Your personal finance knowledge will tell you that you can obtain a great rate if you borrow money against your house. It should also tell you that this type of borrowing could be disastrous for you if things go wrong. So, how do you decide whether or not this type of borrowing is a good idea?
First and foremost, check out your budget; if you do not have a budget then prepare one now. Make this a priority. Take the time necessary to ‘bed’ your budget in. That is make sure you have not overlooked anything. If you do it properly, you should know what you will spend and when you will spend for the whole year ahead, at least.
With your budget ready you can now check out how much you will save each month by taking out a low cost loan against your house. Do you want to take this option? Or do you want to increase your repayments in order to pay off your loan faster?
Usually people are looking to reduce their monthly outgoings when taking out a loan such as this. So, think about setting some, or all, of your monthly savings aside as an emergency fund. This will be to protect yourself in case something calamitous happens.
Be aware about the general house prices in your area. If they are rising, you will probably be able to borrow more later on because the equity in your property is increasing.
The obvious risk to borrowing against your home is the possibility of failing to meet your commitments and ultimately losing your home. So take your time planning before you commit yourself. Make sure you have covered every eventuality before deciding whether to accept this risk. Make no mistake it is a risk. You cannot plan for everything; suppose you fall ill, or lose your job. What will you do then?
Your personal finance knowledge will tell you that your home is your most valuable asset. You should not risk this asset unnecessarily.