Have you been receiving letters in the mail prompting you to take advantage of the equity reserves on your home? Many homeowners receive letters in the mail stating that their waiting period is soon to expire without having gained access to the equity reserves on their home loan. Unfortunately, a lot of people are unsure what this means and worry that they might be missing out on something important.
Equity reserves is not technically a financial term, but it refers to two separate terms. Equity is the amount your property is worth minus what you owe. Reserves are funds that are typically earmarked for a specific purpose. These letters refer to refinancing your home and are likely to be scams.
Understand exactly what is on the table with these letters before you make any major decisions.
What are Equity Reserves?
Before we can dive into exactly what you are being offered, you need to understand the terminology that is being used. Equity reserves is a term that does not really have a whole lot of meaning. This term combines two common vocabulary words into one to try to make their offer sound more appealing and official.
Equity refers to the amount of money you have invested in your home. Your equity is the amount the property is worth minus what you owe. For example, your home may be worth $200,000. If you only owe $150,000 on the property, then you have $50,000 in equity in your property.
Reserves refer to money that is being used for another purpose. Many people use reserves to make major purchases, pay down their debts, or remodel their homes. In essence, it is money that is set aside or earmarked for a specific purpose.
When you combine the two terms together, they imply that you have some equity built up in your home and that those reserves could be used for a new purpose.
In other words, the person who sent you the letter wants to help you refinance your home. You will receive some of the cashback from the refinance as a reserve that you can use however you see fit. Many people will use it to pay down other debt or to make necessary improvements to their current property.
How Does Tapping into Equity Reserves Work?
There are companies that make their living by targeting homeowners who might be strapped for cash. They send these letters stating that your equity reserves will be expiring soon and that you should take advantage of them while you still can.
Don’t be fooled by this tactic. Lenders are always willing to issue refinance loans to qualifying individuals. You can contact most major financial institutions and mortgage companies to find out if you qualify for a refinance or if you can benefit from this major financial move.
Unfortunately, these letters from scammers that you receive in the mail prompt many people to refinance their home without regard for the consequences. They are blinded by the idea of instant cash, not realizing that it could cost them in the long run.
Many people are taking out 100 percent of the equity on their home and starting over with a brand new mortgage. You get a large sum of cash at closing, but it could put you underwater on your home. If you have a hard time paying your bills right now, taking out a new and higher mortgage on your home is not going to be the solution to your financial woes.
The lender is not looking out for your best financial interests. They are more interested in making money from the interest on your loan and the fees charged to initiate this new loan.
You will be extending your debt by several more years which results in paying more interest on the loan. Imagine paying thousands of dollars in fees just to take out $20,000 worth of the equity in your home. It is a bad investment that could have serious financial ripples for decades to come.
Think Twice Before Responding
By knowing exactly what is being offered in this refinance deal, you can make smarter financial decisions. Equity reserves is a fancy term coined to ensure that homeowners take these letters seriously. However, they could have disastrous financial consequences. Seek out wise financial counsel before deciding to move forward with one of these letters.