s any internet stock
investor can tell you, it Borrowing against the equity in a
is no fun to be in a bubble home could leave you in the
when it bursts. While there is uncomfortable and untenable
still considerable debate about position of owing more on the
whether or not the recent run up home than it is worth. Many
in home prices represents a true lenders today will allow
bubble, it is certainly prudent homeowners to borrow 100%, or
for those in the real estate even more, of the value of the
market, whether as homeowners, home. If home prices tick down
investors, or both, to take the even a couple of percentage
necessary steps to protect points, the borrower could easily
themselves against a downturn in find him or herself owing more
housing prices. than the current value of the
home.
> Avoid borrowing against home
equity > Focus on principal repayment
The first important strategy for Closely related to the need to
avoiding the pain of a bubble leave equity alone is to build up
burst is to leave the equity in additional equity. The more
your home where it is. It can be equity you have built up in your
tempting to tap the equity in home the more protection you will
your home to pay off credit card have in the event that housing
bills, put the kids through prices stagnate or decline.
college, or even take that dream Building equity through
vacation. It is best, however, to additional principal payments is
allow the equity to do what it the fastest and easiest way to
was designed to do - help you put as much money in your home as
actually own your home. possible.
payments at the same time the
While this repayment of principal value of the home is declining.
is important for every home If you hold an adjustable rate
buyer, it is particularly mortgage when interest rates are
essential for those people who rising, you could find yourself
succumbed to the wave of interest in just such a situation. And
only and option ARM mortgages. since rising interest rates are
Interest only mortgages can be likely to be one of the triggers
particularly dangerous in a down that deflate the real estate
market, and making advance bubble, this possibility is all
payments on principal is the only too real.
way these mortgage holders have
to protect themselves. > Commit larger down payment
> Abandon risky mortgage loan First time home buyers can be
particularly at risk when there
It can be difficult to maintain is a downturn in the housing
good progress paying down a loan market. That is because many of
if the interest rate is the mortgage loans being written
constantly rising. Dumping those today are being written with
adjustable rate mortgages for the minimal down payments, or
predictability of a fixed rate sometimes none at all. This means
loan is another important way to that these first time home buyers
protect yourself from the have no equity at all in their
bursting of the real estate homes, and if housing prices
bubble. decline they could end up owing
more than the home is worth. That
Think of it this way - there are is why it is important for all
few situations more terrible than first time home buyers to try to
facing rising monthly mortgage muster at least a 10% down
payment on the home they buy. If lead buyers to repeat their past
first time buyer can't afford a mistakes.
large down payment or a
fixed-rate mortgage, the advice The last tip for surviving a
is don't buy and continue potential bursting of the housing
renting. bubble is to think of your home
first and foremost as a place to
> Long term investment live, not as an investment to
retire on. If you think of your
The final step, and this is quite home as a long term commitment,
important, is to take a step back you will be more likely to
from the view that real estate is protect that investment by taking
always a great investment. While the other steps listed in this
it is true that homes have been a article, such as paying down
stellar investment in the past principal, avoiding interest only
few years, this is not always the and adjustable rate loans and
case. Viewing real estate as just leaving the equity in the home
another investment, like the hot untouched.
internet stocks of yesterday, can
About the Author:
Andrew is the web owner of "Buy and Sell House Fast Guide". Is real estate bubble about to burst? Find the answer at his website at: http://www.buy-and-sell-house-fast.com/
Source: www.isnare.com
