Boston Bankruptcy Attorney

Risks of Home Equity Loans

Home equity loans are considered by many to be a wonderful tool that allows a family to live richly, even when short on cash. They can allow for the re-done kitchen or a new bathroom. The new back deck a family has always wanted can also be part of the deal. Unfortunately, these items can also seduce a family into thinking that they have more financial freedom than they really do.

There are a number of risks of any home equity loan that a family takes out. The biggest risk occurs when the family does not pay the loan back on time. If the loan is not paid back on time, it hurts a person’s credit rating. In addition, defaulting on a home equity loan, like defaulting on a mortgage, can result in a family losing the family home. This is because a person uses his or her house as collateral on a home equity loan, making the home subject to the bank’s control until the loan is paid back.

Another huge risk is that it could result in a person ending up in even more debt than before the home equity loan. Some people take out home equity loans in an effort to pay off their high credit card debts at a much lower interest rate than any bank would ever provide. Unfortunately, many people who have gotten into credit card debt immediately turn around and get back into debt on their credit cards the moment they pay off the balance with their home equity loan. This is not good. It means that a person is in more debt than ever before and also now can lose his or her home if he or she defaults on the loan.

Many people use a home equity loan assuming that the value of the home will increase enough with time that should they get in trouble, they can just sell the house and pay off the mortgage and the home equity loan in one fell swoop. Unfortunately, home values have not been going up as much as they once were. This means that the option of selling the home to pay everything off is not a tactic many people can currently employ.

Contact a Boston Bankruptcy Attorney

If you took out a home equity loan to re-do the kitchen or pay off credit card bills and are now staring a mountain of debt in the face and are contemplating bankruptcy, contact the Boston bankruptcy attorney of Joshua Spirn & Associates at 1-800-975-5346 to discuss your case and to determine your legal options.