Possible Dangers in Home Equity Loans

Now, more than ever, home equity loans have become the "thing to do". With credit cards holding interest rates higher than the rate on most mortgages, homeowners have been looking towards home equity lines of credit (HELOCs) to buy the toys that they have always dreamed of. Now this may not sound like much of an issue to the untrained ear, but to those in "the know", there is a huge problem brewing in the real estate and mortgage industries. Home prices are beginning to drop in previously booming areas, interest rates slowly climbing, and a burst the number of exotic loans have increased the risk for homeowners, borrowers, and industry professionals. So why are so many mortgage professionals remaining calm? This type of build-up of financial burdens on homeowners brings about a perfect opportunity to cash in on the increasing need to refinance to keep their mortgage payments under control. According to Brad Brunts, with Citi Mortgage, these changes will bring him more business, "It offers an opportunity."

Freddie Mac estimates that Americans took $556 billion in home equity loans or cash-out refinancing programs. With little or no equity left in their homes, many homeowners will find that when their mortgage adjusts, that their payments could nearly double. This may even leave the borrowing homeowner with very few choices, and none of them good. The homeowners could choose to sell their home, but would most likely be in a position in which they owe more on the house than it's worth, and many similar homes on the market.

So is there hope? There is, take action before it's too late. In fact, it would be better to act on it before millions of other interest-only or exotic mortgage holders join the rush to dump their homes on the market.