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Home equity saves borrowers who can’t make mortgage payments

Part 1: Making the best of a bad financial situation

(This is Part 1 of a three-part series.) Payment problems are on the rise. In this series of three articles, I consider how borrowers who anticipate that they soon will be unable to make the payments can make the best of a bad situation. This article applies to borrowers who have significant equity in their homes Don't Practice Denial: If you stick your head in the sand and allow yourself to miss payments, you lose one potentially valuable option: the ability to stay current by raising cash against your equity. So long as your credit is good, you can take out a second mortgage or do a cash-out refinance on your first mortgage. Once you miss payments on the first mortgage, however, you lose this option. No one wants to make a second mortgage to someone who can't make the payment on the first. Don't Expect Help From the Lender: If your ability to pay is impaired but you have substantial equity in your house, informing the lender of your problem is risky. Some lenders will respond positiv...

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