Home Equity Loans Drying Up

Home equity loans are going down, even for those with a high credit score, substantial home equity and a history of using debt really carefully. What's the problem? It's the unstable real estate market which is ruthless even to responsible consumers. It's getting harder and harder to get a got home equity loan.

A HELOC is a revolving credit which is secured by borrowers property. The limit of a home equity line of credit is proportionate to value of a house. With home equity lines people get lower interest rates in comparison to interest rates of credit cards. The reason for that is a secured asset which guarantees borrower will return the money. The amount of money that can be borrowed depends of the value of the house.



As you already know, property values are going down for quite a while now across the United States. Home equity lines that used to help people finance their larger expenses are now in danger. The equity is lower then ever because home values are lowest in last 20 years. Many people are losing their HELOC because the lender, usually a bank, doesn't have any security that money will be returned to them.

For example, if you have a house that has a value of $300,000 and you put a down payment of $30,000 you would be able to get $30,000 home equity line of credit if your home gets appraised at $330,000. On the other side, if value dropped below $300,000 you would lose the equity.

What's happening now is the exactly same situation that's described above. People are losing their home equity loans, the rates are going down. It's first time in US history that home equity rates are below %50. That is a statistic that shows in which state lenders and borrowers are right now.



Lenders like Countryside, Bank Of America, Wells Fargo and Chase are reviewing credit lines and are lowering the limits to their customers. Many of them have their credit suspended too.

In recent couple of years, many lenders would loan up to 120 percent of a home’s value, where 100 percent is for primary mortgage plus additional 20 percent for a home equity line. But right now, there is no more room to do that. Lenders are returning to their prior conservative metrics. The lending is capped for 90 percent of the home’s value, which includes the primary mortgage and home equity line altogether. And when that's being done at a time when home values are declining, you know how hard is to find a good home equity line of credit.

Right now there isn't much you can do. Be disciplined about your finances and focus on debt refinancing. Home equity lines are not in a good mood right now.