Originally published Saturday, November 22, 2008 at 12:00 AM
Comments (0)
E-mail article
Print view
Pros and cons of home-equity loans
A once-easy source of money for homeowners is now being cut back or frozen by lenders. Here are some pros and cons to taking out all you can from your home-equity loan now and putting it in a safe place in case you need it later.
New York Times News Service
Many homeowners who have taken out home-equity lines of credit have learned in recent months that these loans are not as useful as they initially seemed.
Lenders are struggling to minimize risk, and because they are especially at risk to lose money on residential real-estate loans, they are cutting back on homeowners' credit lines or freezing them.
Many people who took out home-equity credit lines of $100,000 on their home and used only, say, $20,000 have received letters informing them they can no longer borrow additional money, just as their stock portfolios are dwindling.
The banks' reasoning, typically, is that property values are dropping, so the equity does not actually exist.
To challenge the bank's valuation of a home, a homeowner has little recourse but to spend his or her own money to order an appraisal — a potentially costly and futile approach.
But a new countermeasure is emerging: take out the money before the bank puts it out of reach.
In this strategy, borrowers draw the maximum amount even if they don't need it, then place the cash in a liquid, and safe, investment vehicle.
There are some risks with this approach.
First, if the value of a home drops significantly and the borrowers have spent the cash from their equity line, they can end up owing more money than their property is worth. (In industry parlance, the borrower is then "under water" or "upside down.")
The prospect of easy money also is a temptation that some borrowers will find difficult to resist.
But for those with enough self-restraint not to spend more than they need, withdrawing the full credit line may be easier than having a credit line rescinded and then finding another bank.
Copyright © 2008 The Seattle Times Company
Q&A: How veterans can take advantage of VA loan program to buy a home
Nation's Housing: $6,500 tax credit for homebuyers may be a good move
Homebuilders are vying for choice parcels in hard-hit markets
Concrete makes inroads in home flooring
Take care of home repairs before you retire, advises AARP

Opening day at Crystal Mountain
Skiers crowded the slopes at Crystal Mountain for one of the resort's earliest openings.
nwjobs

Post a comment

Michelle Goodman blogs about work/life balance.
How to tell your office you're gravely ill
Post a comment
nwautos

Choosing a new sedan? Weigh the impact of your choice on your wallet and on the planet.
Post a comment
- Homeless man, 46, arrested in Greenwood arsons
- KVI talk radio host off the air as of Thursday
- Steve Kelley | ESPN's Bill Simmons gets us: He hates Clay Bennett, too
- Police investigate videotaped arrest
- Seattle U. Men's Hoops | Big recruit goes from Huskies to Redhawks
- Mariners sign Jack Wilson to 2-year contract
- Razor found in muffin an accident, 'mortified' baker says
- Suspect's family shaken by slaying of police officer
- Mountlake Terrace woman reports razor in muffin
- Ivar's undersea billboards a hoax devised as marketing ploy
- Police investigate videotaped arrest
631 - Seattle man to pack a pistol into community center to protest mayor's ban
222 - Light rail to airport to begin Dec. 19
177 - GOP clueless as families struggle with health care
170 - KVI talk radio host off the air as of Thursday
137 - Mariners sign Jack Wilson to 2-year contract
126 - Wright State game thread
97 - Person of interest in custody in connection with Greenwood arsons
95 - Rang says Locker not ready for NFL
85 - Licata looks at boosting traffic-ticket revenue
68
- Light rail to airport to begin Dec. 19
- Homeless man, 46, arrested in Greenwood arsons
- Ivar's undersea billboards a hoax devised as marketing ploy
- Steve Kelley | ESPN's Bill Simmons gets us: He hates Clay Bennett, too
- KVI talk radio host off the air as of Thursday
- Washington in race for federal education funds
- Police investigate videotaped arrest
- Goodwill's Glitter Sale is Nov. 14-15
- Light rail to airport to begin Dec. 19
- An 802.11n upgrade could make a big difference





