Experts Warn $35.8 Trillion Home Equity Loans Can Put Borrowers at Foreclosure Risk
Updated
Updated · The Washington Post · Nov 9
Experts Warn $35.8 Trillion Home Equity Loans Can Put Borrowers at Foreclosure Risk
3 articles · Updated · The Washington Post · Nov 9
Summary
$35.8 trillion in U.S. home equity has made home-equity loans attractive, but experts say many borrowers underestimate that the debt is secured by the house itself.
Default can trigger foreclosure even when a homeowner is current on the primary mortgage, because a home-equity loan is a second mortgage with similar consequences if unpaid.
Lower monthly payments can also mask higher lifetime borrowing costs when credit-card debt is rolled into 15- or 20-year repayment terms, especially if borrowers ignore APR, balloon payments or prepayment rules.
Using up equity can leave homeowners with less flexibility to sell, relocate or handle emergencies, and a drop in property values could leave some owing more than the home is worth.
Advisers say the loans work best for borrowers with stable income, a clear purpose and a realistic repayment plan; without fixing overspending, homeowners risk ending up deeper in debt.