Home Sweet Home

“I’m living so far beyond my income that we may almost be said to be living apart.” – E.E. Cummings

Much has been written at Sitting Pretty about how people are spending their homeowners equity in the last the few years. Boats and home improvements have been adequately covered. Are you one of the few that still has home equity burning a hole in your pocket?

If you’re like most Americans, then you’ve seen a tenfold increase in the number of refinancing circulars stuffed in your mailbox. Cash-out mortgages offer a short term fix for those who want to pay off a mounting Visa balance, fund that outdoor barbecue station or splurge on a big ticket item like the lastest model plasma TV.

But in these tenuous economic times, we should look at homeowner equity in a different light. Think of it as an insurance policy rather than the proverbial ATM in which to extract cash. Let’s face it: the savings rate in America has dwindle to next to nil. Perhaps it’s time to heed the warnings.

Everyone should have an eight months’ supply in an emergency fund according to experts like Suze Orman. For many people, eight months is a lofty goal. But what if you lost your job or had a health crisis that prevented you from working? When emergency strikes it’s usually too late to develop the contingency plan. Sure there’s disability insurance and mortgage payment insurance but disability only covers a fraction of your income and the latter usually has a laundry list of loopholes like a time period before you get your first payment.

Most lenders will not let you pull out equity if you can’t show income: so do it now! Sure, there are costs associated with setting up an equity line of credit, but it’s money well spent. If you lose your job or get sick, you will be able to pay your mortgage and monthly expenses by tapping equity that’s already been locked in.

Let a piece of your home give you peace-of-mind by saving it for a rainy day.