Home equity credit has jumped 40 percent between mid-2001 and
mid-2002 to $384 billion in loans and lines extended nationwide,
according to the FCIC.
Home equity credit has jumped 40 percent between mid-2001 and mid-2002 to $384 billion in loans and lines extended nationwide, according to the FCIC.
And with interest rates still at very attractive levels, the mortgage refinancing and home equity credit boom continues to fuel the U.S. economy, with billions of dollars in low-cost debt being recirculated annually.
Several factors support the continuing popularity of mortgage refinancing and home equity credit: interest rates remain very low, homeowners have substantial equity in their homes as real estate prices escalate and a healthy secondary market for securitized loans is making more capital available.
The most important thing is to first be well informed. When considering this decision, consumers should consult a local banker, who can help review personal finances to determine whether it makes sense to take out a home equity loan or refinance an existing home loan.
The equity in your home is one of your most valuable assets and can be a great resource for appropriate uses. Some excellent uses of home equity credit include debt consolidation, home improvements or repairs, vehicle purchases and investing in education for self or family.
Home equity loans should not be used for luxury items, vacations or day-to-day expenses unless cash flow establishes a high level of self-confidence in one’s ability to repay.
The home equity line of credit is another option that permits a homeowner to access funds as needed while paying interest only on the funds actually drawn down. Accessing a line of credit is as easy as writing a check, allowing the line to serve as a reserve or hedge against unanticipated cash needs.
Nearly half of those using this very popular product are using it to consolidate higher-rate debt. Home equity credit is sometimes used to help families bridge a rough spot or period of unemployment, but consumers should always be aware of the risks. Remember, a home equity loan or line is a second mortgage – failure to make payments can put home ownership at risk.
Refinancing an existing mortgage in the current low interest-rate environment is also a great way to secure more favorable terms. With mortgage rates hovering near 40-year lows, this is an option consumers should compare to home equity credit.
This cash can then be used to pay off other debts such as an auto loan or credit cards, remodel the home or finance education.
The interest rate will likely be lower and the amortization period longer, but ancillary loan costs and fees may make the home equity loan or line a more attractive and inexpensive alternative.
When deciding to refinance an existing mortgage or take out a home equity loan or line, consumers should be fully informed as to which option will work best for them.
Elsie Carrillo is the assistant vice president & Morgan Hill branch manager for Bank of the West.
