The housing market has begun to breathe a sigh of relief as the economy has continued recovering from the bust in 2008. After much speculation and strong indicators of a promising future, many homeowners are beginning to see the light. As such, many lenders are beginning to see a rise of home equity loans and second mortgages.
According to the Los Angeles Times, “Banking and credit analysts say the dollar volumes of new originations of home equity loans are rising again, significantly so in areas of the country that are experiencing post-recession rebounds in property values. These include California, Arizona, New Mexico, most of the Atlantic coastal states, the Pacific Northwest, Texas and parts of the Midwest.”
Despite the multibillion-dollar losses that large lenders racked up on their equity loan portfolios during the housing bubble of 2008 and the following recession, banking executives such as Michael Potere of Bank Of America are positive that “this time around, things will be different thanks to smarter underwriting.”
What Are The Benefits of a Home Equity Line of Credit (HELOC)?
For people who are trying to increase the value of their home or reduce the debt they have, a home equity loan is often the answer. As soon as interest rates go down, borrowing becomes more popular. Fortunately for borrowers, rates are low right now. Now that the economy is improving, more people are willing to take on the risk in order to reap the benefits now.
Another advantage of these home loans is that they are considered safer by lenders than other types because they are secured by the house. In other words, banks will actually get something back if you default on the loan. This means borrowers will generally score much lower interest rates on home equity loans than on unsecured loans or credit cards.
The Difference Between a Second Mortgage and an Equity Line of Credit
In one sense, they are the same since a line of credit is a second mortgage. However, a second mortgage tends to have a fixed interest rate that doesn’t change over time, which means the payment amount is predictable throughout the duration of the loan. This particular loan gives the borrower one large lump sum payment. The borrower typically has to pay back the loan within 10 to 30 years. With a line of credit, sometimes referred to as an HELOC, there’s usually an adjustable interest rate that varies each year. This type of loan is perfect for homeowners who want to use the allotted amount of money over time.
For more information on HELOC’s or 2nd mortgages, please feel free to contact Dave Kevelighan or call directly at (303) 520-0004.
