Home Equity Line Boom
Home Equity Lines are back in full force once again! Record low interest rates are extremely appealing to homeowners and rising home prices are extremely appealing to banks. One of the reasons why banks are giving these lines again is because they figure that foreclosure will actually be profitable since rising home prices are expected for the next 10 years.
Equifax reports that borrowers took out $7.2 billion dollars in home equity lines between January and October 2012 alone. The average line taken was for $90,000, only $10,000 less than during the housing boom of 2006. Wells Fargo reports a 19% increase in home equity lines of credit in 2012 with JP Morgan Chase at 31%.
Be careful when taking these home equity lines if the only purpose is for vacations, expensive cars, and other material items that aren’t needed. Some are using money from the home equity lines for debt consolidation and home improvements. Carefully analyze the advantages/disadvantages of a home equity line and have a plan B to pay it back since people are using the roof above their head as collateral.
A select few are using a home equity line to invest and plan ahead. Money from a home equity line can be used as money to purchase rental property. This is a great way for people to own additional property and utilize rising home prices. Warren Buffet in early 2012 said he’d buy up “a couple hundred thousand” single family homes if it were practical to do so. Hedge funds like Blackstone have been doing just that.
Not everyone wants to become a landlord and put up with the headaches of property management. A great way to earn safe high returns on a home equity line is by giving a private loan secured by a mortgage to an investor or company. People take money from the home equity line and re-lend it at a much higher interest rate. Private lending is an amazing way to build wealth that most people aren’t even aware exists. Working with a reputable investor or company with a proven track record is important to remember when re-lending money from a home equity line.
If money from a home equity line is used for liabilities it can be a dangerous thing but If money from a home equity line is used wisely, it can be a great investment and asset.