Count the costs

Personal Finance | Extracting cash from your home should not be done frivolously | David Bahnsen

"Doom and gloom" reports of the U.S. housing crisis are unavoidable these days. My own economic perspective is that the present housing price correction was not only inevitable, but, from the vantage point of many soon-to-be first-time homebuyers, is very welcome news. The present housing situation and its cousin, mortgage financing, have provided the catalyst for an important discussion for believers: What should our home mortgage borrowing look like?

The most common occurrence in the last five years was for homeowners who had built up a great deal of equity to extract money from their homes by either doing a "cash out refinance" or by opening a Home Equity Line of Credit (HELOC). A "cash out refinance" involves replacing your current mortgage with a brand new mortgage, usually at a lower rate (a good thing), and at a higher dollar amount (not usually a good thing). The difference between the new mortgage amount and the old mortgage amount represents the amount that was "cashed out."