if homeowners use home equity loans wisely. Upgrades, repairs and renovations add value to a house, another area that homeowners learned not to leave to chance during the Great Recession.
Using home equity loans to strengthen your real estate investment
Yet, it’s easy to get into trouble with home equity loans. To stay out of trouble with home equity loans:
- Only borrow as much as you can afford to repay on time. Don’t assume that you will be able to repay the loan. Create a budget and list out all of your expenses, including money that you spend on entertainment.
- Consider using investment accounts like IRAs and 401(k)s to grow wealth and not solely your home. This could keep you from viewing your home as your sole source of long-term wealth.
- Get sufficient homeowners insurance. Don’t just get enough insurance to cover the exterior or your home. Get enough insurance to cover your personal belongings as well.
- Consider getting your home inspected and appraised before you pay for upgrades, as the upgrades that you’re thinking about getting may not increase the value of your home enough to make taking out a home equity loan good sense.
- Despite what bank commercials may say, do not take out home equity loans to pay for vacations, cars or shopping sprees. This is a primary way that homeowners got in over their heads before the Great Recession.
- Perform regular maintenance on your home. This includes cleaning out drainage pipes, changing filters and tightening and replacing screws, washers and bolts. By maintaining your home, you can reduce the amount of a home equity loan you might need.
- Adhere to manufacturer instructions when operating appliances. Doing so could extend the life of your appliances.
- Care for the exterior of your home. For example,keep your lawn healthy, trim hedges and resurface your front walkway and driveway as needed.
Take out a home equity loan at the right time and the money could help to increase your overall wealth. View the loan as an investment in your home. It’s also important to approach a home equity loan as, just that, a loan. Remember that you have to pay the money back to the bank with interest, as a home equity loan is not a gift.