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Home Equity
Loans-What's at Risk?
There is risk
associated with every loan both for the borrower and the lender. For
the lender the risk is minimal. That is part of the reason why
lenders are promoting home equity loans so much is because they are
secured by a second deed of trust on the home.
In our example
with Bill and Mary at the time of the loan, the value of the home is
$230,000 with a first deed of trust for $160,000 and a second for
$24,000. If the borrower defaults on the loan, the lender would
foreclose and sell the home probably for more than the original
value because of appreciation. Historically the risk for the lender
is minimal.
On the other hand
the risk for the borrower is higher. Failure to pay the amounts
borrowed plus interest could mean the loss of your home. As of this
writing Colorado is leading the country in foreclosures because
folks got caught in the squeeze of Adjustable Rate Mortgages (ARM).
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