Contrary to popular advertising, refinancing or adding a home equity line of credit is not always the best way to go. Why? Ask yourself the following questions to determine if a refinance or home equity line of credit is right for you:
1. How long will you stay in your current home? Are you going to refinance or add a home equity line of credit and then move within a year or two? Or are you planning on staying in that home for several more years? And can you guarantee that?
2. If you are not going to stay in the home for more than a couple of years, will the cost of refinancing and/or adding a line of credit be lower than the cost of changing loan types/programs? (For a breakdown of fees involved, please see your lender.)
3. If you are looking to "cash out" some of the accumulated equity in your home - have you thought about how much of that equity you're planning on taking out? What if you take out 100 percent of equity and then you have to sell? Will you have the money to pay for the sale of your home? (Even if you choose to sell your home yourself, as an unrepresented seller, there are still fees and costs involved.)
4. What if the housing market in your area depreciates and your home looses value? What if you would have to sell during a down market? Can you bring enough money to the table to clear your loans?
All those points need to be taken into consideration before deciding to "cash out" the equity in your home. Make sure you're not just looking at the available cash and/or rate, but to consider the cost and long-term effects as well. Regardless of initial equity or appreciation accumulated over time, keep in mind, your
home is not meant to be your personal
ATM machine.