Over the past few years, the incredible conditions of the real estate market have created a new kind of credit problem for many. With unprecedented low interest rates and incredibly fast rising house prices, many home owners have come to view their houses as “cash machines” to be used for financing a lifestyle they really can’t afford. With the end of this “housing” bubble, many of these homeowners will quickly realize that they have created a credit monster from which they cannot escape.

If house prices continue to slide, these same homeowners may find themselves in a position of “negative equity”, where the house is not worth as much as they owe on the house. This makes getting credit for emergency needs extremely difficult, as the debt to income ratio will be too high to qualify under most circumstances. If these same homeowners have any appreciable amount of other unsecured debt, they may quickly find themselves with no other choice but bankruptcy.

While it is sometimes wise to use the equity of your house to finance a large purchase, it should never be used to buy frivolous items such as large screen televisions, motor homes, or fancy vacations. It is never wise to use up ALL the equity in your home, as you can easily find yourself in negative territory which will leave you high and dry in times of dire financial need. In addition, if you pass the 80% level of financing, many lenders will require you to carry mortgage insurance, which will be a significant expense with no added value to yourself.

Aside from avoiding creating credit problems for yourself by drawing out all the equity in your home, you need to consider the implications on your long-term financial health each time you draw equity or refinance your mortgage. Most home mortgages are 30-year loans, either with fixed interest rates or variable interest rates. You don’t have to advance very far in years before that 30-year term reaches into the years in which you plan to retire. Having to pay a mortgage while you are retired can seriously impact the amount of savings you will need for that retirement. This is something that should be carefully considered when deciding whether or not you REALLY need to take more money out of your home equity.

If you find yourself in a position where you are considering drawing equity out of your home to pay off other debt or to finance a major purchase, it would be wise to carefully consider all the implications this may have both in the short term and the long term. Consider seeking other options if you are trying to get debt relief in this manner. Credit counseling or a debt settlement program may be better options for you. Whatever you decide to do, make sure that it is in your best interest and not in the interest of trying to keep up with the neighbors by purchasing that latest fancy gadget that you don’t really need.