Housing is an essential need....we all have to live somewhere. The benefits of home ownership are many and while not perfect, and certainly not a guarantee of massive wealth creation, there is one aspect of owning your home with built up equity is your ability to use that equity wisely.... sometimes it can act as a financial security blanket.
One of the biggest drains on anyone's finances is high interest debt service. Credit card debt is probably the worst offender. The average interest rate on credit card debt is around 21%. Worse, most people pay down this debt without paying it off fully, which means the remaining debt continues to compound. $10,000 in credit card debt at 21% grows to over $67,000 in 10 years compounded.....
Let's assume you are not a crazy over-spender and merely had to charge a big expense to your credit card for an unforeseen essential expense. Instead of charging this to your credit card, you take out a $10,000 home equity loan at a 'bad' rate of 8%. Yes, there also may be some fees attached to this. The difference between that and the credit card rate is about 13%, hence, instead of servicing the debt at an astronomical figure, you pay off the credit card and service the debt via the equity in your home.
Yes, you would still be paying interest on this debt, but at a far, far lower rate.....because you have the ability to do so via equity built up in your home. While the 'cost' is 8%, the fact that you were able to do this is akin to a 13% return (savings in interest payments) on your money....
Building equity over time while servicing an essential need has its benefits.
