Clients often ask their accounting professionals to dispense advice on home-equity loans, the somewhat "panacea" to get out of credit card debt, college loans and other drains.
Based on financial situations, the home equity loan is not all its cracked up to be. All too often, if a person borrows against the equity in their home to pay off credit card debit or college loans, then he or she may not have even learned how to avoid debt in the first place. Although this is an elementary concept, it nonetheless proves a point that an advisor can provide resources for credit counseling instead of recommending, in some cases, a home-equity loan.
Still, it's a gray area. For some, the home-equity loan may carry a lower interest rate, and given the fact that the loan is amortized over 15 years versus about four years for credit cards, the monthly payment also is lower.
A red flag is when a homeowner wants to borrow an amount past the value of thier home. Mortgage companies are eager to grant the amount, but watch the back end; this becomes, in essence, an unsecured loan.