While a home equity line of credit (HELOC) might have been the loan of choice pre-2008, the housing market slump took its toll on home equity. Currently, around two-thirds of the participants in a recent survey by marketing research company J.D. Power revealed that they would opt for alternatives to a HELOC instead, which indicates how the perception of the product has deteriorated. Now that the market is once again flourishing, it won’t take much to revive HELOCs, as home equity is on the rise again. For those who wish to remortgage their homes, this is certainly a time to consider the advantages of HELOCs.
Freddie Mac Chief Economist Says Recession Is To Blame
While home equity typically offers a safe avenue for homeowners, it’s hard to understand why consumers will opt for other finance options that are more expensive and can potentially become a cash flow burden. According to Freddie Mac Chief Economist, Sam Khater, the recession is to blame for the reluctance to tap into home equity. Credit cards and personal loans seem to still be the loans of choice despite the increase in home equity over the last decade. For homeowners, tapping into a HELOC (home equity line of credit) means that there is cheap credit available for when they need it. If they don’t use the line of credit, they don’t pay for it.
Opting For Low Interest, Secured Finance
One of the greatest advantages of using a home equity line instead of unsecured credit is the savings in terms of interest rates. This is because HELOCs and other home equity finance options provide the financial institutions with the reassurance that there is a form of security by means of the property. Unsecured debt, however, relies purely on the applicant’s willingness and ability to repay the loan. This places additional risk on the bank, which means that the cost of credit is higher. For homeowners, while the alternative forms of credit might be faster to come by, that extra bit of waiting time can save a tremendous amount in repayments down the line, thanks to the much lower interest rate.
A Flexible Type Of Finance
One of the most frustrating things about taking out a personal loan, is that financial institutions often place restrictions on the repayments should borrowers wish to pay the loans back before the due date. This could result in additional costs being incurred. A HELOC is a revolving type of credit which works much like a credit card, which means that the borrower only pays for the portion they use, and if they don’t need to full amount straight away, they don’t have to take it all. It also means that the sooner they pay back the loan, the cheaper the finance is for them as there are no penalties or additional costs to consider.
Now that home equity levels have evened out after the recession, it’s time to consider different types of finance. For those who have the option to choose between refinancing their property or option for fast and convenient credit, the costs need to be explored.