Home equity loan originations are down as people chase cheap loans

[Sep 26, 2010.]

 

Home equity loan originations are way down compared to the height a few years ago. In great part, this is due to the housing market crash and the loss of home equity across the nation. But, that is not the only factor. For those people who have significant equity and need to access it, very low interest rates on first mortgages are making a cash-out refinance often more attractive than adding a second mortgage.

When first mortgage interest rates are higher than they are today, using a home equity loan instead of refinancing a first mortgage can be more attractive for getting cash. You probably wouldn't want to refinance a first mortgage into a higher interest rate loan just to pull out equity. Second mortgages like home equity loans or lines of credit become the cheaper option. Interest rates on first mortgages have dropped, and originations on home equity loans have declined.

According to the Freddie Mac Primary Mortgage Market Survey (PMMS), the national average for a conventional 30-Yr fixed rate mortgage has been below 4.40% since August 26th. Currently, the average rate for that product is 4.37% costing 0.7% points. To give you some perspective of how amazingly low mortgage rates are currently, the average rate for that product was 5.04% this same time last year.

If your credit is good and you can prove your income, you have probably been among the many home owners chasing mortgage rates lower and lower. The Mortgage Bankers Association (MBA) issues a weekly loan application statistics survey. The most recent survey states, "The refinance share of mortgage activity increased to 81.1 percent of total applications from 80.5 percent the previous week." Many of these refinances have no doubt been used to cash out equity and have replaced the need to originate a new home equity loan.

The best way to find out which option makes the most financial sense for you is to contact a home loan professional.

 

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.