Rick Flume, Bankruptcy Attorney

The Dangers Of A Home Equity Loan

The Dangers Of A Home Equity LoanDON’T GET A HOME EQUITY LOAN TO PAY BILLS!

You Can’t Borrow Your Way Out Of Debt.

And, Your Home Is Not An ATM Machine.

Every month I see people losing their home to foreclosure because they’re having trouble paying for their home equity that they got just to pay bills.  The worst part about it is that it could have been avoided.

Getting a home equity loan can seem like a good idea when you’re facing lots of bills and you can get a lower interest rate than what you’re now paying on your credit card debt.  But, YOU CAN LOSE YOUR HOME IF YOU CAN’T PAY THE LOAN!  So, protect your home and say “NO” to a home equity loan.

Consider this: it is next to impossible to get a home equity loan if you’re behind on your credit cards.  That means that only those people that are current on their credit cards and all their other bills are viable candidates for a home equity loan.  In those situations, it is perfectly reasonable for someone in that situation to feel that it is cheaper and easier to make a home equity loan payment than it would be to continue paying credit card debt.  But, it is only reasonable to think a home equity loan is better if you know that your income and/or health will not change during the life of the home equity loan.

Here’s the foundation for the problem: the typical home equity loan lasts 10 to 15 years, and the persons that have home equity to borrow against are typically older.  The next part of the problem is that this older person that is considering a home equity loan ASSUMES that his health and income are going to remain the same for the 10 to 15 years that they will have the home equity loan.

An elderly judge once told me this: “Growing old is not for wimps!”  I have yet to find even one older person that disagrees with that statement.  Why?  Because they know that things change as you get older, especially when your health inevitably changes.

The high number of home equity loan foreclosures each month is PROOF that it is unreasonable for an older person to assume that his economic and health situation is going to remain the same for the life of the home equity loan.

But what about the debt that you want to pay with the home equity loan?  Leave it where it is and pay it off as fast as you can!  Why?  Let’s take a look at credit card debt.  What happens if your economic or health situation changes, and you can no longer pay your credit card debt?  You get harassing phone calls, maybe even sued, BUT YOU STILL GET TO KEEP YOUR HOUSE!  Now, what happens if you get a home equity loan to pay off all your credit cards, and somewhere down the line your economic or health situation changes and you can no longer pay your home equity loan?  Well, you won’t get many phone calls to get you to make a payment, but YOU WILL LOSE YOUR HOUSE TO FORECLOSURE.  Which is safer in the long run?  You be the judge!

Here’s my recommendation:  Protect your home, and say “NO” to a home equity loan!  Besides, you can’t borrow your way out of debt, and your home is not an ATM machine.

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