As I was reading the Columbus Dispatch on Sunday, a Chase ad for a Home Equity Line of Credit caught my eye. It advertised variable rates on Home Equity loans as low as 4.99%. At first glance, this looks like it could be great, and in certain situations, probably is. However, if you have any plans to sell your home in the next couple of years, I urge you to give it a lot of thought and here’s why. When you take out a home equity loan, you are in essence, taking the profit out of your home early.
Tony and I have come across quite a few real estate situations in New Albany over the past 12 months where a seller’s first mortgage combined with their home equity credit loan barely equaled the current market value of the home. When you layer in the cost to sell your home, it leaves even less. Again, there’s nothing wrong with accessing a home equity line of credit. Sometimes the interest on these loans is deductible where other types of interest are not. It’s just important to remember that when you do take out the loan, you are spending the equity (or profit) that you may have on your home leaving less net proceeds at sales time.