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The Real Deal
High home values help seniors tap a nest egg
Home equity lending has given average Americans from all walks of life access to mainstream credit markets for the first time in history. However, that opportunity also carries responsibilities, especially for senior citizens.
The elder population has built up a great deal of equity from the time they purchased their home, often decades ago. With the astronomical prices of the recent real estate market, many people who have lived in their homes for a long period of time are sitting on a virtual gold mine. The ability to tap into the equity is appealing for those who need to update or remodel, explore alternative living situations or supplement income.
The National Home Equity Mortgage Association (NHEMA) urges seniors and others considering a home equity loan to protect themselves by following these 10 tips:
* Borrow within your income and budget. While a home equity loan is a great tool, it is still a major financial undertaking. Make sure you will be able to make your monthly payments on a timely basis, in addition to your current obligations.
* Borrow for necessities and to take advantage of lower rates. NHEMA does not recommend taking out a home equity loan to finance a luxury item or trip.
* Don't refinance too frequently. Be aware that refinancing your loan may mean having to pay closing costs and fees again.
* Beware of door-to door sales. An offer that seems too good to be true probably is. Research your lender thoroughly and consult a financial advisor. It is usually better for you to make the initial contact with a lender or home improvement contractor.
* Know what you're signing. Read everything carefully and do not sign a loan agreement until you are aware of all your financial obligations. NHEMA suggests consulting with a financial advisor before signing any loan agreement.
* Don't sign blank documents. Make sure that you only sign a complete and final loan agreement. Don't let someone "take care of things" for you.
* Don't be pressured. If, for any reason, you are unsure about the terms or any other aspect of the home equity loan, take the time to review it and ask questions.
* You can change your mind. Even after you have signed the loan agreement, you have up to three days to change your mind and void it.
* Shop around. The best deal isn't always the first one you find. This is a big decision, so go to a couple of lenders and compare terms.
* Complain if you think you've been cheated or treated improperly. Trust your instincts. If you feel something is not quite right, then speak up.
The National Home Equity Mortgage Association and its members are committed to promoting ethical lending practices, educating consumers and protecting the rights of borrowers. Additional information is available at www.borrowsmart.org, NHEMA's resource for consumer information about home equity borrowing and smart money management. Free consumer brochures are also available through the BorrowSmart website, or by calling NHEMA directly at 1.800.342.1121.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Ask Your Realtor, c/o SILVAR, Los Altos District, 345 San Antonio Road, Los Altos, CA, 94022; call 650.949.9115; or send email to ppompei@siliconvalley-realtors.org.
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