Home Equity Debt
Are you risking more than you realize?
Your home is worth much more than what you owe on it. Your equity has built up. You have many credit card bills. But, you have been receiving many offers through the mail to use your equity to pay of your debt, such as:
Pay off your bills!
Clear away your credit card debt!
Turn the equity of your home into cash!
You’re advised that you qualify to receive a large amount at a low interest rate. You’re also told that you’re eligible for a tax advantage that is unavailable with other types of loans. You start to think, what a great idea! Finally, a way that credit cards will be paid and even have enough left over to take that special vacation! Interest rates are low, so why not?
Keep in mind that your home is most probably your greatest single asset. These types of loans require that you use your house as collateral. Therefore, if for some reason you get behind in your payments, you have a good chance of loosing the roof right over your head. That’s why, if you do choose this type of debt, it should be for a necessity, not to enhance your lifestyle.
Differences between Home Equity Loans and Home Equity Lines of Credit
A Home Equity Line of Credit is a revolving line of debt. The lender specifies the maximum amount you can borrow. You decide any amount up to that limit. Most of them come with a variable interest rate.
1. To get the loan, you also have costs similar to when you first took out your original
mortgage: application fees, title search, another appraisal, points and of course attorney
fees. You know how these can add up!
2. Home equity loans give you easy access to cash, so you might have a tendency to
borrow more than you absolutely need.
3. If you sell your home, you probably will have to pay off your full credit line at once,
leaving you with hardly any equity.
4. Especially during these times, no employment is guaranteed. It’s one thing when you
can’t pay your credit card bill and they take away your credit cards, but another when
you can’t pay your equity loan and they take away your house.
Try to explore other options such as borrowing from credit lines that don’t use your home as collateral. The interest rate may appear to be higher, but since you won’t have to pay the fees that are required with equity loans, it might even be cheaper.
Information for this article
was obtained from the Federal Trade Commission. The FTC works for the consumer to prevent fraudulent, deceptive
and unfair business practices in the marketplace. www.ftc.com