Home Equity Loans

[Deberg_1990]

So whats the deal with them? Anyone ever done one? How do they work? Are they a good or bad thing?

[The_Doctor10]

I would say that the widespread use of home equity loans has contributed a great deal to the current shittiness of the American economy, and that one should explore a multitude of other options up to and including prostituting yourself before actually taking out a home equity loan.

[Bugeater]

They're great if you don't really ever want to have your home paid off.

[Rain Man]

As a financing option, home equity loans are a great thing because their interest is deductible. So if you can get the same rate on a home equity loan as another type of loan, you're much better off getting the home equity loan.

The key, of course, is why you're getting the loan in the first place, but if it's a bad reason for a home equity loan it's probably also a bad reason for any other type of loan. Home equity loans in and of themselves are a good thing, though.

The pros:

Tax-deductible interest
Makes tied-up wealth into a liquid asset
You can get a home equity line of credit instead of a loan, which means that you can use it in the future without startup costs. You should go the Line of Credit route instead of just a loan if the interest and costs are the same.

The cons:

If you get upside down in the house (value < 1st + 2nd), you're hosed if you try to sell the house.
It's easy to psychologically not worry about the loan and spend the money on stuff that's going to be worthless and then you're paying on your house forever.

[Nightfyre]

Originally Posted by Rain Man

As a financing option, home equity loans are a great thing because their interest is deductible. So if you can get the same rate on a home equity loan as another type of loan, you're much better off getting the home equity loan.

The key, of course, is why you're getting the loan in the first place, but if it's a bad reason for a home equity loan it's probably also a bad reason for any other type of loan. Home equity loans in and of themselves are a good thing, though.

The pros:

Tax-deductible interest
Makes tied-up wealth into a liquid asset
You can get a home equity line of credit instead of a loan, which means that you can use it in the future without startup costs. You should go the Line of Credit route instead of just a loan if the interest and costs are the same.

The cons:

If you get upside down in the house (value < 1st + 2nd), you're hosed if you try to sell the house.
It's easy to psychologically not worry about the loan and spend the money on stuff that's going to be worthless and then you're paying on your house forever.

Depends on what you do with the money, I'd say. But mostly Rain Man has it nailed down.

[cdcox]

We refinanced a few years ago. In the process, I went from a 30 year loan to a 15 year. So while I took some equity out of the house, I shortened the payoff time. By doing so, I got immediate cash and also lowered the total cash investment needed to pay off the house.

If you are going to take out a loan anyway, tapping into your home equity, through a line of credit, second mortgage, or refinance, is about the best alternative available.

[Bane]

Originally Posted by Bugeater

They're great if you don't really ever want to have your home paid off.

[Hog's Gone Fishin]

Originally Posted by Rain Man

As a financing option, home equity loans are a great thing because their interest is deductible. So if you can get the same rate on a home equity loan as another type of loan, you're much better off getting the home equity loan.

The key, of course, is why you're getting the loan in the first place, but if it's a bad reason for a home equity loan it's probably also a bad reason for any other type of loan. Home equity loans in and of themselves are a good thing, though.

The pros:

Tax-deductible interest
Makes tied-up wealth into a liquid asset
You can get a home equity line of credit instead of a loan, which means that you can use it in the future without startup costs. You should go the Line of Credit route instead of just a loan if the interest and costs are the same.

The cons:

If you get upside down in the house (value < 1st + 2nd), you're hosed if you try to sell the house.
It's easy to psychologically not worry about the loan and spend the money on stuff that's going to be worthless and then you're paying on your house forever.

Did you ever get the book ????

[SenselessChiefsFan]

Originally Posted by Deberg_1990

So whats the deal with them? Anyone ever done one? How do they work? Are they a good or bad thing?

It used to be that you could take out an equity line up to 125% of the home's value. Of course, you were paying a ridiculous amount of interest, but people still did it.

Today, you will be hard pressed to find a program that lets you take out more than 90% of the homes value.

The way it works is you take what your house is worth, multiply it by 90% and then subtract your first mortgage balance. Then you have the equity available to borrow on.

You can get an equity line, or an equity loan. An equity line works like a credit card, and like a credit card the interest rate will typically rise and fall with the market.

With an equity loan, you have a fixed interest rate and a fixed payment.

Are they good? I used to be a fan of debt. Seriously, I thought the debt free crowd was stupid because I was using debt to build a glorious real estate empire.

Then, the bubble burst. I am going through bankruptcy right now. When I get to the other side, I will never, not for as long as I live, take out another loan. Not even a mortgage. I currently have a mortgage.... but once this house is paid off... I won't do it again.

Things always look great on paper, then life happens. The more equity you take out of your house, the harder it is to sell. And, if you lose your job, or need to relocate, you have a anchor around your neck that you can't get rid of.

I am not a fan. But, then again, I plan on paying cash from this point on.

[thawk]

Keep it simple ! Is it a want or need you are borrowing for ? Decide that honestly then proceed with a clear goal in mind, such as how long you will stetch out the loan ect. Right now is a good time in history to have equity in anything so make sure that you explore all options and make a well informed decision. In the end make sure you will feel as good about it a year from now as now!

[alnorth]

Originally Posted by SensibleChiefsfan

Then, the bubble burst. I am going through bankruptcy right now. When I get to the other side, I will never, not for as long as I live, take out another loan. Not even a mortgage. I currently have a mortgage.... but once this house is paid off... I won't do it again.

Man, some people get burned and they go from one extreme to the other extreme. Both extremes are silly.

Debt can be a useful tool in some circumstances, like a chainsaw. If you don't use it responsibly, you can cut your arm off. That is not the chainsaw's fault.