Home Equity Loans – Increase in Home Values May Signal Their Return

mmfox2Home Equity Loan – Good for you?
By Mark Munzenberger

GreenPath Housing Director

Here’s the good news – nearly every state across the country is experiencing increases in home values. On average, about 10%, but in some cities and states, closer to a 20% increase.  The increase in home values is opening up the door for some homeowner’s to tap into that equity in the form of a Home Equity Loan or Line of Credit.

As with nearly every financial product out there, there are pro’s and con’s for homeowner’s to consider as they decide whether or not to apply and borrow against their home.

The positives
•    The interest rates on these loans are typically lower than unsecured credit cards or other personal loans available from a bank or credit union. Also, the application fees are minimal – significantly less than a full-fledged refinance.
•    The interest paid on these loans may be tax deductible – consult a tax advisor for further advice.
•    Can be used for anything – home improvements, debt consolidation, college tuition, etc.
•    Lines of credit are very flexible – use it only as needed.

The negatives
•    It’s very easy to get into financial trouble. Consumers who use these loans for regular, everyday expenses (like using an ATM) will undoubtedly find themselves in trouble with excessive debt. Home values fluctuate, and a decrease in your home value will increase the probability that you may suddenly  be underwater. This happens when you owe more on your mortgage(s) than what the market value of the property is worth.
•    Because this loan is secured by the home, homeowners who fall delinquent on either their primary or secondary (home equity) loan are at risk of foreclosure.
•    The goal should be to reduce the amount the amount of debt you carry, not increase it. A home is usually an individual’s most valuable asset, and building as much equity in the property is a sound financial strategy.

A good first step would be to consult with a GreenPath housing counselor to answer any questions or to request an individual counseling session to review your personal situation.

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