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7 home equity borrowing mistakes new homeowners should avoid now
American homeowners are sitting on a goldmine of equity right now, with the average homeowner having access to approximately $320,000 in home equity currently. This substantial cushion of wealth has many new homeowners considering tapping into their property’s value through home equity loans or home equity lines of credit (HELOCs), particularly as they face major expenses or discover new investment opportunities.
While current home equity borrowing rates — which average 8.41% for home equity loans and 8.52% for HELOCs right now — may seem high compared to the rock-bottom rates of recent years, they still represent a relatively affordable borrowing option — especially compared to other types of lending. With credit card rates exceeding 23% on average and personal loan rates averaging 12.29% currently, home equity borrowing remains an attractive financing solution for many types of homeowners — including those who bought their houses more recently.
However, the decision to borrow against one’s home equity shouldn’t be made lightly, especially in today’s unusual housing market. For new homeowners in particular, several common mistakes could turn this wealth-building tool into a financial burden, and understanding these pitfalls is crucial before tapping into what is likely your largest store of wealth.
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7 home equity borrowing mistakes new homeowners should avoid now
If you’re a new homeowner who’s considering a home equity loan or HELOC, it’s important to avoid these common but costly mistakes:
Borrowing without a clear purpose
One of the most dangerous mistakes new homeowners can make is treating their home equity like a piggy bank for discretionary spending. While home equity can be a powerful financial tool, it should be used strategically for purposes that either increase your home’s value (like home renovations), generate returns (like starting a small business) or consolidate higher-rate debt. Using home equity for vacations, luxury purchases or daily expenses can put your home at risk while providing no long-term financial benefit.
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Failing to consider the total cost of borrowing
Many homeowners focus solely on the interest rate they’re getting on their home equity loan or HELOC without factoring in all the costs associated with home equity borrowing. Aside from the interest rate, borrowers need to consider closing costs, which can range from 2% to 5% of the loan amount, any annual fees tied to their HELOC options and the potential prepayment penalties that can come with this type of borrowing.
Overestimating future home values
The housing market’s strong performance in recent years has led some homeowners to make overly optimistic assumptions about continued price appreciation. While there’s a chance that home equity levels will continue to rise over time, borrowing against your equity with the expectation that rising home values will quickly rebuild your equity cushion is risky. Housing markets are cyclical, and local conditions can significantly impact your home’s value. In turn, it’s important to maintain a conservative equity buffer rather than borrowing the maximum amount available.
Ignoring the impact on monthly cash flow
Taking on home equity debt means adding another monthly payment to your budget. New homeowners sometimes underestimate how this additional obligation will affect their monthly cash flow, especially when they’re still adjusting to the costs of homeownership. So, before borrowing, create a detailed budget that accounts for your existing mortgage payment, property taxes, insurance, maintenance costs and the new home equity payment.
Choosing the wrong type of home equity product
Not all home equity products are created equal, and selecting the wrong one can be costly. Home equity loans provide a fixed rate and predictable payments but require you to take the money in a lump sum and start paying interest immediately. HELOCs, on the other hand, offer more flexibility but come with variable rates that could increase significantly over time. Given these differences, new homeowners should carefully evaluate their needs and financial situation before choosing between these options.
Misunderstanding variable interest rates
With HELOCs in particular, new homeowners don’t always fully grasp how variable rates work. These rates typically adjust based on the prime rate, which means your monthly payments could increase substantially if rates rise. So while today’s HELOC rates might seem manageable, it’s crucial to calculate whether you could still afford the payments if rates were to increase significantly in the future.
Consolidating debt without addressing spending habits
Many homeowners use home equity to consolidate high-rate debt, which can be a smart financial move in many cases. However, this strategy backfires if you haven’t addressed the spending habits that led to the debt in the first place. Without changing these behaviors, you risk running up credit card balances again while also carrying home equity debt, potentially putting your home at risk.
The bottom line
The decision to borrow against your home’s equity should never be made hastily or without careful consideration of your overall financial picture. For new homeowners, taking the time to understand these common pitfalls and how to avoid them can help ensure that home equity borrowing strengthens rather than weakens their financial foundation. Remember that your home equity represents years of investment and financial discipline – treat it with the respect it deserves.
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8 convicted of terrorism charges in teacher’s 2020 beheading in France
France’s anti-terrorism court on Friday convicted eight people of involvement in the beheading of teacher Samuel Paty outside his school near Paris four years ago, a horrific death that shocked the country.
Paty, 47, was killed by an Islamic extremist outside his school on Oct. 16, 2020, days after showing his class cartoons of the Prophet Muhammad during a debate on free expression. The assailant, an 18-year-old Russian of Chechen origin, was shot to death by police.
Those who have been on trial on terrorism charges at a special court in Paris since the end of November were accused, in some cases, of providing assistance to the perpetrator and, in others, of organizing a hate campaign online before the murder took place.
The 540-seat courtroom was packed for the verdict, which marked the final chapter of the Paty trial. Heavy surveillance was in place, with more than 50 police officers guarding the proceedings.
Seated in the front row was Paty’s 9-year-old son, accompanied by family members. As the lead judge, Franck Zientara, delivered sentences one after the other, emotions in the room ran high.
“I am moved, and I am relieved,” said Gaëlle Paty, Samuel Paty’s sister, as she addressed a crowd of reporters after the verdict. “Hearing the word ‘guilty’ — that’s what I needed.”
“I spent this week listening to a lot of rewriting of what happened, and it was hard to hear, but now the judge has stated what really happened, and it feels good,” she added, her voice breaking as tears filled her eyes.
Families of the accused reacted with gasps, cries, shouts, and ironic clapping, prompting the judge to pause multiple times and call for silence.
“They lied about my brother,” shouted one relative. Another woman, sobbing, exclaimed, “They took my baby from me,” before being escorted out by police officers.
The seven-judge panel met or went above most of the terms requested by prosecutors, citing “the exceptional gravity of the facts.”
Naïm Boudaoud, 22, and Azim Epsirkhanov, 23, friends of the attacker, were convicted of complicity in murder and sentenced to 16 years in prison each. Neither can be paroled for two thirds of their term, about 10 years. Boudaoud was accused of driving the attacker to the school, while Epsirkhanov helped him procure weapons.
Brahim Chnina, 52, the Muslim father of the schoolgirl whose lies sparked the events leading to Paty’s death, was sentenced to 13 years for association with a terrorist enterprise. Prosecutors had sought 10 years for him.
Abdelhakim Sefrioui, a Muslim preacher, was given 15 years for organizing a hate campaign online against Paty.
The shocking death of the 47-year-old teacher left an indelible mark on France, with several schools now named after him.
The trial had begun in late November. The defendants were accused of assisting a perpetrator or organizing a hate campaign online in lead-up to the murder.
At the time of the attack, there were protests in many Muslim countries and calls online for violence targeting France and the satirical French newspaper Charlie Hebdo. The newspaper had republished its caricatures of the Prophet Muhammad a few weeks before Paty’s death to mark the opening of the trial over deadly 2015 attacks on its newsroom by Islamic extremists.
The cartoon images deeply offended many Muslims, who saw them as sacrilegious. But the fallout from Paty’s killing reinforced the French state’s commitment to freedom of expression and its firm attachment to secularism in public life.
Chnina’s daughter, who was 13 at the time, claimed that she had been excluded from Paty’s class when he showed the caricatures on Oct. 5, 2020.
Chnina sent a series of messages to his contacts denouncing Paty, saying that “this sick man” needed to be fired, along with the address of the school in the Paris suburb of Conflans Saint-Honorine. In reality, Chnina’s daughter had lied to him and had never attended the lesson in question.
Paty was teaching a class mandated by the National Education Ministry on freedom of expression. He discussed the caricatures in this context, saying students who did not wish to see them could temporarily leave the classroom.
An online campaign against Paty snowballed, and 11 days after the lesson, Anzorov attacked the teacher with a knife as he walked home, and displayed the teacher’s head in a post on social media. Police later fatally shot Anzorov as he advanced toward them, armed.
Chnina’s daughter was tried last year in a juvenile court and given an 18-month suspended sentence. Four other students at Paty’s school were found guilty of involvement and given suspended sentences; a fifth, who pointed out Paty to Anzorov in exchange for money, was given a 6-month term with an electronic bracelet.
Sefrioui, the preacher on trial, had presented himself as a spokesperson for Imams of France although he had been dismissed from that role. He had filmed a video in front of the school with the father of the student. He referred to the teacher as a “thug” multiple times and sought to pressure the school administration via social media.
Some of the defendants expressed regrets and claimed their innocence on the eve of the verdict. They did not convince Paty’s family.
“It’s something that really shocks the family,” lawyer Virginie Le Roy said ahead of the verdicts. “You get the feeling that those in the box are absolutely unwilling to admit any responsibility whatsoever.”
“Apologies are pointless, they won’t bring Samuel back, but explanations are precious to us,” Le Roy said. “We haven’t had many explanations of the facts.”