Home Equity Loan Lowdown

Home Equity Credit Lines Are No Longer Cool, Refinancing Is!

Imagine refinancing your home mortgage to get a higher interest rate – this is supposed to be the newest rage with people willing and eager to pull out buckets of cash! Unlike in the good ol’ times, when you refinanced to a lower rate of interest, today almost nine of 10 homeowners who refinanced, cashed out additional money -- often tens of thousands of dollars. And matching the trend are refinancers who are today opting for larger replacement first mortgages with rates averaging about one-half of a percentage point higher than on their old loans.

So, what is the reason for this change in trend? Quite a few: Firstly, short-term interest rates no longer hover near 4 percent. And the worst part is that home equity lines of credit no longer seem a good option. The adjustable rates, which were their strong point, are now racking up bigger monthly costs. Moreover, thirty-year fixed-rate first mortgages no longer are less than 6 percent. Now the prime rate is 8.25 percent and could move higher. Washingtonpost.com reports:

Say you also have lots more than $100,000 sitting untouched and frozen in home equity. Rather than signing up for a home-equity credit line tied to a jumpy and unpredictable prime rate plus 1 percent, you instead choose a fixed-rate cash-out refinancing.

Read more: Refinancing To Get Cash, Not Save It

Not too many takers for home equity loans

If the loan is not beneficial and the rates are not as good as they used to be, what should you do? Stop taking these loans. That’s exactly what residents in Sacramento have done – they have reduced their use of home-equity loans at twice the rate of Californians as a whole in the early months of 2006, according to a new report. Cbs13.com reports:

The company examined property records in eight counties in the Sacramento area, with the most extreme borrowing decline taking place in Sutter County -- a drop of 41.7 percent from early 2005 to early 2006.

Read more: Sacramento Residents Reducing Home-Equity Loan Use

30-year Home Equity Loan from DeepGreen

Cleveland-based DeepGreen Financial recently launched a 30-year home equity loan. This move is aimed at expanding its menu of fixed-rate products. Banknet360.com reports:

The Cleveland-based company began offering the new loan last month in response to the increasing demand for fixed-rate second mortgages instead of adjustable-rate home equity lines of credit, said Sy Naqvi, chief executive of the online lender.

Read more: DeepGreen Launches 30-year Home Equity Loan ($)

DeepGreen Financial launches 30-yr home equity loan

DeepGreen Financial, an online home equity lender, recently launched a 30-year second mortgage. This new loan allows borrowers to lock in fixed-rates during a rising rate environment and make low monthly payments because of the 30-year amortization schedule. Banknet360.com reports:

Rates for the loans start at 7.375%, with a maximum loan limit of $250,000. The loans also have no lender fees, annual fees, or closing costs.

Read more:DeepGreen Launches 30-Year Home Equity Loan

Chase Adds No Closing Cost Option to Fixed-Rate Home Equity Loans

Chase recently added a No Closing Cost option for new home equity loans. This option, which is offered on both amortizing and balloon loans, expands the financing options brokers can offer their customers. The No Closing Cost fixed-rate home equity loan is available to borrowers who meet standard Chase underwriting guidelines except in NC, SC and other states where Chase Home Equity does not currently offer loans. Rismedia.com reports:

“By offering borrowers a fixed-rate home equity loan without closing costs, Chase-approved brokers can offer both peace of mind and potential cost savings to their customers. In a competitive market, that’s very significant,” said Kimberly Salvo, national sales manager of B2B Home Equity for Chase.

Read more:Chase Adds No Closing Cost Option to Fixed-Rate Home Equity Loans

Homeowners become more money-savvy: Survey

Now that we’ve spoken a lot about the sad situation of the housing sector and of how the financial situation is quite bad, you’d think consumers were quite pessimistic about the future. Fact is most of them are quite optimistic. Well not over the top kind of optimistic but they believed that while the national scene may not be so good, on the local front, it wasn’t so bad.

According to most experts, while the scene is not so bad as it seems, it’s still not the best of times. What I mean by that is that they don’t think there will be a bursting of the ‘housing bubble’ but there will definitely be a lowering in values in some areas. This means your home’s equity could take a fall, which in turn can lead to a fall in the home equity loans available. An Experian-Gallup poll conducted recently also revealed some interesting facts. According to the survey, one-third of homeowners today have a home equity loan or line of credit. Most of them take the loan to finance home improvements and only 10 percent said that they took the loan to consolidate their debts.

Bank of America is No.1 Home equity lender

Bank of America recently became the nation's leading home equity lender. The bank credits its record growth to the introduction of its no-fee home equity line of credit offering. Finanzen.net reports:

The increase in home equity financing is also attributable to Bank of America's unmatched distribution network, including the largest banking center network in the industry, phone and online channels.

Read more: Bank of America Becomes Nation's #1 Home Equity Lender

Home equity loans change with the times

When in need for cash, Americans still prefer to fall back on their trusted homes and like to borrow against the equity in their homes. While people have no qualms about using their homes as piggy banks, their method of doing it has changed and now most people steer clear of the once popular variable-rate lines of credit. Sfgate.com reports:

More borrowers are taking out fixed-rate home-equity loans or refinancing their homes with a new fixed-rate loan and borrowing more than their old balance -- known as a cash-out refi.

Read more: Real estate a handy piggy bank

Are rising home equity loan rates affecting the economy?

Interest rates are hitting the skies – especially in the case of home-equity loans. So, what impact do these rising interest rates have on the economy? According to some experts, interest rates act like a throttle on economic expansion because they make it more expensive to borrow money. Sfgate.com reports:

Some experts say the pace of increases has been so measured and the economy is so strong that the impact will be minimal. Others see high interest rates as the prologue to a slowdown or even a recession.

Read more: How rising rates could affect economy

Home-equity loan hearings in the offing

Federal Reserve Board Governor Susan Bies said recently that the U.S. central bank planned to hold hearings on home-equity lending this summer. These hearings are supposed to be the first step to a review of mortgage disclosure rules she explained. Today.reuters.com reports:

"One of the issues that will be explored at the hearings is likely to be the adequacy of the existing disclosures for nontraditional mortgages, such as interest-only loans and payment option ARMs (adjustable-rate mortgages), as well as 40-year mortgages and reverse mortgages," she added.

Read more: Fed to hold home-equity loan hearings