How a HELOC can Save your Home

The lifestyles of the rich and famous aren’t as appealing these days, as the mortgage crisis takes its toll on the well heeled. The face of foreclosure is now being represented by celebrities, such as actor Nicholas Cage, overspending real housewife Teresa Giudice, and rapper Chamillionaire, who’s doing the cha cha away from his mortgage obligation. More than one in seven homeowners with properties worth in excess of $1 million are delinquent on their loans.

Preparing for emergencies   

These celebrities have learned that, ultimately, there’s no security in life. Less celebrated Americans, who are struggling to meet their mortgage payments, are experiencing that, too. People who believed their jobs were safe were shocked to find pink slips on their desks. When companies need to cut back, everyone’s expendable, no matter how valuable you know you are.

If you’re currently in good financial shape and have equity in your home, you can ensure that you’ll never have your property taken away. The following two steps can help you control your financial and homeownership destiny, no matter what calamity heads your way.

Creating financial security

The first step is to fund a savings account that contains a minimum of six-months of living expenses. Do it when you’re working and money is flowing freely. You may need to forego vacations or a new car, but if you lose your job, you won’t be able to afford those things anyway. Keep these funds liquid, in a savings or money market account, so you can have immediate access. You could use a CD, but if you withdraw before maturity, you’ll pay a penalty. Sure it’s small, but if you’re cashing in a CD to make ends meet, every dollar counts.

If you lose your job, these funds will serve as “income” until you’re back on you feet.

Help from HELOCs

A home equity line of credit (HELOC), is a line of credit taken against the equity in your home. Banks will generally let you borrow up to 80% of that amount. Application fees are low, and applying can be done online. You only pay interest on the money you borrow, and you can pay it back at any time without penalty.

Why is a HELOC a lifesaver?  If you lose your job, you can draw on it to cover expenses, including your mortgage payment. This will buy you the necessary time to get a new job, refinance, or do a mortgage modification, free from the fear and pressure of losing your home. When you get back on your feet, you can pay the money back on a schedule convenient to you.

It’s fun to dream about the lifestyles of the rich and famous, but if they’re living frivolously, they’re not good role models. Instead of daydreaming about what life would be like if you were rich, spend your days funneling money into a savings account, and apply for a HELOC. In the end, you may not be rich, but you will be the person who has a home.