Fewer People Are Using Home Equity Loans for College Tuition

[Apr 12, 2010.]

 

After more than two years of watching the housing sector of the economy contract, it is still amazing to discover the many ways that home equity loans contributed to the American lifestyle. People used their home equity loans to buy investment properties, cars, and to spend like there was no tomorrow. It makes sense that without a constant supply of quick loans, the demand for houses, cars, and retail wares would drop considerably. A deeper consequence is the effect on a kid's college education. Some American students who were counting on a college education find themselves with parents who are less able to help financially because they no longer have a home equity loan available.

Home equity loan originations have improved in recent months as banks have become slightly more willing to lend. Home equity loans are still quick and cheap compared to traditional first mortgages. Some banks advertise that you can have access to your money in about a week, depending on the amount of equity you have in your home. In general, margins have increased, making home equity loans more expensive than they were a few years ago. However, they are still cheap loans because the prime rate is only 3.25%. The interest rate on a new home equity loan could be as low as 3.500% - 4.500%.

Recent economic news suggests that the economy is stabilizing and growing slowly. Inflation is not yet a serious concern. The Federal Reserve has said that interest rates that affect the prime rate should remain low for an extended period. As long as the prime rate remains low, home equity loans could be a cheaper option for financing a college education compared to traditional student loans.

Home equity financing may favor families who cannot qualify for all types of student loans because they exceed income limits. For this reason, home equity loans continue to be a necessary option for the prospective college student. Hopefully, as banks expand their home equity loan originations and the economy stabilizes, families will once again have access to this type of cheap financing.

To find out if you qualify for a new home equity loan, talk to a home loan lender today.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.