It’s a Slow Market … and a Bad Time to Take Out a Florida Home Equity Loan?
There’s no debating the fact that this is a slow Florida housing market. Homes values are not increasing as they were just a few years ago.
Such a lack of price appreciation comes into play for those thinking about selling their property - and those considering a Florida home equity loan.
In general, home equity loans are considered “smart debt.” How come? Because interest rates are lower than they are for most other kinds of consumer credit; they may also be tax-deductible. However, if you borrow the maximum amount and a soft housing market significantly reduces the value of your home, you could end up owing more than your home is worth.
Therefore, you need to be cautious when thinking about the pros/cons of these Florida home loans. Consider both long and short-term effects.
A housing market on the decline could tip the scales in favor of a fixed-rate home equity loan rather than a home equity line of credit, which generally has a variable rate. The variable rate will rise with other factors such as the prime rate, which will increase the cost of your credit over time. Moreover, with a loan rather than a line of credit, you won’t be tempted to keep tapping into that credit and possibly get in over your head.
Being conservative in taking out any loans - using the money for safe investments such as home renovations or your children’s college education - becomes even more important when the housing market is slowing.
A slow housing market is not a good time to borrow more than 75 percent to 80 percent of your home’s equity (its appraised value minus what you owe on your Florida mortgage). A high loan-to-value ratio puts you at more risk if a job transfer or other personal situation forces you to sell the house: in a slower housing market, you might not get a high enough price to pay off both the mortgage and the home equity loan.
Just keep all these issues in mind. As long as your cautious about the amount you take out, this resource could still deliver the dividends you’re looking for.
