4 Traps with Home Equity Loans

Here are 4 ways disaster can sneak into your otherwise well set out mortgage plan:

  1. If you borrow against your equity to tidy up credit card and other debts, and then run up further credit card expenditure, it will leave you with twice the debt – the equity on your home and your credit cards.

  2. Don’t look on the extra loan from home equity as a permanent debt that can be wiped off in the future when the house is sold. This is because the urgency is taken away and the temptation to spend has not been dealt with. If the debt is in the form of a credit card balance, there is more urgency to clean up the debt.

  3. The easy availability of home equity for borrowing money can be a temptation, leading you into more trouble and into bondage. You may be tempted to use the money for a vacation or other purposes that do not increase value, but depreciate value. (That is, if you put the money into property, which has growth in value, at least the debt is a good debt. If you put the money into an overseas holiday for the family, there is no increased value. This type of use is not good use.)

  4. Keep in mind that if you cannot keep the payments up on both your mortgages (i.e. your first mortgage plus your home equity mortgage) then either of the lenders involved in the two mortgages can foreclose, and you will lose everything.

© 2005 StartRunGrow

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