To Top

Why Tapping Into Your Home Equity Is A Bad Idea?

It is no longer a secret that the housing market is not stable; in fact, it has never been stable. Just like bubbles, the value of homes goes up one day only to go down the next day. This uncertain ebb and flow of the housing market have made homeowners suspicious. They can not decide whether or not it is a sensible idea to jump into the housing market, and when they do, they fail to grasp the concept of home equity. Going back to the Great Recession of 2008, it becomes apparent that it takes no longer for the prices of houses to go up and down.

Curtis / Pexels / Home equity refers to the actual value of your house minus what you owe.

Essentially, home equity means the total value of your house if you minus the loans you owe. This could mean the outstanding amount that you owe or mortgage loans. Apparently, if you own a house, you can borrow more money. But simply because you ‘can’ do something does not mean that you ‘should’ do it. This is especially true when it comes to home equity.

Regardless of your current financial status, we do not recommend tapping on your home equity. And the reason is that if you did tap on your home equity, you might put your home at potential risk. The lender may kick you out of the house if you fail to pay the borrowed money within the due time. At this point, you will not have any legal justification to claim that house back.

Photo Mix / Pexels / If you can not make the payment within the due time, the lender may foreclose and kick you out of the house.

Here are some of the reasons why tapping on your home equity is a bad idea:

  • You May End Up Losing Your House

One of the foremost risks of tapping into your home equity can be you may end up losing your house. According to reports, the value of houses has gone up by 45% since the pandemic. This means that an average homeowner can get up to $200k in equity. But for that, you need to have a mortgage in place.

The Best / Pexels / Although the prices of homes have gone up by 45% since the pandemic, it is still not a good idea to tap into your home equity.

Apparently, the reason is that if you are unable to make the payment, the lender can foreclose your house and kick you out. If you can not make the payment, you will lose your house.

  • You Can Use Your Equity As Your Savings When Needed

There is no doubt that your home equity is an asset that you can use whenever you want. But it does not mean you should tap into it without proper planning. A better way to utilize your equity can be using it while you have no savings in place and desperately need emergency funds.

At this point, you can have peace of mind thinking that you have your equity in place. You can then tap into it and use it as your savings.

More in Financial Planning

You must be logged in to post a comment Login