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Using your home equity wisely

William DesPortesVail CO, Colorado

Its no secret that the past five years brought a dramatic increase in property values to the Vail Valley. This increase in equity, or values, can be attributed to a couple of different factors. First of all, long-term (i.e. mortgage) and short-term (prime rate, car loans, credit cards, lines of credit, etc.) interest rates were at historical lows from roughly 2003-2005. Low rates, or readily available money, helped fuel a housing boom with increased demand for a decreasing supply of inventory. Under these circumstances, there is going to be a price increase no matter what the commodity. In addition, property values in the Vail Valley continued to appreciate, as they historically have, because the Vail Valley is a desirable and profitable place to own a home as a primary residence, second home or investment property. While property values may not appreciate at the rate they did over these five years, I certainly dont anticipate any significant property depreciation. These circumstances lead to the fact that there is a great deal of housing equity in this valley right now.Having equity in your home is indeed a good thing; however, the trick is how to access and use this equity. Unfortunately, you cant just come to my office and say youd like a check for the amount of equity you think you have. The money you put down to buy a house, the principal balance of a loan you pay off and the equity gained from appreciation can only be recouped by selling your home, refinancing your mortgage or initiating some sort of secondary financing (home equity line of credit or a traditional second mortgage). My business specializes in the second and third options. As most consumers are becoming more aware, a mortgage is now an integral piece of ones investment portfolio. A mortgage is no longer simply an instrument used to pay back the bank. The vast variety of loan programs is one of the great things about todays mortgage industry. The nuances of these loan programs are complex and detailed. It requires an educated and experienced loan officer to be able to properly advise clients of the best loan program to meet their needs. With right loan program, equity can be utilized in many different ways.For example, there is a lot of press on the amount of adjustable rate mortgages that are adjusting in the next 12-18 months and the dire financial consequences of such adjustments. Equity can be used as a means of buying down the interest rate on a new mortgage. Equity can also be used to pay a portion of your monthly mortgage payments. This is referred to as negative amortization,” and it is a tricky and complex scenario that is not right for everybody. But every scenario is different, and this could be a short-term solution in some cases.A seller may also utilize their equity in creative ways in order to try and make a transaction work. This could be structured with the seller offering to buy down a potential buyers mortgage interest rate in order to make monthly payments more affordable. This would be accomplished by the seller conceding some of their equity. Do you need more tax deductions? Is the equity in your home the only retirement account you have? Are you building a home, and if so, do you need money to start the construction and sales contract? Equity can be used to address these and many more financial questions and scenarios. Its good to have equity, but in reality, it only exists on paper or in theory. The tricky part of the equation is how you utilize and access the money in your home to make it work for your particular set of circumstances. William A. DesPortes is with DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 970-949-0653 or wdesportes@qwest.net.Vail, Colorado


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