Home Equity Borrowing - Keep Your Powder Dry

It's trite to say, but it's true that a person's most important financial asset is usually his or her house.

Over time it has proven a formidable weapon to increase the asset of the owner since it's both used as a shelter to live-in, and as a nearly recession proof security that, like fine wine, gets better with age.

But, and there is always a but, to succeed in amassing a net worth, one needs a minimum of discipline.

Because real estate has a tendency to follow and surpass the inflation rate it is easy to fall for the siren songs of financial institutions who offer ready and sometimes needed cash in exchange for a mortgage on the property.

Why pay exorbitant credit card interest rates when one can borrow on the equity on one's house, and pay sometimes a third of the interest that the shylocks in the credit card business charge? True, but one will not increase his or hers' net worth by piling on mortgages on the property. There will always be people who will try to entice you to live better now, to live it up and tap your equity so you can pay for the doctor, for a trip or a car, and keep your credit card credit for unscheduled expenses. It's true, it can be done and it's easy but one has to realize that a mortgage should be used for long term asset building projects, not to pay the groceries.

So be careful with your lifestyle and if you decided some time ago to invest into real estate make sure that you end up building a nice nest egg that will increase your security and not an anchor that will sink you rapidly if you lose any margin of financial maneuvers.

These are trying times in the real estate world for those who have overextended themselves. Sometimes the net worth is just not there and the financial institutions have thousand of units that are so heavily mortgaged that the owners don't see any point in continuing to pay for the cost of the loan. Those poor souls simply end up giving the lenders the keys to their homes. Sad, Sad.

But it happens all the time, and years of efforts sometime go whiff into the air and there is little precious to show for the struggle to purchase and upkeep and devote oneself to making the house a home.

So be vigilant and keep your powder dry!

Gilles Martin is a Real Estate Agent, accomplished Entrepreneur and long-time businessman. His articles can be read on Musings of a Real Estate Agent.