How To Manage Your Home Equity Loan Amidst The U.S. Price Drops

[May 22, 2009.]

 

The Defensive Strategy--Be Conservative With Your Home's Equity
As home equity concerns have affected homeowners nationwide, the conservative approach is a popular choice many individuals have begin to adopt. While some are doing so out of necessity, the conservative approach is also a result of the recent years of relaxed lending. In this approach, homeowners should carefully consider the possible unknowns. In just the past few months, these possibilities include monthly income reduction, job losses, further reduction in home values, and adjustable interest rates on home equity loans. As unemployment rates have increased in recent months, homeowners need to pay special attention to their total household income as many employers are either cutting hours or positions altogether.

Additionally, one of the major concerns that has haunted many homeowners is the problem of negative equity. As tough as it is to obtain a mortgage and credit line nowadays, owning a home with negative equity makes it near impossible to refinance and puts individuals in quite a dangerous situation. If you consider your situation and find these possibilities all too real, it may be best to hold off on your home equity loan and stay conservative a bit longer.

Take The Offensive - Dealing With Tightened Home Equity Loans
For many other homeowners, borrowers see their home as their largest investment. And with the recent housing activity, many homeowners are looking to take the offensive and proactively protect their home's equity. As mentioned, tightening credit markets have caused some home equity lenders to issue less credit lines and even freeze existing home equity loans. For some individuals such as business owners or homeowners in the middle of major improvements, a home equity loan can be a significant source of liquidity.

In these cases where one cannot possibly do without a home equity loan, it can actually make sense to be more aggressive. Homeowners with price drops in surrounding neighborhoods should anticipate their need for cash, and consider the possibility that their home equity loan may not last forever. For those who've already suffered a frozen credit line, a more aggressive approach would involve contesting the limitation with the help of an appraiser.

A word of warning to the agressors. As more banks are reviewing their books, cutting existing home equity loans is a very effective way of limiting their risk exposure and loan default losses. But remember, don't just grab at your home's equity because it may be in jeopardy. Banks are limiting home equity loans for a reason, so tapping into your home equity when home prices are falling should be carefully considered.

Since these are two rather extreme positions, most homeowners will find distinct advantages and disadvantages to each approach. Fortunately, a local home equity lender can make the decisions easier by presenting a few possible alternatives. Additionally, be sure to use our site's resource directory to locate a home equity loan specialist in your area.

 

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.