Whose bright idea was that anyway? Seriously, which mortgage company was the first to decide that it would be a great idea to give vast sums of money to minimum-wage service monkeys with no savings, no education, and no collateral (aside from their ultra rare Pokémon card collection)? Is it really that much of a stretch to imagine that a person who can hardly afford to rent an apartment would be unable to make payments on their four bedroom, 2,500 square foot Barbie dream house? Why did nobody see this coming?

Here’s one possible reason: If you’re in your 20s, foreclosure and bankruptcy aren’t really that scary. Sure, your credit will be ruined for awhile, but after 10 years (max), those records will be stricken from your credit score and you’ll be back to maxing out your shiny new credit cards. In the meantime, you’re free from your debts and can live happily in a tiny apartment off of your weekly paycheck, playing video games and eating Doritos. Isn’t a consequence-free life grand?

It’s not all your fault though, right? Of course not. That mean old bank didn’t explain the concept of a floating mortgage to you, did they? No, you just took their word when they told you that a 2% interest rate now would be better than a 6% rate always. It’s a shame that you never did a simple Google search to see what “floating mortgage” meant. Yes, I’m sure that 2% interest rate was nice, and that with it you could just barely afford your monthly payments, but what happened after that 2% floated on up to 11%? Oops, bet you didn’t see that one coming.

Consumers only have to bear part of the blame though. For the last few years, banks and lenders have been practicing absolutely predatory lending methods, some of which boil down to nothing more than pyramid scams. Remember all of that “refinance your home” crap a few years back? Interest rates dropped, so tens of thousands of Americans abandoned their old mortgages and refinanced with slightly lower interest rates. For some, this was a smart move. For others, those shining stars who ditched their fixed-rate mortgage for a low floating mortgage, well, they should have done their research. Who could blame them though? Interest rates kept dropping, and banks kept telling them that they could always just refinance lower and lower, and that the free money would just keep pouring in.

The key thing about a home, though, is that they’re only worth what someone else is willing to pay for them. Sure, the bank may have told you that your house will have appreciated $30,000 in value by the time you’ve paid off you loan, but I’m sure that they told you that in good faith, not because they were trying to get you to sign your loan papers. Too bad you never took a basic economics class. If you had, you might have learned of a little concept called “supply and demand”. I’ll sum it up in simple terms: When the supply of homes is enormous, people will demand them at a low price. In other words, when thousands of people found themselves unable to make their mortgage payments (remember those pesky floating mortgages?) and listed their houses for sale, nobody wanted to pay the ridiculous prices being demanded. Thus, homes were seized, bankruptcy ensued, and the stock market crashed.

With the home equity loans it also allows you to refinance your existing loan to see if you can get a better interest rate, and most often you can get a better rate saving you some money per month and less time overall to pay it off. You can also deduct this type of loan on your personal taxes if you live in the US. Two types of second mortgages exist on the second mortgage, a market-open loan and a closed end loan. A market-open loan is basically is the same as the first mortgage, same criteria and everything. The other type, closed end mortgage loan, you can get a large lump sum of money when you sign the papers at closing time. If you decide to go with the closed end loan, you can no longer borrow money against the house until you pay it off in full.

If you are going to refinance you house be careful a d decide what second mortgage you want. If you know one will work best for you then take that option because you dont want to cause more problems later down the road for you and your family.