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Real Estate Information |
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Home Equity or Debt Trap?
Are you using the equity from your home to purchase everyday things? This is a dangerous trend growing more popular every month as millions of Americans tap into the value of their home to fund a lifestyle. How many times have you heard the saying "Your home is the best investment you'll ever make"? How many times have you also heard that your home will be the most valuable asset you will ever own? Both of these are as true, if not truer, today than at any time in the past. Unfortunately, spend happy Americans are looking at their home as just another type of ATM, and they are visiting it way to often. These homeowners are using money borrowed against their house to finance expensive vacations, new vehicles, even daily visits to the corner coffee shop. Our parents wouldn't think of buying furniture with money borrowed against their home. So why is this form of borrowing becoming so popular? Three events have converged to create this dangerous trend. 1. Cheap interest. The past two or three years have seen interest rates unheard of since the 1950's. These low rates encourage people to think they have basically free money to spend however they want to. 2. Real estate value increases. The Office of Federal Housing Enterprise Oversight (OFHEO) reports that their data shows market value of the average home increased nearly 13% in 2004. That is more than any time in the last 25 years. Some areas saw the value of homes double in less than 5 years. This increase in value is perceived by some people as being a bonus - they didn't have to work for the money, so it doesn't cost them anything. They are right about it not costing them anything, except they forgot that when they borrow money it has to be paid back. That is when the true cost of the debt appears! The U.S. Department of Commerce reports in 2003 nearly half of the $8 trillion in outstanding mortgage debt was in new mortgage originations. This doesn't mean home equity loans are necessarily bad ideas. Using equity in your home to remodel and make additions can result in solid returns. Even debt consolidation can be a good choice, provided you have solved the problem that caused the debt in the first place. 3. Ease of borrowing. Twenty years ago, lenders wouldn't think of giving you a loan, even against your home, if it would cause your equity to become less than 20%. Some insisted in a percentage closer to 50% equity. Those days are long over. Today you can go online and find a lender willing to give you a loan equal to 125% the value of your house! If you have a credit of repayment, hold a job, and are still breathing you can probably find a lender willing to let you borrow against your home equity. The risk created by the convergence of these three factors is the loss of your safety net. As people buy homes at the top end of their range and base mortgages on two incomes something has to give. This "something" has been their savings. Putting aside part of each paycheck has become the low priority in the pile of demands barraging a family's income. Data released by the Employee Benefit Research Institute reports nearly 45% of all workers hold assets of less than $25,000 (excluding their home). Barely 67% of today's workers are currently saving money in a 401(k) or some investment program, according to a Thrivent Financial Survey.Does any of this sound familiar to you? The looming debt of mortgage, college, and credit card can seem overwhelming. How can you tip your financial life back into favoring a secure future for yourself and family? Here are five steps to escape the home equity debt trap. 1. Keep track of expenses. Keep a spending record of everything you spend for one month. The next month, do it again, and the next month too, until you see areas of spending you can cut back and use that money to fund your lifestyle goals, i.e. vacation, college, or a new lawn mower. 2. Create realistic debt reduction goals. List all of your debts with interest rates, outstanding balances and minimum payments. Create a plan to pay down the debt, preferably pay the same set amount each month no matter what the minimums are. Anything extra you pay should go to the smallest debt first. When a credit card is paid off, get rid of it. Perhaps a small reward like a special meal when a goal is reached will help keep you motivated. 3. Preserve your home equity. Having home equity untapped in your house can provide a level of reassurance. Making wise uses of this equity will help you to not exhaust it. When you do tap into your home equity, make sure it is not used to pay for daily living. 4. Pay as little debt interest as possible. Consolidation of debts into low, or no interest loans i.e. credit cards, is acceptable as long as you refrain from incurring new debt and you are paying down the debts you do have each month. 5. Start saving regularly. A fund of money for emergencies will help avoid debt when life throws you a problem. If you consider saving a "non-optional" bill each month, you will develop the find habit of saving. The result is a growing asset base. The end result of taking these five steps? A minimal-debt life spent living in an affordable home of your own. Roger Sorensen is America's Financial Guide. Learn more at his website http://www.Slave2Work.com - ask and receive answers to your personal finance questions, read his writings, or join the newsletter Money Basics. "How-To Be Debt Free!" is now for sale, read about it today at http://www.Slave2Work.com/debtfree.html
MORE RESOURCES: Experts predicted Minnesota real estate agents would quit, 5 INVESTIGATES found a different reality 5 EYEWITNESS NEWS Cary Grant’s widow has listed the estate they shared for $77.5M — featuring a complete overhaul New York Post Altadena’s rough real estate market: Slower sales, lower prices, lottery winner plucking up properties Los Angeles Times Real estate magazine reports Les Wexner as Blue Heron buyer The Martha's Vineyard Times Real estate expert warns socialist mayoral candidate could trigger massive NYC exodus - Fox Business Bedrock flexes its real estate portfolio to grow Detroit's tech ecosystem - Crain's Detroit Business Bedrock flexes its real estate portfolio to grow Detroit's tech ecosystem Crain's Detroit Business Office real estate wide open in Denver as vacancy rate hits 36 percent Colorado Public Radio Vail Valley real estate inventory is on the rise VailDaily.com NAR Real Estate Forecast Summit National Association of REALTORS® Real Estate Partners Dollar Tree Let's Talk Business: June residential real estate sales lagging, heritage grants and more Pueblo Chieftain A New Perspective: Here Comes the Groom | Real Estate Insights Piedmont Exedra Boston Real Estate Times Unveils 2025 Excellence Award Winners: Honoring the Visionaries Shaping New England’s Future Boston Real Estate Times State lawmaker joins Westport commercial real estate brokerage as vice president Hartford Business Journal Dawson County weekly real estate transactions, July 18 Central Nebraska Today Private Credit Surges in 2025 as Real Estate Developers Bypass Banks The World Property Journal Real estate news: Senior apartments in Tustin sell for $83M; Fullerton Metrocenter snares $118M Orange County Register New York Housing Market Trends 2025: Is the Tide Turning for Buyers? Norada Real Estate Investments 5 Essential Tech Tools for Real Estate Agents National Association of REALTORS® Los Angeles Water & Power commits $100 to real estate debt Pensions & Investments Property management with an owner’s mindset J.P. Morgan Today’s Mortgage Rates: The States Offering Lowest Rates – July 18, 2025 Norada Real Estate Investments SRS Real Estate Partners Arranges $4.53 Million Ground Lease Sale of Walmart Property in Deltona, FL citybiz Corcoran McEnearney Announces Evan Lacopo to Lead the Number One Real Estate Office in Alexandria, Virginia Alexandria Living Magazine Real Estate Market Report (June) highlandscurrent.org Banner Real Estate Group Breaks Ground on 334-Unit The Faywell Multifamily Development in The Heart MultifamilyBiz Licking County real estate transfers for June 30-July 4 range from $200,000-$14.6 million The Newark Advocate CBRE Announces Strategic Leadership Appointments Across U.S. & Canada Advisory Business Boston Real Estate Times Bridgemarq Real Estate Services® Declares Dividend Yahoo Finance Moon Becomes Next Real Estate Frontier, NAR Reports Higher Foreign Investment In US Huntsville Business Journal Gravelle advises on current real estate market in Grant County Columbia Basin Herald GenesisM Breaks Ground on 154,000-Square-Foot Biomanufacturing Facility in Bedford, MA Boston Real Estate Times AGC MA Announces 5th Annual Building Advancement Externship to Bridge Educators with STEM Construction Careers Boston Real Estate Times Mapletree Sells Sun Belt Warehouse Portfolio to EQT Real Estate for $241M Commercial Observer What's the most expensive property sold in Rhode Island? July 18 real estate transactions The Providence Journal The Pipeline: Commercial real estate roundup for 7.18.25 Richmond BizSense Operation Pawssible: Greenbrier Humane Society gets a boost from local real estate company Mountain Messenger Home Buyers: Stop Freaking Out After the Home Inspection National Association of REALTORS® Miami-Dade’s self-storage surge a boom for real estate IslanderNews.com SRS Real Estate Negotiates $4.5 Million Sale of Walmart-Anchored Property in Metro Orlando Shopping Center Business Home Buyers May Have Accepted a New Norm on Rates National Association of REALTORS® Tips on spotting real estate investment opportunities and avoiding risks, from experts at GR Property Group Community Impact Stage Point Europe Launches Its RWA Token $SPET, Setting it up as a Bridge Between Crypto and Real Estate Morningstar Frederick Ford, real estate executive and first Black Union League Club president, dies at 98 Chicago Tribune New plans unveiled for Water Street’s second phase Tampa Bay Times LOCAL REAL ESTATE TODAY 7.18.25 KQEN News Radio Top Stocks for Real Estate Investment Elite AI Stock Forecasts - Massive wealth growth Jammu Links News July Economist Snapshot: What Will the Big Beautiful Bill Mean for Commercial Real Estate and Housing? Urban Land Magazine Hunt Companies Acquires Controlling Interest in Carter, Strengthening Real Estate Development Platform Business Wire Vend Leans Into Verticalisation As Real Estate Revenue Grows 11% In Q2 onlinemarketplaces.com Wood County Recorder reports on second quarter real estate activity BG Independent News Canadian psychologist Jordan Peterson sets up shop in the Valley, records show The Business Journals Is Apollo Commercial Real Estate Finance Inc. a good long term investment - Explosive market performance Jammu Links News Real estate sales in Jefferson, Bullitt and Oldham counties for Jan. 2-5, 2025 - The Courier-Journal Real estate sales in Jefferson, Bullitt and Oldham counties for Jan. 2-5, 2025 The Courier-Journal Choice Properties Real Estate Investment Trust 2025 Q2 - Results - Earnings Call Presentation (OTCMKTS:PPRQF) Seeking Alpha Vendor & Real Estate Partners Dollar Tree Development Services Offers Online Early Assistance for Commercial Real Estate Projects Prince William County Government (.gov) Manitowoc's real estate transfers include a sale of nearly $1 million to Riverside Dairy Herald Times Reporter Real estate transfers: Lake Township condominium complex sells for $5.61 million - Canton Repository CCI Real Estate Obtains $67M in Construction Financing for Mixed-Use Community at University of Georgia REBusinessOnline Youth Real Estate Academy in Flint abc12.com |
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