Senseless Ways to Use Your Naples Home Equity

Like many areas around the country, Naples home values increased tremendously over the last couple of years. In turn, this may have caused you to consider cashing in on some of that equity. Last week, I discussed smart ways to utilize the equity in your home. This week, I want you to know about the flip side of that coin: what you shouldn’t use your Naples home equity to fund.

While there are good ways to use your Naples home equity, there are also some bad reasons to use it. Avoid them at all costs.

Senseless Ways to Use Your Naples Home Equity

Automobile Purchase

Search homes for sale in the Naples/Marco Island areaLately, you’ve been desperate for a new vehicle. You managed to rack up over 150,000 miles on your 10-year-old car and would really like to trade it in on something new. Should you use the equity in your Naples home to purchase a new automobile? No. If your credit is decent, you may end up with a lower interest rate on your car loan than you would on a home equity loan. Plus, car loans only run five to seven years. On the other hand, home equity loans extend out anywhere from 20 to 30 years. During that time, you pay thousands of dollars more in interest. If you can’t afford the higher payment on the shorter terms of a car loan, you might not be ready to take on the expense of a new car yet.

Stock Market Investing

It might be tempting to take some of your home’s equity to invest in the stock market. Over the long term, stock market investing tends to be a viable way to create a nice nest egg. However, it can also be a bumpy ride, with extreme highs and lows along the way. (Remember the huge crash of the mid-2000’s?). Besides, the interest you pay on your equity loan eats into any profits you make. Plus, if your investments fail, not only do you lose the money you invested, but you also face the very real possibility of losing your home in the process.

Dream Vacation/Wedding

A three-week European vacation. You or your child’s dream wedding. A Boston Whaler Conquest. All of these come with huge price tags. But you can afford it…if you tap into your equity. Stop! Like stock market investing, you run the risk of losing your home if you can’t pay back the equity loan. Instead, divert a specific amount of money each paycheck to a special vacation/wedding/other luxury expense account. Save up over time and you pay no interest in the process. Plus, your equity may likely increase during that time period. Bonus!

Funding Your Lifestyle

Finally, never use your equity as another stream of income. If you need to dip into your equity in order to fund your lifestyle, consider scaling back on a few unnecessary expenses instead. When you look at where your current income goes, you will most likely find several places you can cut or eliminate spending to help alleviate some of your financial burdens. That’s a much smarter move than depleting your equity.

Michelle Thomas, Premier Sotheby’s International Realty, Luxury Naples/Marco Island Homes & Condos