emergency funds
Question: What ever else you do in life, please don’t follow this advice. Borrowing against your home when you’re out of a job should be a last resort. CD returns are pitiful, but they are safe and the money will be there when you need it.
Answer: Did I not say “relying on an occasional home equity loan for emergencies”?
So where do you suggest saving for/getting emergency funds? Saving in savings accounts and CDs where returns are typically less than 1% after taxes, almost guaranteeing that you lose (particularly vs. inflation). If that money is used to pay down mortgage, you can have the same (actually much greater due to greater returns) rainy day fund available by effectively making (saving) 4+% if you itemize and 6+% if you use a standard deduction. As I pointed out, the home equity should only be used for rare emergencies, but I’ll add one more use – to finance a car – provided you itemize. A deductible home equity loan is usually much cheaper than a typical car loan.
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Filed under: Home Equity Loan
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