How To Protect Your Home Equity Loan In This Current Economy

[Apr 6, 2009.]

 

As unemployment rates continue to rise, more homeowners around the nation are beginning to struggle with their monthly mortgage payments. Most recently, the government reported a national unemployment rate of 8.5%--the highest rate in almost 26 years.

And in its latest reports, the American Bankers Association reported a record 1.46 percent delinquency on home equity lines of credit during the fourth quarter of 2008.

Below are a few tips to help homeowners protect their home equity loans and home equity lines of credit from this rough economy.

Weathering The Perfect Storm Against Your Home
Although times may be tough, it's important that homeowners don't lose sight of the situation or, worse yet, lose hope altogether. Homeowners with a traditional home equity loan have a little less to worry about, and primarily need to focus on making their monthly payments on time.  Additionally, review your monthly statements and determine if your payments are paying down the principal or simply covering interest only. For those with home equity lines of credit, it's important to plan your future moves carefully.

Homeowners need to keep in mind that HELOC interest rates and principal balances are both typically adjustable. Although individuals have little control over the interest rate, homeowners have direct control over their principal balance. With the current housing economy as it is, tapping into your home's equity can be dangerous if property values decline. For some unlucky homeowners, the combination of declining values and rising equity lines of credit has lead to negative home equity.  As mentioned, homeowners need to realize that HELOC interest rates are susceptible to market changes. Combine this fact with the relatively unstable job market and you could have a true recipe for disaster.

Conservative Budgeting Won't Make You Immune, But It Will Keep You Safer
For most homeowners, conservative thinking will likely be the best option. In the past few years, homeowners could tap into their home's equity for home improvements and large purchases without giving it much thought. Nowadays, homeowners just can't afford that luxury. Home prices still haven't found their bottom yet in many markets, and the number of rising delinquencies could prolong the decline.

If you currently have or are considering a home equity loan, now may not be the best time to approach your home's equity too aggressively. Remember, loan delinquencies hurt your credit score and can have much more sever consequences in the future. Bad credit mortgages, higher mortgage rates, and foreclosure are all possible consequences if you aren't careful with your existing mortgage. For more information on home equity loans and lines of credit, visit our site resource here.

Home Equity Delinquences [ Bloomberg]

 

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.