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Be Cautious When Using Your Nest Egg as an ATM

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If your home truly is your nest egg, be smart about how use its equity.
Make sure that it fits in with your overall financial plan and golas.
Otherwise, you could be left without a nest and just the egg!


Article Body:
About five years ago I moved from the ranks of being a renter to that of
being a homeowner. Now, not a week goes by that I don’t receive some
type of offer through the mail encouraging me to refinance my mortgage,
open a home equity line of credit (HELOC), or apply for a home equity

Payoff High Interest Credit Card Debt! Lower Your Monthly Payments! Buy A
New Car! Refinance And Get Money Now! scream the slogans splashed across
the envelopes.

The promotional letters inside point out how easy it will be for me to
“get the extra cash you need NOW!” They promise “no out of pocket costs”
with a newly refinanced 30-year loan.

Could I use some extra cash NOW? You bet I could! Who needs high
interest credit card debt? Not me, no way, no how! Buy a new car? Hmmm, I
like that new Pontiac G6 I’ve seen on tv, maybe in a sleek titanium color
with black trim?

For thousands of U.S. households “Home Sweet Home” is rapidly being
replaced with a new sentiment - “Home Sweet ATM.” According to the
latest Federal Reserve study, 45% of homeowners who have refinanced their
mortgages pulled cash out and 74% wound up lengthening their mortgage by
about six years. Only 17% shortened their loan term opting to downsize
to a 15-year mortgage.

In a period of six years, Americans have more than doubled the amount
owed on home equity loans and lines of credit, nearing $766.2 billion,
according to the Federal Reserve.

If you’re in your 40’s and you refinance on a new 30-yr. loan, you’ll be
in your 70’s by the time your loan ends. Even if you shave off a few
years by paying down your principle, you’re still risking not owning your
home “free and clear” as you approach retirement age.

What happened to the era when your home was considered your nest egg to
be used only for life-threatening or life-changing events like paying for
a child’s wedding or for a medical emergency? And worst of all, many new
homeowners are using their home’s equity as another source for financing
new debts.

Think twice before using home equity to pay off credit card balances. If
you’re already overspending on your credit cards now, what makes you
think anything will be different after you pay them off with a loan or
line of credit? Many people just wind up deeper in debt or facing
bankruptcy because they couldn’t resist charging their cards up again.

Keep this in mind before tapping your home’s equity - Your loan or HELOC
is secured by your home. Default on the loan and you could lose your
house, even if you declare bankruptcy!

The best use for home equity is to make improvements that add value to
your home. Remodeling a kitchen or bathroom, adding an extra room or
creating a master suite are just a few of the “hot” improvements that can
really pay off when it comes time for you to sell.

If your home truly is your nest egg, be smart about how use its equity.
Make sure that it fits in with your overall financial plan and golas.
Otherwise, you could be left without a nest and just the egg!

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