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Home equity can be a powerful tool for millions of homeowners – especially now. With the average amount of equity currently hovering around $320,000 interest rates on home equity loans and home equity lines of credit (HELOCs) many points lower than the popular alternatives, this option is uniquely beneficial. Add to that the dynamics of a cooling interest rate environment and the inherent potential for home loans and HELOCs to become cheaper, and it becomes clear why many homeowners choose this option over personal loans, credit cards and others.
Yet borrowing equity also comes with some notable risks. If you don’t pay back everything that is withdrawn, you could lose your home to the lender. So it is crucial to approach this lending circumstance with a clear and strategic approach. This is especially true for seniors and… retirees with limited ability to weather financial missteps. Borrowing home equity for these groups can be beneficial – and risky if certain mistakes are made. To increase their chances of success, it helps seniors know what home equity borrowing mistakes to avoid now. Below we’ll break down three to know.
Are you considering a mortgage with home equity? See here how much you can qualify to borrow.
3 Home Equity Borrowing Mistakes Seniors Should Avoid Now
Are you a senior and are you considering home equity as a source of financing? While this can be a smart way to make ends meet, borrowers should avoid these mistakes, especially:
Don’t explore reverse mortgages first
Both home equity loans and HELOCs have lower rates than some other options, but they still require a borrower to have the necessary funds to make payments each month. A reverse mortgage won’t. This option allows owners to instead receive monthly payments from the lender, deducted from their home equity. The money must be repaid if the house is sold or if the owner dies. But it can still be a valuable alternative to explore first, especially compared to the monthly routine of mortgage payments.
Check your reverse mortgage options online today.
Use it for the wrong reasons
During the holidays – or in January, if you’re dealing with large amounts of credit card debt – it can be tempting to take advantage of every available financing source, including equity. But that would be a mistake for most borrowers, especially seniors strapped on budgets. There are reliable, tax-advantaged reasons to use your surplus value (such as for home repairs and renovations). Holiday expenses, buy a new caror finance a wedding are risky ways to do that. So if your ability to make the payments each month is under pressure, it’s crucial that your use of financing is cost-effective.
Don’t shop around for rates and lenders
Skipping the shopping stage is always a mistake, but especially for borrowers looking for the cheapest rates and terms. So make sure you start looking for mortgage lenders before completing your application. Since You do not have to use your current mortgage providerit behooves you to research competitors. Once you find an offer you can work with, consider going back to your current lender to see if they can beat it. Just don’t accept the first offer you receive as it may be significantly higher than what would have been found with simple online research and gathering quotes.
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The bottom line
Seniors looking for an additional source of financing would do well to tap into their home equity, especially in today’s unique economic climate. By avoiding these mistakes, they can potentially position themselves for better financial success, both now and in the future.
