Here We Go Again

A recent article in The Wall Street Journal indicated that banks have become more aggressive in pursuing home equity loans.  According to new data from mortgage data firm CoreLogic Inc, lenders extended just over $156 billion in home equity lines of credit in 2015, the largest dollar amount since 2007, the beginning of the housing bust.

While there may be some instances where a carefully considered home equity loan, with a clear path to repayment, can make sense, using the equity in your home as an ATM machine is a recipe for financial disaster.

If you max out your ability to borrow against your equity, the loss of a meaningful equity cushion, combined with a change in your personal financial situation, such as lay off or job loss, can quickly escalate into losing your home.

Thoughtful long term financial planning should be based on the accumulation of unencumbered assets.  Using your home as an ATM machine is, in many respects, the same as borrowing against your investment portfolio.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®