By Mike Tizzano
Fairway Independent Mortgage Company

Over the past several years, the North 32nd area has seen a major increase in home values. Per Zillow, we’ve seen increases of more than 7 percent just the past 12 months. That means residents that have owned their homes for a few years are potentially sitting on a pretty good amount of equity.

I recently received a call from a client that had fallen into a bind. At no fault of their own, they had been temporarily forced to rely heavily on their credit cards. While the situation that led them to do that was rectified, they were finding themselves barely staying afloat with their monthly bills. This became a bigger issue with the recent storms causing major damage to their roof. We were able to look at their mortgage situation and decided to do a cash-out refinance, paying off all of their other bills and the roof. In this situation we were able to save them over $400 per month and save them from going further into debt to pay for their roof.

The situation discussed above is one of the few instances that I personally would recommend doing a cash-out refinance on your home. It is my humble opinion that your home’s equity should be the last thing you access when funding is needed. One of the issues prior to the housing crisis in 2007 was that people were accessing their over-inflated home values for impulsive purchases. Here are some reasons that accessing your home’s equity could make sense:

1. Debt consolidation:
It doesn’t always make a lot of sense to wrap other debts into your home. However, in instances such as the story above, it was the most sensible option but ONLY if they don’t go back to over-utilizing their credit cards again. Otherwise, the fact that they have exhausted their home’s equity could come back to haunt them.

2. Home Improvement:
Utilizing some of your home’s equity to pay for repairs or improvements can be a good idea as doing so may increase the home’s value. It is important to understand what types of improvements add value to the home. For example, adding an in-ground swimming pool rarely adds dollar for dollar value so it is probably not a good idea to do so if you are not planning to remaining in the home long term.

3. Paying for your child’s education:
Hopefully your high school student is doing well enough to earn a scholarship. If they aren’t, it might not be a bad idea to use home equity to pay for their higher education. As a mortgage lender I see time and time again where student loan debt inhibits home ownership for younger buyers.

In short, there are reasons to cash-out equity. These do not include purchasing luxury items, vacations, and things of that nature. If you’re considering accessing your equity be sure to discuss the sensibility with a professional that is more interested in helping you than closing a sale.