If you recently purchased your home and are planning to tap into the equity, be sure to avoid these mistakes.
American homeowners are sitting on a goldmine of equity right now, with the average homeowner having access to approximately $320,000 in home equity currently. This substantial cushion of wealth has many new homeowners considering tapping into their property's value through home equity loans or home equity lines of credit , particularly as they face major expenses or discover new investment opportunities.While current home equity borrowing rates — which average 8.
C, it's important to avoid these common but costly mistakes:Borrowing without a clear purposeOne of the most dangerous mistakes new homeowners can make is treating their home equity like a piggy bank for discretionary spending. While home equity can be a powerful financial tool, it should be used strategically for purposes that either increase your home's value , generate returns or consolidate higher-rate debt.
C options and the potential prepayment penalties that can come with this type of borrowing. Overestimating future home valuesThe housing market's strong performance in recent years has led some homeowners to make overly optimistic assumptions about continued price appreciation. While there's a chance that home equity levels will continue to rise over time, borrowing against your equity with the expectation that rising home values will quickly rebuild your equity cushion is risky.
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