Home Value Can Help with Debt Management

Rising prices for consumer goods, stagnant wages, and sagging economic conditions are causing financial difficulty for homeowners who've previously had no problems meeting monthly expenses. Many people are using consumer credit to help meet household expenses, and this can lead to problems once credit lines are over-extended. Late fees and other charges can increase debt. What can be done to assist well-meaning homeowners who find themselves deeply in debt? Depending on home value and available home equity, a second mortgage may assist in getting control of credit card debt and other bills.

Home Worth and Home Equity: Keys to Managing Debt

Mortgage lenders offer second mortgages, also called home equity loans, to provide homeowners with cash for many purposes. A popular reason for taking out a home equity loan is to consolidate high interest consumer debt to one payment with a lower annual percentage rate (APR). Typically, home equity loans cost much less than refinancing and the loan can be approved and closed in a few days.

First, homeowners need to estimate how much home equity is available.  Home equity is the difference between home worth and the mortgage balance owed against the home in question.  Home value calculator tools are widely available online, and these can be useful when initially researching financing options. Mortgage lenders may require an appraisal before approving a home equity loan. Home value calculator tools are only intended to provide estimated home worth. 

Home Value and Market Trends are Important

In addition to home value and home equity, it's essential to consider current real estate market trends in the neighborhood. When homes spend increasing time on the market, sell for less, and come with extra concessions like seller-paid closing costs, home warranties, or upgrades, it's apparent that the local housing market is softening. When this happens, lenders may protect themselves by tightening home equity financing guidelines.

Additionally, in uncertain real estate markets it becomes riskier for borrowers to trade in all available home equity for cash. For homeowners, it's safer to leave some home equity untapped in case they should have to sell while home values are down -- it's much harder to sell if outstanding mortgage balances exceed the value of the home.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno.