|
Home Equity Loans-Why So Popular?
Lenders have been promoting
home equity loans and home equity lines of credit significantly in
recent years for good reason. 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 5%, 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 of 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.
|
