Written by The answer to this question, like most other questions in the real estate and mortgage industries, depends on your personal situation and goals. CoreLogic, a widely trusted and reputable information gathering and analysis company, reports that those who took out a home equity line of credit or second mortgage are twice as likely to be underwater on their loan, compared to someone who did not take money out of their property. This is not to difficult to agree with, as the more you owe on your home, the less equity you have, and the closer to that negative equity zone you are. When the market began taking a downturn, those who took money out were the first to enter the negative equity zone. Let’s take a closer look at what happened to those who did not take any money out of their homes.
For those that did not take any money out of their home, there are pros and cons. The positive side is that you owe less on your house than if you were to take money out. This means that you are (according to CoreLogic) twice as likely either still be in the green, or closer to it, than if you would have borrowed against your home equity when it was available. Once the market begins to go back up, you will be in a more advantageous situation, and see more equity.
The negative aspect of this is that, for those who had significant equity in their home, the equity is now lost. Now money that was once available to you is no longer there. Those who took money out of their homes may now owe more, but at least they have immediate access to the cash they took out before the decline in the market, money that can be spent on home improvements, bills, investments, and the like. Markets always tend to bounce back; we have been through several different recessions in the past. Unfortunately, the declines in home values we have seen this time out weigh those seen in even the Great Depression! The question becomes: How long are you going to have to wait until your home reaches a value that allows for you to put the equity in your home back to work for you?
In either case, it all depends on what your goals are with your home. For those who have no intention of moving, then the decline in home values was not a problem, and they probably would have fared better by taking out their home equity when it was available to them. For those who plan on moving in the near future (three or five years), then taking money out of your house was probably a poor decision, but one that simply requires time and patience while waiting for the markets to correct.
Make sure you check back here in the next week to look for part two of this article, where we discuss the pros and cons for those who actually did take money out when they had equity in their homes.
