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Tuesday, November 6, 2007

Utilizing the value in a home's equity

We again welcome Barbara Corcoran with a Q&A on how to best utilize the equity in a home, from her column 'Ask Barbara' in the New York Daily News.

Barbara CorcoranQ&AQ. I plan on purchasing a home and starting a business within the next year. If I take out a loan for $80,000 to start my business, can I still get a loan toward purchasing my house or should I use my house as collateral to get a business loan?

A. Wrap a business loan into your house mortgage. Your payments will be lower, and you’ll have more time to repay. Besides, the rates are cheaper. When most people start a new business, we expect it to take off a lot faster than it actually does.

By giving yourself the cushion of lower payments and more time to repay, you'll be thankful that you never signed up for a short-term business loan with high rates.

Q. I have a home worth approximately $700,000 and I have about $113,000 left on the mortgage. We will be coming into $200,000 in the very near future. Should I pay off the mortgage?

A. Don't you dare spend the cash; sock it away. It's hard for anyone to get their hands on a $200,000 windfall, and if you get it, hang onto it. You’re already accustomed to paying your monthly mortgage, so keep the payments going.

You probably have a cheap interest rate on your remaining mortgage balance, and you can get a much bigger return if you invest your windfall elsewhere.