Mortgage / Equity

Equity
Home Equity
Mortgage
Home Equity Line of Credit Debt

Everyone who takes out a home equity line of credit needs to remember that they are increasing the debt on their home every time they use a home equity line of credit.

A home equity line of credit balance is a debt that is secured with equity in your home. Just like a mortgage this is money you owe against your home. If you don’t pay off your home equity line of credit debt you could face foreclosure and lose your home.

Home equity line of credit debt is secured with equity in your home. The equity in your home is the difference between the home’s value and the debt on your home. Every time you use a home equity line of credit you increase the debt on your home.

Consequences of Home Equity Line of Credit Debt

The biggest consequence of home equity line of credit debt is that it reduces the amount of equity you can take advantage of. The more you use your home equity line of credit the less equity you will have available.

When you use your home equity line of credit for frivolous purposes such as buying luxury goods or financing vacations and gambling you use up equity you might need for future emergencies. It is even possible to exhaust the equity you have available which means you won’t be able to borrow against your home in the future.

It is even possible for the amount of debt on your home to exceed your home’s value. The amount of debt on your home doesn’t decrease if property values fall. You will still owe home equity line of credit debt even if it exceeds your home’s value. This means you could be stuck with a home you can’t sell because of excessive debt.

In the worst case scenario home equity line of credit debt can lead to foreclosure. Foreclosure means the lender seizes your home and throws you out. A home equity lender does have the right to foreclose if you don’t pay off home equity line of credit debt.

Use Home Equity Line of Credits Carefully

Homeowners should always be careful when they use home equity lines of credit because they are acquiring additional debt. Debt will always have to be paid back at some point in the future.

A good rule of thumb is that a homeowner should only use a home equity line of credit when they know they can pay it back. If a homeowner doesn’t know how they plan to pay a line of credit back they shouldn’t use it.

Homeowners should also limit their home line of credit use to emergencies and home related expenditures. Don’t use home line of credit money for consumer spending or to pay off credit card debt unless you have the income to pay it off. Paying off such debts and expenditures is usually a better strategy than increasing your home line of credit debt.

Only increase your home equity line of credit debt when you’re sure that you can pay it off.

Borrowing Against Your Home

A homeowner should always remember that they are borrowing against their family’s home when they use a home equity line of credit. Never endanger your family’s home by taking out too much home equity line of credit debt.