Tom’s Thoughts about Equity Credit Lines
Transcript:
Easan Arulanantham:
My house is now worth $3 million? Should I take advantage of a home equity loan? If I need some cash, you know, whether it be temporary? Or is there any like negatives to this?
Tom Vaughan:
Yeah, so you got the equity, right, and you can get a home equity credit line right now for a fairly low cost. Some of those you can even lock in, you know, once you borrow, you can turn it into a five or 10 or 15 year loan. So you don’t, because one of the problems with the Home Equity credit line is that, generally speaking, it’s a variable rate, and the rate will just go up as the rates go up. And I expect rates to go up here. So, you know, if you can somehow lock in that rate in some form or fashion that would make some sense, I guess the bigger question is, do you really need to borrow against your house? You know, what other alternatives Do you have to borrowing as your house and ending up with debt on your home and a payment that you have to make. So it’ll be more of a totality looking at your asset structure as to what you can do.
So you know, a lot of times people have, you know, other assets that they could look at as a possibility, if they needed money for something, if the house was the only thing that you really needed the money, then obviously, that’s not a bad way to go. But I would really be concerned with trying to make sure that somehow, some way I could lock in that interest rate, because a lot of these have big caps. So you might be borrowing money right now, three or 4%, but it has a cap at 9%. So if rates go way up, all of a sudden, you could be paying, you know, three times more interest on that loan. That would be my biggest concern with with a traditional equity credit line. A lot of them you can take the money out, call the bank back and say, Okay, I want to make this a five year fixed and they’ll give you a rate and so you know, there’s different things you can do there, but I don’t know that I’d go there first. I don’t really like to have a payment that you have to make. Unless you know there’s some valid reason for that.