Until a few years ago, it was a common practice among homeowners to pull money out of their property through a cash out mortgage refinance. But the practice of bankrolling one’s dreams by tapping home equity has slowed dramatically due to slips in home prices and a tough economy. Even so, there are still many homeowners with plenty of equity. But in this time of economic upheaval, is it prudent to look to your home as a source of cash? The answer depends on your overall financial picture and your plans for use of the money.
Here are four pointers for those considering mortgage refinance to take cash out of their home:
- Get a grip on the present value of your property – contact a local Realtor who can prepare an market analysis for you that will let you know roughly what your home is worth.
- Take your future financial needs into account – a trusted financial planner or accountant can help you decide if you should preserve the equity in your home or use it for other purposes.
- Think through your intended use of proceeds from a mortgage refinance – buying a new car (not a good idea as a car is a depreciating asset), down payment for a second home or investment property or underwriting your children’s college education are much better uses.
- Make judicious use of home equity as a way out of credit card debt – this may be a sensible plan as most mortgage loans carry much lower interest rates than do credit cards. Another advantage is that mortgage interest is tax-deductible, unlike credit card interest.
Source: Ellen James Martin, Universal Press Syndicate, AZ Republic 7-6-08
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