Don't Borrow If You Don't Need the Money

Did you take a loan against your home’s equity? If yes, then you have something to worry about. According to RealEstateJournal.com, The Wall Street Journal’s guide to property, Americans who recently took home equity loans run the risk of owing more than their house is worth due to rising interest rates. Until recently, home-equity borrowing was a boon to consumers, allowing them to turn their houses into cash machines.

However, the higher rates are now fueling an increased interest in a different type of home-equity borrowing. People are now taking loans, which offer a lump sum and a fixed rate, instead of credit lines. These loans include popular facilities that allow borrowers lock in a fixed rate on some or all of their line of credit.

So why has the cost of borrowing risen so much in the recent past. You can blame the Federal Reserve Board for this drastic rise. The Federal Reserve Board has boosted short-term interest rates 15 times over the past two years, resulting in higher interest rates on home-equity loans.

All these problems make you wonder if a home equity loan is any good at all. While the housing boom was on, these loans made very good sense. However, now, interest rates on short-term home-equity lines of credit have sharply increased. And this, at a time when the housing market is at its lowest ebb. This leaves homeowners with a very small cushion to fall back on should they be unable to repay the money they borrowed. So, if you plan to take a home-equity loan, first determine when you will need the money and how soon you will be able to repay it. This will help you get a better deal.