November 27, 2009, Newsletter Issue #165: Using Your Equity

Tip of the Week

Lenders have embraced liberal lending practices for folks who desire to borrow from the equity that has accumulated in their home. Equity is determined by taking the home's current market value, subtracting the outstanding mortgage(s) and the remainder is equity. If your home is worth $250,000 and you owe $200,00 - you have $50,000 in equity.
The risk evolves in borrowing the property's full value, or as in some second mortgages, banks are even lending up to 110% of its value. While it may be useful to pull the available cash from the property, you are in a position that will cripple you in the event you find yourself having to sell the home within the near future. Homes cannot be sold for more than their value which causes sellers to have to "bring cash to the closing table" in order to clear the first and second mortgages. In the event of a job loss or transfer, sellers are financially strapped.
When using the equity from your home you must keep in mind that you are spending the resources that could be necessary to purchase a replacement home should you decide to move.

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