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REAL ESTATE
Tapping Home Equity to Pay Off Credit Cards?
Be careful
Most homeowners who tap equity through home equity loans or home equity lines of credit use the proceeds to upgrade their properties. But a growing percentage is using the money to consolidate debt, the Mortgage Bankers Association reports.
In the group’s latest survey, 33 percent of those who took out home equity loans and lines did so to consolidate debt, up from 25 percent the previous year.
Why the jump? Partly because credit card debt is rising, says Michael Fratantoni, the organization’s chief economist. Compared to credit card interest rates of 25 percent, homeowners would rather take on a home equity loan at 8 percent to 10 percent.
That’s the upside. The downside: A home is a valuable long-term wealth-building asset, and every time equity is borrowed, the net value of that asset is reduced. Plus, home equity loans are secured by your primary form of shelter, meaning the roof over your head is at risk if you can’t repay the loan.
My best advice for tapping equity to pay off credit card debt? Make sure your finances are in good shape.
There’s no shame in running up credit card debt — maybe you had a health crisis or a period of unemployment. But before you shift your credit card debt onto your house, be certain you’re not just going to run up more credit card debt.
Jeff Ostrowski writes about mortgages and housing for Bankrate. He’s the author of .
