Home » Finance » Debt Consolidation

Home Equity Debt Consolidation in a Crashing Housing Market

Aug 17, 2007
One of the most common ways to consolidate debt is to take out a home equity loan. The idea is that by leveraging the existing equity in your house, you'll be able to lower your monthly payment on other types of loans and save money on the interest.

While borrowing against your house is one of the cheapest ways to borrow money, it is still a risky proposition.

Most people are use to the prices of houses increasing. Over the long term a house will appreciate in value, but over the short term that isn't always the case. Lets look at a hypothetical example of how someone might use a home equity loan as a consolidation mechanism.

Lets assume you buy a house for $125,000. Over the years you pay the mortgage down to $75,000 and the house appreciates to $150,000. Many banks will let you take the $75,000 in equity and borrow against it. So lets assume you take out a $75,000 home equity loan and use it to pay off your two cars and your credit cards.

Everything seems great, you have a lower payment and the bank gives you a good interest rate because you are just borrowing against the equity in your house.

Now lets assume that your area has a problem where several large employers go out of business or have massive layoffs. Your company is one of the ones that disappears. You find a job half way across the country that pays a little less than your previous job and put your house up for sale.

Unfortunately everyone else is putting their house up for sale as well and your house is now only worth $100,000. This isn't a big deal because you only owe $75,000 right? Wrong, you also took out that $75,000 home equity loan. So if you are able to sell the house for $100,000 you will still owe $50,000. So basically you can't sell your house until you can come up with $50,000. If you used the home equity loan to buy things that still have some value, you might be able to sell those things (cars, etc.) to help you get out of what you owe on your home, but chances are you consolidated debt that included consumer living expenses.

Debt consolidation using home equity is still a viable option and for many it is the cheapest easiest way to get rid of high interest loans. However, it is important to understand the risks involved and have a plan in place to handle a potential job loss that forces you to relocate.
About the Author
Please visit Debt Consolidation blog to find out more about debt consolidation in a downward housing market and other debt consolidation topics.
Rating:
Please Rate:
(Average: Not rated)
Views: 145
Print Email Report Share
Article Categories
    • Artists
    • Gambling
    • Humanities
    • Humor
    • Movies
    • Music
    • Photography
    • Tattoos
    • Television
    • Classic Cars
    • Motorcycles
    • Recreational Vehicles
    • SUVs
    • Trucks
    • Vans
    • Branding
    • Business Opportunities
    • Careers and Jobs
    • Corporate
    • Customer Service
    • Direct Mail
    • Entrepreneurship
    • Ethics
    • Financing
    • Franchising
    • Home-Based Business
    • Human Resources
    • Import and Export
    • Leadership
    • Management
    • Market Research
    • Marketing and Advertising
    • Negotiation
    • Network Marketing
    • Networking
    • Organizational
    • Presentation
    • Project Management
    • Public Relations
    • Small Business
    • Strategic Planning
    • Team Building
    • Telemarketing
    • Training
    • Data Recovery
    • Databases
    • Games
    • Hardware
    • Networks
    • Operating Systems
    • Programming
    • Security
    • Software
    • Spyware and Viruses
    • Ask an Expert
    • College and University
    • Home Schooling
    • K-12
    • Languages
    • Online Education
    • Psychology
    • Coffee
    • Cooking
    • Gourmet
    • Recipes
    • Wine and Spirits
    • Acne
    • Aerobics
    • Alternative Medicine
    • Beauty
    • Cancer
    • Cosmetics
    • Depression
    • Diabetes
    • Diseases and Conditions
    • Fitness Equipment
    • Fitness
    • Hair Loss
    • Heart Disease
    • Medicine
    • Men's Health
    • Muscle Building
    • Nutrition
    • Skin Care
    • Supplements and Vitamins
    • Weight Loss
    • Women's Health
    • Yoga
    • Arts and Crafts
    • Babies
    • Collecting
    • Elderly Care
    • Genealogy
    • Hobbies
    • Parenting
    • Pets
    • Pregnancy
    • Woodworking
    • Feng Shui
    • Gardening
    • Home Appliances
    • Home Security
    • Interior Design
    • Landscaping
    • Affiliate Programs
    • Article Marketing
    • Auctions
    • Audio
    • Banner Advertising
    • Blogging
    • Broadband
    • Domain Names
    • E-Books
    • E-Commerce
    • Email Marketing
    • Ezines and Newsletters
    • Forums
    • Internet Marketing
    • Link Popularity
    • Pay-Per-Click
    • Podcasting
    • RSS
    • Search Engine Marketing
    • Search Engine Optimization
    • Security
    • Social Media
    • Spam
    • Video
    • Viral Marketing
    • Web Design
    • Web Development
    • Web Hosting
    • Copyright
    • Cyber Law
    • Intellectual Property
    • National, State, Local
    • Patents
    • Regulatory Compliance
    • Trademarks
    • Buying
    • Selling
    • Baseball
    • Basketball
    • Boating
    • Cycling
    • Extreme Sports
    • Fishing
    • Football
    • Golf
    • Hockey
    • Hunting
    • Martial Arts
    • Running
    • Scuba Diving
    • Soccer
    • Swimming
    • Tennis
    • Dating
    • Divorce
    • Marriage
    • Weddings
    • Astrology
    • Buddhism
    • Christianity
    • Faith
    • Hinduism
    • Islam
    • Judaism
    • Meditation
    • Metaphysical
    • New Age
    • Cable and Satellite TV
    • Cell Phones
    • Communication
    • Gadgets and Gizmos
    • GPS
    • Satellite Radio
    • Video Conferencing
    • VoIP
    • Addictions
    • Coaching
    • Goal Setting
    • Motivational
    • Stress Management
    • Time Management
    • Clothing
    • Electronics
    • Fashion
    • Gifts
    • Jewelry
    • Causes and Organizations
    • Environment
    • History
    • Holidays
    • Men's Issues
    • Nature
    • Philosophy
    • Politics
    • Women's Issues
    • World Affairs
    • Air Travel
    • Camping
    • Cruises
    • Destinations
    • Outdoors
    • Article Writing
    • Book Reviews
    • Copywriting
    • Fiction
    • Non-Fiction
    • Poetry
    • Quotes
    • Screenplay
    • Tools and Resources