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Home equity loans are the hottest
loan product in the market place today. Why is that?
Lenders have been promoting home equity loans and home equity lines
of credit profusely in recent years for good reason. It is virtually
impossible to watch television or listen to the radio without
hearing or seeing and ad for a home equity loan. For lenders a home
equity loan or home equity line of credit represents a relatively
safe risk for a better return than a first mortgage home loan using
the same collateral-the home.
The reason consumers love these loans so much is the rates are so
much lower than credit card rates (by about 50%), which is
significant, and the interest can be deductible.
In 2004 home equity loans were the fastest growing, most profitable
area of consumer lending. For a home equity loan the risk of loss is
less than half of that for credit card debt at 0.15%. Home equity
lending increased an amazing 278% from 1999-2004 for those very
reasons. Lenders love home equity loans which may in itself be a
warning sign. If the borrower defaults, the lender forecloses on the
property and turns around and sells it. In a positive housing market
that can mean a big windfall profit for the lender.
So the reasons seem obvious. Lenders love these types of loans
because they make so much money on them with relatively little risk
because your home is the collateral. The chances of default are
minimal. If there is a default there is potential for big upside for
the lender.
Your quest for the BEST deal on a home loan starts with
knowledge and information-you can't have too much of either.
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