The top downside shared by all 2nd mortgage loans, home improvement money and you may domestic guarantee loans is that financial institutions need new borrowers to use their homes because security into the mortgage.

Once a lender acquires good lien into possessions, in the event the borrower can not make the monthly obligations, the financial institution is foreclose and take our house, even if the borrower was latest employing first-mortgage money.

Which unfortunate simple truth is even more tragic if you think about that each state possess rules you to protect some household security out-of creditors. Inside the bankruptcy proceeding, these statutes allow you to discharge the unsecured debts and sustain new safe collateral in the home. Regrettably, when anyone decide not to document personal bankruptcy but to try to pay-off the handmade cards and other costs with property equity mortgage, they change dischargeable personal debt towards the covered loans. Hence, once they have problems with to document bankruptcy later on, it get stuck with a lot of financial obligation who does enjoys already been discharged when they had not acquired a house collateral financing.