Realty is back with equity loans

Realty is back with equity loans

Dec 22

Home equity loans were in trend and you thought you will take the full advantage and get your house renovated. However by the time you were ready for the same it was too late, the home equity loans were gone leaving your dreams about getting your home renovated against your home equity loans shattered. But this is the time to rejoice, the home equity loans are making the quiet comeback in the market.

Fall of the home equity loans

Home equity loans and home equity line of credit as you all know are the loans which are taken against the equity value of your home. The home equity loans made the borrowers burdened with debt at the time of economic crises but when the economy rose up and there was the period of boom the values of the homes rose quickly and the people started using loans like ATMs to take the cash out of their homes. But the sad part was that the home equity loans vanished from the market after the housing market shrunk in the late 2008.

The lenders came to the proper conclusion which was actually too late to be sure about the fact that the strategy that they were following of helping the borrowers to get the every last bit of equity from their house was not safe for them. That was the quiet late realization from the side of the lenders. However they were no doubt right about the fact and they could not obviously make loans on the home equity that you don’t have. The thing that was worth concern was that in late 2008 most of the U.S homes lost almost as much as a fifth of the value of their homes from the peak in 2007. The condition of home equity losses was even worse on the coasts, as the prices there were at the highest peak. The condition was such by the late 2011 was that most of the houses (a nearly third of the U.S houses) carrying the mortgages were lying under water.

But despite of so many problems and the struggle period, the things were actually hanging now and who knows you could get your house renovated, very soon. As the scenario is changing the home equity values are rising from few consecutive months and so the lenders are also opening up and are becoming slowly active in lending home equity loans again. The one good news is that existing home prices are up by nearly 12% on an average and this increase in the value is the biggest increase in many years.

Reasons behind the comeback

Equity loans are given on the basis of your actual holding in the property. For a lender, the higher the ownership or equity that you hold, the lower are hassles for them in case of foreclosures. Let’s look at it more closely.

Let’s take a situation where the loans bad credit lenders offers you an equity loan on the basis of the equity you hold in the house which is the partial holding of the house and there are still around 40% of the mortgage amount left to be paid by you. In such a scenario lenders would offer you 80% of the equity as the loans. For the borrowers it would mean an additional burden. Since they are already paying the previous mortgage the new one will further shrink their monthly disposable income and it could be a difficult situation if they are caught in some kind of a financial crisis.

On the contrary of the property market improves and you are likely to get a good value of your house things can be better for you. Yet another situation could be that if the home equity loans help you in reducing your existing debts, you can use that money towards the repayment of the loans which will get you the loans with an EMI equivalent to the amount you were spending months earlier.

 

Reopening of the lenders

So there is the good news for all those who were planning to go for the home equity loans but due to closure you thought you can never get them now. Well the lenders are now starting up to distribute the home equity loans again much because the value of the homes is rising now. Many lenders announced that they will be granting the home equity loans to the borrowers now and along with it the Discover Financial Services which also offered the Discover card declared that they will now be open in distributing the fixed rate home equity loans to the current customers and then later on continuing with the other customers as well. The starting loan amount is declared as much as $25,000 to $100,000. Lenders might have made mistake in the past but now they are very much concerned about their actions. Learning from their past mistakes they have now decided not to give you the loan for the full amount of your equity, which clearly means that now you will not be able to take the loan against the every last equity that you have. There were new rules made for the same that stated that the lenders will only provide you up to 85% of loans on your total equity no matter how much great credit you have.

Nothing comes for free

Although these home equity loans seem to be the very lucrative offer that has been provided to you but never forget that you not getting anything for free and everything carries a cost with itself and in this case the cost is your own home. You should always stay safe by knowing about your financial situation and the money that you might afford. Keep a check on your budget and do not get carried away by the things that the sales person tells you no matter how much attractive they might seem to you.

Try all the other means that you can meet your expenses. If need be you should not refrain from using your savings too. Remember, the debt will always take away more than you can save at any point in time. Moreover, that is your own money which you can put to whatever use you may think correct. There is no additional cost in the form of interest rates on your savings too. So, try and avoid loans no matter how good they are.

 

If you are not sure about things talk to the people whom you think might help you in this or you can also talk to your lender clearly about everything. Always remember the three basic things: the money is not the free money, your payments might rise, and you might lose your home.