Equity: The New Gold

"Buy gold," my friend Richard keeps telling me.

But I have something hundreds of thousands of people in America wish they  had.

I have home equity. Even though real estate values have fallen across the nation. According to the rough, rough, rough estimates of www.zillow.com, our home's value has fallen $140,000 in the last two years.

The good news is that the same source says it's worth $300,000 more than we owe on it.

So our measly home equity line of credit (HELOC) with a $100,000 cap isn't scaring the bank much.

The old rule was that your main mortgage balance (called "first"), plus your HELOC (called "second") could not exceed 120% of the appraised value of the home. So a $200,000 house could have loans against it for up to $240,000. The new rule, as lenders across the nation freeze HELOCs, is around 85%. That same $200,000 home can now collateralize only $140,000 in debt - a shocking difference of a hundred grand!

That's a lot of bedrooms.

Let's say you took out a $200,000 loan five years ago, on a 30-year fixed basis. (I'm not going to divide this up between an equity line and a fixed rate mortgage to reach 100% financing . The principle of loan-to-value [LTV] ratio is the same, regardless of the kind of loans involved.) After paying on that for five years, you still owe $186,000 on it. To be within the 85% allowable loans, you'd have had to pay down to around $170,000, a feat that will take about nine years unless your accelerate your mortgage payoff.

That's what we've done. Our loan is about four years old. And 20% liquidated.

I wrote out our method, and brought in a partner who used the same techniques, then recorded his progress, too. In fact, four home-buyer early mortgage payoff scenarios are compared in a do-it-yourself manual called Let Your Mortgage Make You Rich! The idea is to revolt against outrageous accumulated interest by paying off your mortgage years sooner.

Then a frozen HELOC won't bother you one bit, because your equity will be like gold to you!