I heard that you should keep their equity of your house liquid ( in cash or portfolio investmnets ) ?

Question

I hear the phrase many time" it’s better to be cash Rich and equity poor then Cash poor and equity rich " Everyone recommends taking the equity out of your house and investing it because the market is slipping? They say if your house looses value 20K, you just lost that 20K because you did not pull the money out.....

But what is your "portfolio investment” don't yield as much as you interest on the Home Equity line of Credit? Also what if your house is work 200K, and then you pull that equity and the value drops, then what? Are you upside down?

I simple can't understand the urgency for people to do this unless then are paying down high interest credit cards?

What do you think?

Answer 1

No, not really true. First, real estate is for most people primarily a place to live and secondarily an investment.

When you say "pull the money out", unless you actually sell your house, all you're doing is borrowing money against the difference between what your house might be worth if you did sell and what you still owe. If you do borrow that money and have trouble repaying, or if your equity drops below what you've borrowed, there's a good chance you're going to lose your home. Then, instead of paying down the loan on your home, you're going to be throwing it away on rent.

What most people who are contemplating what you've described wind up doing is wasting the money they get from the home equity line and wind up losing the house instead.

Don't do it unless you know exactly what you're doing.

Answer 2

Someone is veryyyy confused .

You do NOT just get to 'take out equity' .
The lender lets you have it as a LOAN that comes with % that is much higher than your regular mortgage .
Sounds like someone from fantasy land thinks the bank will give you equity cash for nothing .

Your 2nd paragraph nailed it , What if the HELOC rate is higher than the stock market return ?

Never do the HELOC unless you need life saving surgery and you have no insurance .

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Answer 3

You are correct. If you are paying 20% on credit cards that are going to take you 5 years to pay off, for example, you might be better off taking enough equity out of your house at, say 7%, to pay off the credit card debt.

However, to take out equity by refinancing at 7% to invest in a stock market paying closer to 5% on average does NOT make sense, unless you have the ability to make investments that are always returning, say 10%, or better. There is more risk in the stock market than there is in the long term real estate market.

Yes, you certainly could be upside down very quickly in the current real estate market if you bought with little or no money down, as with, for example, an 80/20 loan with the 20% down financed with a short-term variable rate mortgage. (Very dangerous, as people are now finding out.)

Answer 4

You are gambling either way.
And you STILL lose the equity in the home if you take the equity out and the value drops. The lender doesn't just let you walk away with zero repercussions.

Answer 5

I disagree. fairness at your residence is under no circumstances undesirable to have. i glance ahead to the day whilst i don't have a house fee. another undertaking is the guy in many situations giving you the suggestion to money out the fairness and make investments each so often has a vested pastime in you doing so.

Answer 6

I believe the person that made this statement is living in a perfect world as opposed to the one everyone else is living in.