Usually, families' biggest asset is their house.
Paying mortgage over many years provides little visible luxury that a family can feel or see.
The accumulation of wealth that is converted from their monthly paychecks into the equity of their houses can only be seen on the financial statements.
However, some families choose to use such equity for home equity loans, which provides means to large sums of cash or credit.
This access to large sum of money lures people into spending on luxury goods that wouldn't have been bought if not for the home equity loan.
Around two thirds of home equity loans are taken for non-investment purposes, whether for debt consolidation, vacations, credit cards, super-bowl tickets, cars or other depreciable products.
Only one third of the home equity loans are used for investment purposes, such as education, home improvement or other investments.
People do not fully realize the value of the equity that is within their houses or the effort and the time that was required for them to accumulate the equity.
Do these consumers really understand that these luxury items might end up costing them their house? Not being able to pay back the home equity loan, which might have a fluctuating interest rate, or might require a higher payments after a certain period of time, will cause a foreclosure; a loss of their biggest asset.
Of course banks don't have a problem giving out home equity loans.
Losses that banks realize on home equity loans may be twenty times as little as on other loans.
With homes appreciating there is usually extra equity cushion that the banks can tap into to get their money back, leaving the debtor with no roof over their head, but with a large television or maybe even super-bowl tickets.
Next time the banks offers you that home equity debt, make sure you count the cost and the risk.