2022 Boise Idaho Real Estate Blog

Your home's equity IS your emergency fund!

Main Boise Home Loans

What would you do if you lost your job? Had a major medical expense come up? Your home's equity is one of your best lines of defense!

There is an argument that the equity in your home is worth nothing. I don't agree with that 100%, but I can see where financial planners, investment advisors, and other industry professionals come from when making statements like that:

EXAMPLE: You own a home that appraises today for $200K, and you owe $150K on the mortgage, meaning that you have $50K of equity in your home. So, how secure is that equity? Well, with some areas of the country experiencing up to 10% or more losses in the value of  homes, I would agree...that equity is not so secure. If you took a 10% hit to the value of this home, your home's equity would drop by $20K...not very secure!

This may be the time to open a home equity line of credit (HELOC) for an emergency line of defense. Opening a HELOC now makes sense, even if you don't need to borrow the money. A stalling economy usually points to job layoffs, and getting credit or a HELOC with no job is a step away from impossible. If you have little to no equity in your home, or you have a lower credit score, you will have a tough time getting a HELOC...even if you have a strong, stable job.

HOW A HELOC WORKS

With a HELOC, you can borrow any amount of money, up to a specified credit limit, just like a credit card. Generally, you are not penalized if you never borrow against your HELOC, and you will only pay interest on the amount that you do borrow. And, most banks and credit unions charge ZERO fees for opening a HELOC! Where is the risk there?

There are many other benefits to having a HELOC that I see and counsel my clients on because of how the interest is calculated on a HELOC. It is not a month end amortized mortgage like your traditional 15- or 30-year fixed mortgage use. Rather, a HELOC uses a day-end simple interest calculation...remember, you only pay interest on the amount you owe.

 
Posted by Eric Leigh at 3/20/2008 12:31:00 PM

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