A Low-Fee Way to Tap your Home's Equity

During November's elections, the citizens of several states voted to increase the minimum wage, in order to keep pace with inflation. And nowhere is inflation felt as much as it is by those who took out a low rate adjustable-rate mortgage (ARM) during the past few years. Now that the prevailing rates have jumped 17 times, those attractive ARMs of yesterday are the nightmares of today and the foreclosures of the future.

Refinance with a home equity loan

One smart way to refinance your ARM and avoid high closing costs is to use a home equity loan. Although this method is often overlooked, it represents one of the cleverest ways to beat back inflation without socking it to your piggy bank. The reason it's such a bright idea is that you can take out a fixed-rate equity loan, which will immediately provide the needed relief from adjustable-rate debt. Closing costs on home equity loans are cheap-some banks will even waive them completely-the application process is relatively painless and fast, and if you take out the loan now, you can take advantage of your accumulated equity before it's erased by a sinking housing market.

A year or two from now, property values may be much lower than they are today. But if you've already drawn on your equity with a fixed-rate home equity loan, your real estate gains won't be "paper profits" subject to extinction. They'll already be set aside, ready to pay off your pesky debts, provide investment capital to snap up real estate bargains, or just be there to use as you please. Record numbers of homeowners became temporarily rich while the real estate boom was in full swing; but many of those who sat on their profits have seen them get blown away like roofs in a hurricane. By taking out a home equity loan, you can turn your paper profits into actual paper money, and that can make the difference between dreaming and making your dreams really come true.