3 home equity borrowing mistakes seniors should avoid now
Home equity can be a powerful tool for millions of homeowners – especially right now. With the average home equity amount hovering around $320,000 currently and with interest rates on home equity loans and home equity lines of credit (HELOCs) many points lower than the popular alternatives, this option is uniquely advantageous. Add in the dynamic of a cooling wider rate climate and the inherent potential for home equity loans and HELOCs to become less expensive and it becomes clear why many homeowners would prefer this option over personal loans, credit cards, and others.
Still, home equity borrowing comes with some notable risks. If you fail to repay all that's been withdrawn, you could lose your home to the lender. So it's critical to go into this borrowing circumstance with a clear and strategic approach. This is particularly true for seniors and retirees with limited ability to weather financial missteps. Borrowing home equity for these groups can be advantageous – and risky, if certain mistakes are made. To improve their chances of success, it helps seniors to know which home equity borrowing mistakes to avoid now. Below, we'll break down three to know.
Considering a home equity loan? See how much you could be eligible to borrow here.
3 home equity borrowing mistakes seniors should avoid now
Are you a senior considering home equity as a funding source? While this can be a smart way to make ends meet, borrowers should avoid making these mistakes, specifically.
Not exploring reverse mortgages first
Both home equity loans and HELOCs have lower rates than some other options but they'll still require that a borrower have the funds necessary to make payments each month. A reverse mortgage won't. This option allows owners to instead receive monthly payments from the lender, deducted from their home equity. The money will need to be repaid if the house is sold or if the owner dies. However, it can still be a valuable alternative to explore first, especially compared to the monthly routine of making home equity loan payments.
Check your reverse mortgage options online today.
Using it for the wrong reasons
During the holiday season - or in January, when dealing with big amounts of credit card debt - it can be tempting to utilize any funding source available, including home equity. But that would be a mistake for most borrowers and is an especially significant one for seniors tied to limited budgets. There are reliable, tax-advantageous reasons to use your home equity (like for home repairs and renovations). Holiday spending, buying a new car, or financing a wedding are risky ways to do so. So, if your ability to make the payments each month is strained, it's critical that your use of the financing is cost-effective.
Not shopping for rates and lenders
It's always a mistake to skip the shopping phase, but especially so for those borrowers looking to secure the cheapest rates and terms. So be sure to shop for home equity lenders before finalizing your application. Since you don't need to use your current mortgage lender, it behooves you to research competitors. Once you've found an offer you can work with, consider then going back to your current lender to see if they can beat it. Just don't take the first offer you receive, as it could be significantly higher than what would have been found with some simple, online research and price quote-gathering.
Shop for home equity loans online now.
The bottom line
Seniors looking for an extra financing source may be well-served by turning to their home equity, particularly in today's unique economic climate. By avoiding these mistakes, they can potentially position themselves for better financial success both now and in the future.
