Cash-Out Home Equity Loans Falling Out of Favor
Cash-out home equity loans are falling out of favor. The number of people using home equity loans to get some cash is falling as lenders tighten standards and as home values decrease. Declining home values mean that there is less equity available for borrowers to use. Reuters reports on who is likely to get cash out home equity loans in the current climate:
“Borrowers we are likely to see refinance will be those with resetting adjustable-rate mortgages and those who have had their homes long enough that recent house price declines are not a serious threat to equity,” Frank Nothaft, Freddie Mac’s chief economist, said in a statement.
However, this may signal some problems in the wider economy. Many people use cash-out home equity loans for debt consolidation, hoping that easier terms will help them get out of debt faster. Additionally, cash-out home equity loans are responsible for some of the economy’s liquidity overall, as those with cash out loans spend the money on home improvement, vacations and other items.
These issues beg the question: Are we too dependent on debt as an economic driver? As foreclosures mount and as the economic stall, many will begin to ask themselves whether or not an economy that depends so much on Americans having a great deal of debt is a good thing.
While cash-out home equity loans can help those in debt by providing lower payments and interest rates, and provide tax advantages, one might wonder if more debt is really the solution to debt. And in many cases, debt continues to pile up, even after the home equity loans. Add this to the fact that it is harder now to get loans, and a bigger crisis may be looming for the economy.
Tags: home equity loans, home equity, mortgage blog, mortgage trends,
second mortgage, debt consolidation, home equity line of credit
November 7th, 2007 at 2:32 pm
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