~Don't Turn Your Home Into An ATM~

I am sure you have heard about Secured Lines of Credit. If not here is a quick explanation.

Let's assume that you own a house that has an appraised value of $300,000 but you still owe $200,000 on your first mortgage. That means that you have $100,000 in equity. Based on this information most banks will issue you up to a $65,000 line of credit with the interest rates as low as prime+1. That would be secured by the second mortgage on the title of the property. I know this sounds really good. I know that it would allow you to go for that dream vacation or to buy that car you always wanted...but watch out. It is really easy to spend the equity you worked so hard to create.

These secured lines of credit were originally designed for two reasons;
1. For emergencies.
2. To help us to increase the value of the property like renovations, additions and remodeling. Meaning take one dollar out and give yourself $1.25 back. They were not created to decrease the value of your property, and that is exactly what will eventually happen if you are not careful.

Lately I have seen many families using their homes as a personal ATM’s. For real life examples we don’t need to look very far. In the past few years our neighbors south of the border had a number of options to extract valuable equity out of their homes (Like subprime mortgages) to buy boats, SUV's and expensive trips, and look what happened to their Real Estate values.

So be cautious with the equity of your home. It is much easier to spend then to create!

Tibor Bogdan