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Option_Perfect t1_iu6xeg5 wrote

Reply to comment by Kindly_Boysenberry_7 in RVA Real Estate AMA - "What The H*ll Is Happening?" Edition by Kindly_Boysenberry_7

Ten-ish years into a 30 year loan. Can't remember what we put down, probably around 10k. Now our equity is equal to the amount of the original loan 190k. Would we be wise to get an equity loan? Is there anything we should change or just stay the course?

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Charlesinrichmond t1_iu72i80 wrote

People in general should not get home equity loans. It's a path to wealth destruction

If you are 10 years in you have a good rate keep paying off your loan, 20 years and you will be mortgage free which is a great thing

One should never apply Modigliani Miller or any variation to one's own housing without a deep understanding of what one is doing. And arguably not even then

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Kindly_Boysenberry_7 OP t1_iu71txj wrote

Okay just trying to make sure I understand. You paid $X (unknown) for house, You put $10,000 down, your original loan was $190,000. You've probably paid down $40,000 on that $190,000 loan. You're saying the house is now worth $X, which gives you $190,000 in equity.

Your question is: What should you do?

IF YOU ARE DISCIPLINED: I'd consider getting a home equity line of credit ("HELOC") against the equity in your home. Basically that is a line of credit - like a credit card.

BUT......

I personally would only do that if you are disciplined, won't use it, it's only there for some unforseen emergency. Because you are effectively using the equity in your home as a potential credit card. And the interest rate will be prime + points, so it's like a credit card interest rate. This is exactly what got people in huge trouble in the 2007 recession.

But in an uncertain financial environment it can be a positive to have access to cash if you absolutely need it

Talk to your financial advisor, if you have one. And if you will be tempted to use a HELOC for wants, rather than needs - new car, vacation, etc. - don't even open the door.

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Charlesinrichmond t1_iua0wdw wrote

good theory, but didn't they shut down a lot of HELOCs in 2007 right as people needed them? I feel like they can be called or frozen, though a long time since I've seen the language. But banks don't want to be handing out bad credit puts.

I kind of think Helocs should be illegal.

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Kindly_Boysenberry_7 OP t1_iua2gxj wrote

You are exactly right, banks did close out HELOCs during the crash. Which was probably smart, if you are a lender you sure don't want people spending more money from their "equity" if their house is already under water.

I think there is a time and place for HELOCs, like for home renovations, but they are certainly VERY dangerous if they are not used responsibly.

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Charlesinrichmond t1_iua6aup wrote

yeah, and the average person uses them for bad things from my observation sadly

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