As investors get tired of the unreliable stock market, the idea of investing in real estate seems to be getting more and more popular. Many investors think that real estate is a good way to save for the future because, in the medium to long term, it will do better than cash, fixed-interest deposits, and other investments. About 40% of all homes sold in the United States are second homes. A recent annual report from the National Association of Realtors (NAR) says that 27.7% of all homes bought in 2005 were bought as investments and 12.2% were bought as vacation homes.
If you want to buy an income-producing property or a vacation home, it is usually better to cash out the equity in your home than to move money from other investments that are doing well. If you've had your mortgage for more than five years and your interest rate is lower than the market rate, you might be better off with a home equity loan than with a mortgage refinance. And a home equity line of credit (HELOC) might be the best way to buy a second home or make other investments in real estate.
HELOCs are different from home equity instalment loans in that there are usually no closing costs (HEILs). HELOCs usually have lower interest rates than credit cards or instalment loans. They also have a lot of features and ways to pay them back, such as: #!# The option to pay only the interest on a loan (based on the prime rate1 plus a fixed margin). #!# You can choose to pay only the minimum, or you can pay down your balance and have that money available for future repairs. #!# You can choose a loan term of 10, 15, or 25 years, and you can extend the equity line of credit instead of getting a new loan if you still owe money at the end of the term. #!# You can borrow up to 100% of the value of your home and only pay interest on the amount you use. Credit lines between $20,000 and $250,000.
A property portfolio can add to your retirement income through long-term capital gains, assets that go up in value, and cash flow from rent. Also, you can usually deduct all of the interest you pay on a home equity line of credit (up to a maximum of $100,000), as long as the loan doesn't go over the fair market value of the home minus the amount still owed on the mortgage.
The Wall Street Journal publishes the prime rate every day (but not the Weekend Edition of The Wall Street Journal).
