Be Aware of Your Home Equity Debt Load

The home equity load you take on can become very risky if you cannot make your payments. Many homeowners find they are offered large loans the minute they purchase a house. While these offers are attractive, they can create a cycle of debt that keeps you from achieving financial stability. 

Finding an Appropriate Debt Load

You should always think of your debt in terms of how it compares to your income and savings. It is impossible to find the right amount of debt to carry without comparing it to these figures. Basically, you should have a high enough income to cover all fixed costs, including debt payments, with half of a monthly paycheck. You should also have at least three months of debt payments saved in case you lose your income source.

Avoiding Foreclosure

If you default on a home equity loan, your secondary lender can purchase your primary mortgage. In this case, the secondary lender can force your mortgage into default even if it is currently in good standing. Many people fail to realize this significant risk when they take out a home equity loan. Protect yourself against this possibility by monitoring your debt load to assure your mortgage balance and home equity loan could be paid off if you sold the home today.