Homequitybuilder

As the Blog site is named “Homequitybuilder”, it’s clear that I value the equity (true ownership) that one has in their home.  As such, there is much info in other articles here about our pending mortgage product (the “AMF”) which is geared towards increasing your home equity via accelerated principal paydown.

The flip side of increasing your home equity is clearly tapping into your home equity via all of the home equity loans and lines of credit that are widely available and advertised.  (Yes, I also originate and broker equity loans and LOC’s- so I am not “above” any other loan officers out there).  I do believe that using your equity to fund certain items can be a good idea for some people at certain circumstances, but overall the OVERUSE and EASE of home equity loans have gotten many in this country in a lot of trouble.

Let’s face it- banks and lenders (and brokers) want to sell loans and services.  That’s how they make money, and that’s how their employees keep their jobs.  There is a lot of money in money.  Maybe not as much as a new purchase house mortgage, but home equity loan products can be an easy cash-cow for many neighborhood banks, and brokers as well.  But just because a product is offered doesn’t mean its a wise idea to apply for it.

There’s an interesting corollary between the rise of home equity loan products and the fall of the average American’s personal savings.  If you read the papers, you know that right now the average personal savings percentage is lower than any other time that this statistic has been measured.  You and your neighbor have much less in savings than you did 15-20 years ago.  This ties in with other economic factors, as well as the credit card craze of the last 10-15 years, but don’t forget about the other culprit.

Home equity loan products and credit lines essentially did not exist prior to the early 90’s.  It wasn’t until the mid 1990’s that they became commonplace, and every year during the real estate boom (that ended 2 years ago) they became more and more popular.  People were using their homes like an ATM machine.  With home values rising at an absurd level in many parts of the country, homeowners kept going to the well to “cash-out” via these bank products.

Two weeks in Barbados?  Home equity loan.  4 years of college tuition for their child?  Home equity loan.  New RV or SUV?  Home equity loan. 

The problem is- you DO have to pay it back.  Those that sold their home 2 years ago before the “bust” were lucky; they didn’t have to truly take $$ out of their pockets to pay off these loans.  Those of us who still are in our homes are still making these pretty hefty payments, and if we sold our homes today we would be bringing a sizeable check to the closing table just to pay off our home equity loans/ lines of credit.

Long story short-  home equity loans were created for the purposes of taking money out of your home TO IMPROVE YOUR HOME.  To increase the real value of your home.  If you read any of the fine print in these loans you are stating that you intend on using the funds for repairs or improvements to your property.  But we all know that many people use it as Monopoly money and do nothing to improve their home.  Better regulations and back-checking would help, but homeowners need to get smart the next time they consider a home equity loan.  As the old saying goes, “Nothing’s free”.

On a non-related note, please check out our new (and still in process) website titled-

www.homequitybuilder.info

We believe you’ll be pleased with the site and the offerings.  Thank you.