Home Equity Lending Sees Big Gains as House Values Climb

Home Equity Lending Sees Big Gains as House Values ClimbMajor lenders are seeing double-digit increases from a year ago in origination of home equity lines of credit, or HELOCs, despite a still high percentage of American homeowners in negative equity, or “underwater” on their homes’ debt-to-value.
JP Morgan Chase originated $373 million in home-equity lines of credit in the fourth quarter, up 35 percent from the same period a year earlier.
Overall, the number of home-equity loans increased by 19 percent in the fourth quarter, compared to a year earlier, according to Equifax’s National Credit Trends Report. Home equity lines-of-credit originations surged by 13 percent.
In 2008, as the housing market was crashing, home equity line originations plummeted 55 percent.
A rebound in home prices nationwide has much to do with the rebound in home equity lending through providers of said services similar to Equity Release Plus. Home prices were up 8 percent year-over-year in December, according CoreLogic.
Moreover, homeowners are regaining home equity at a faster pace — 1.4 million borrowers rose above water on their mortgages through the end of September. That number likely has increased even further as price appreciation accelerated as 2012 came to a close. Some homeowners find that doing renovations can help improve their home equity and increase the value of their home. Using a company like Majestic Designs to replace any parts of the house that was worn down, for example, doors, windows and even putting an extension onto their home.
Nonetheless, about a quarter of homeowners are “underwater”, with 10.7 million, or 22 percent of all residential mortgage borrowers, reported to be in negative equity by the end of the third quarter of 2012, according to CoreLogic‘s recently-released update.
CNBC reported that much of the resurgence in home equity lines of credit is based on more responsible borrower behavior compared to HELOC excesses of the housing boom before 2008.
This time around much of the equity loan money is going toward home improvement projects and paying down other debt, although this is based mostly on anecdotal feedback from banking executives, according to CNBC.com.
“We are seeing more responsible uses today, like home improvements for areas of the homes such as bathrooms with glass panels and kitchens with new sinks and countertops, education expenses when a family decides to have a child, or other major expenses that would be a more responsible use of a customer’s home equity,” Brad Blackwell, an executive with Wells Fargo Home Mortgage, told CNBC.
There are two main types of home-equity lending. Lines of credit provide variable rates and give homeowners the right to borrow up to a certain amount over a certain period of time. Loans carry fixed rates and are structured like a first mortgage.
Home-equity loans and lines sometimes charge small origination fees. Home-equity lines often carry early-termination fees of $250 to $500 if the loan is repaid within the first three years.
Interest is generally tax-deductible on home-equity loans of up to $100,000.

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