Home Equity Borrowing Is Not Dead

According to the CreditForecast.com Household Credit Report (yes, I read that snoozer so you don’t have to), home equity borrowing is not dead.

Home equity lending is not dead.

Home equity lending is not dead.

In English; people are still using the equity in their homes to borrow money.

Home equity refers to the amount of your home you actually own (mortgage balance divided by home’s value equals percent owned).

After the housing bubble of the mid-2000’s, lenders greatly curtailed home equity lending. Well, it’s back baby and, according to CreditForecast.com, “Borrowing against home equity will remain a wise financial decision for millions of consumers and is critical for economic growth.”

That may be all well and good for the economy but (there’s always a “but”), anyone considering a home equity loan or home equity line of credit (HELOC) should do so only after getting all the facts and, especially making sure they can afford the payments. Remember, you are borrowing against your home. A home equity loan (or line) is a second mortgage.

Yes, it can be a wise financial decision for many people for a variety of reasons, including:

It’s a dirt cheap source of money. Home equity loans and lines typically have low interest rates (compared to other forms of borrowing) because the loan is secured by real property.
You may be able to borrow a pretty hefty chunk of change (depending on several factors) for things like college tuition, home improvements or debt consolidation.
The interest you pay may be tax deductible (Take that, IRS!) – similar to the interest deduction for your first mortgage (but confirm this with your tax peeps ’cause I’m no CPA).

According to the above-mentioned extremely boring report, “HELOC borrowers today need to be extremely well-qualified with high credit scores, low debt ratios, and low loan-to-value ratios.”

So, even if home equity lending is not dead, lenders aren’t throwing money around like drunken sailors anymore.

You can learn more about home equity borrowing here.

Flickr image courtesy of Images_of_Money

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Melvin is the Smart Green Pig. "Smart" as in intelligent. Some would say "Super Intelligent" or perhaps "Genius". But also "Smart" as in surly and sarcastic, so watch your Ps and Qs! By the way, Melvin gets paid (quite handsomely) by SECU, so even though he's completely unbiased, some might think otherwise. Just sayin' (disclosin').

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