Home ownership is the foundation of middle-class wealth. The home equity asset is created when mortgages are paid down. It represents the difference between what your house is worth and what you owe on your mortgage.
African Americans are less likely to own homes than others — fewer than half of all African Americans own their homes, compared with 66 percent for others. With fewer assets, however, we often have more pressure to tap into home equity than others.
I think there are only two reasons for borrowing against home equity:
- True emergencies. Example: You owe the IRS a large sum and home equity is the only way to pay it. Try to negotiate a payment plan first. True emergencies do not include family emergencies, especially those that are repetitive. Cousin Earl is about to lose his home. How many times have you heard that one? Don’t lose your home so he can keep his!
- College assistance for a child who is vested in his or her education. That means a young adult who has good grades, has saved some money for college, and has applied for every scholarship for which he or she qualifies. “Vested” means having some skin in the game. Students need to be willing to take loans out on their own, relying on you for some but not all of their college costs.
Bottom line: Your home equity is part of your retirement savings. It may be your greatest asset. Use it wisely.
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This is the sixth and final in a series of guest blogs by economist, author and commentator Julianne Malveaux.
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