Financing Your Business With Home Equity
MSNBC:
Here are the things you should discuss with a trusted financial advisor before tapping into your home equity:
* Will your investment deliver a greater after-tax return than you’ll be paying for the loan?
* Does your home equity loan or line carry an adjustable rate? If so, a jump in interest rates may make what you owe even more expensive and further offset any gains you make in your investment. If rates fall, it’s good news, but given current conditions, it makes sense to be cautious.
* How much is property appreciating each year in your neighborhood on average? Is it enough to further offset the cost of your investment? Keep in mind that no one is predicting the type of double-digit property appreciation we saw before 2004.
* How will this loan work for you from a tax perspective? Keep in mind that interest on home equity loans is generally not tax-deductible if you aren’t using the debt to buy or renovate a property.
* What if you need your home equity borrowing power later for an emergency-the real reason most of us should open a home equity line and then avoid using it? Could you handle that emergency if your borrowing was strained to the maximum?
* How liquid is this investment? If you had a sudden major expense, could you turn it into cash without major hardship?
* How much other debt do you have? Do you have significant balances on credit card or auto debt? That may raise the rate you pay on your loan-another potential cut in your investment profit potential.
* From a cash flow perspective, will you be able to service the debt-make the loan payments-assuming your investment using the home-equity funds doesn’t work out?
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