Home equity line of credit (HELOC) can be a formidable tool to get needed cash in a hurry. But, an equity line must be used wisely.
- Avoid Using your Equity Line of Credit for Investment
Even though many investors borrow money to invest in the stock market; it is never a valid idea to do so with home equity. Many homeowners took out home equity lines of credit during the recent real estate boom as if it was free money. The cost and threshold to borrow money was so low during the housing boom that homeowners used HELOCs for things for which it was never intended. A common misuse of equity loans in the past has been to use the borrowed funds to invest in the stock market. As the tech bubble burst in the late 1990s many homeowners lost their life savings. Does it make sense to gamble with your home? I submit to you that it doesn’t. Never use home equity line of credit loan to invest in the market. A smarter decision would be to cash in your structured settlement if you need cash (read more about this on Washington Accord).
- Main Benefit of Equity Line Loans
Equity lines of credit shouldn’t be merely used as a haven for tax deductions. This strategy carries with it the hallmarks of a bad investment. It is as if you give someone a dollar in order to get 30 to 25 percent of it back. Does that make sense? Even though there are tax deduction benefits of using a home equity credit line, it shouldn’t simply be used for that purpose.
- Home Equity Line of Credit Loans Require Financial Discipline
Many homeowners have leveraged their equity loan to perform debt consolidation. This can be a good financial planning tool but it requires a strict commitment to fiscal discipline. Instilling financial discipline from within is critical for staving off debt permanently. The main reason homeowners use their home equity lines is to do debt consolidations, usually credit card debt in the hopes of lowering their monthly payments.
- Don’t Go Shopping for Toys with your HELOC Check
Don’t use the HELOC to buy a boat, car or some other toys. This is not the way to assemble wealth. Simply save your money and then get your toy.
- Remember a Home Equity Line of Credit is a Second Mortgage
A HELOC is a second mortgage. In the past, a second mortgage came attached with a stigma; if people sought them out they were seen in a negative light.
However, that stigma is no longer applicable. But it shouldn’t be forgotten that whenever the equity credit is used, you are adding a second mortgage to your existing home loan.
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