The home equity debate take it out or leave it in

The world over there are hundreds of property owners sat on real estate that has risen significantly in value as a result of the past property boom era. Many have re-financed and borrowed against their increased home equity to buy another ‘investment’ property, refurbish their home or buy high ticket consumer goods. There are those that have prospered, but many have fallen on stony ground as a result of rising mortgage interest rates. So what are your reasons for taking money out of your home?

Urbandigs, a New York Real Estate Blog, recently posted on the subject of ‘using your home as a cash machine‘ as related to the US market. A summary of his post details both the good and bad reasons to cashing in on the equity built up:

Bad Reasons to cash in on your equity:
-To be able to afford your monthly expenses (home or otherwise); this is the downside to our insatiable desire to spend money that we don’t have.
-To pay off credit card debt; paying off short-term debt with long-term debt is never a good financial decision as it is a quick fix solution to a larger different problem.
-To pay for a large event or holiday; dangerous as you are only investing in memories and good times, not something more concrete. Think secure financial future instead.

Good reasons to cash in on your equity:
-Renovations to your home; increases your property value (as long as you do a good job) but consider doing it earlier as you can make the most of your improved living environment = dual benefits. Just make sure you can afford the higher payments.
-Spending cash to satisfy tax codes; an American reason but looks like a useful one.

Following on from the refurbishment reason, another good reason for utilising the equity in your home is to bring it up to sale standard. Many people selling their home think it is wonderful and really fail to see why potential buyers are not putting in offers. (It may just be that scruffy entrance, eclectic colour co-ordination, or the over-powering scent of our four-legged friends). Taking the time/effort and spending some money could actually raise the value of your home enough to make the works pay for themselves and even make a small profit  in the process. The theory goes that you would also sell your home quicker, have less stress and less mortgage payments!

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Related reading:
The Benefits of re mortgaging from Mortgage Refinancing Blog
A quick guide from whatprice
Uncertain about equity release from the timesonline
Equity release scheme gets taxmans approval from the FT