Piggy Bank Housing Loans

Over the past several years a good many home owners developed the habit of frequently using what is usually their most valuable possession, their homes, as a sort of reverse piggy bank.

What I mean by this is that the widespread use of home equity loans made it all too easy to withdraw equity from homes. As long as the housing market was climbing by leaps and bounds each year this practice didn’t seem too unsound.

As equity was withdrawn from the home the good old housing market seemed to fill the piggy bank up again as the value of the home increased and equity was replaced.

Now that the housing market is falling into what may be very hard times indeed before a downturn is over the danger of overusing home equity loans is revealed.

If the cushion of equity has already been depleted due to home equity loan withdrawals and the value of a home decreases , the home owner can go underwater with his remaining equity pretty quickly. That is, the total loan balances on the home are greater than the home is worth.

If a forced sale of the home or foreclosure ever becomes necessary the home owner is left in a terrible position.

There is a place for home equity loans. They can provide cash for worthwhile purposes. However, the overuse of home equity loans for trivial purposes may lead to unfortunate situations when times become hard and housing prices are falling.

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