Credit Help

The harsh truth of uncontrolled credit spending

Mortgage debt in the United States has increased over the years. Second mortgages accounted for less than 4% of the total mortgage debt at the beginning of the 1980s. It increased to 12% during the 1990s. From the 1090s till this year, it has increased by double digits and it continues to grow rapidly. The easy access to home equity is the main reason for this rise. No other form of credit has seen such rapid rise except the credit card. 

A home equity line of credit is a form of revolving credit in which your home serves as collateral. With a home equity line, you will be approved for a specific amount of credit–your credit limit, the maximum amount you may borrow at any one time under the plan. Many lenders set the credit limit on a home equity line by taking a percentage (say, 75 percent) of the home’s appraised value and subtracting from that the balance owed on the existing mortgage. If you are careful and use a home equity line of credit or second mortgage carefully, you will only benefit from it but if you default on a home equity line of credit or second mortgage, you could risk loosing your home. Many of those who used home equity line of credit or second mortgage recklessly are now finding themselves filing for bankruptcy. Most make the mistake of using home equity to pay of debts like medical and credit card bills. Medical and credit card bills are dischargeable debts, but defaulting on a home equity line of credit or second mortgage can result in foreclosure.

When you own a home and if the home has equity in it, it can be tempting to make use of the equity. Lenders will bombard you with advertisements exhorting you to do so. But once again, remember, if you are not careful, you could loose your home. The present foreclosure crisis has thrown many such homeowners out of their homes. The end to the present crisis seems to be a long way of.