Using value of home to pay off debt can be risky
By Mary Challender
Des Moines (Iowa) Register
Taking out a low-interest home equity loan to pay off high-interest credit cards can look like a brilliant idea — until the day you can't pay your mortgage.
This is happening to a growing number of Americans. While still low, mortgage delinquencies have increased sevenfold over the past three years, rising to 0.43 percent during the third quarter of 2001.
Financial counselors blame the surge on the growing number of homeowners using home equity to pay off other debts.
About two-thirds of homeowners have used the equity in their home to get a loan or line of credit. According to the Consumer Bankers Association, a record high 52 percent of those loans and 47 percent of those lines of credit were used to consolidate debt.
For those who are staring default in the face, Myvesta.org, an online debt-counseling service, has come out with a free publication called "What to Do When You Can't Pay the Mortgage."
One of the worst things to do is to panic and cut off all contact with the lender, said Steve Rhode, president and cofounder of Myvesta.org.
Some of options include rewriting the loan, suspending principal payments so you can pay off accumulated interest, reducing your payments or giving you an interest-free loan to become current.
None of these methods are in your best financial interest, however, if you own a home you really can't afford, he said. Sometimes the only way to save your credit and not end up owing thousands of dollars is to sell the house.
"If you need to quickly sell your home due to a looming foreclosure date, don't be greedy," Rhode advised. "Put it on the market for an amount that will cover your mortgage and other costs incurred in selling your house. Quite often people list their house at a high price, then never find buyers before it's too late."
The free publication, "What to Do When You Can't Pay the Mortgage," can be downloaded at myvesta.org, or send $5 payable to Myvesta.org (to cover shipping and handling) to Mortgage Publication, Myvesta.org, P.O. Box 8587, Gaithersburg, MD 20898-8587.
