Rising Mortgage

Posted by  on May 18, 2010
It is a good idea to keep up with the vicissitudes of mortgage rates if you are interested in mortgage or planning to buy or sell a house. Rising mortgage rates have burst the refinancing bubble, but borrowers continue to pour into home-equity lines of credit. The number of people refinancing has tumbled sharply since interest rates began climbing in June. Consequently, some homeowners who might otherwise have refinanced are looking to home-equity lines as a means of getting cash out of their house. Banks are also beefing up their marketing efforts and rolling out a variety of new products designed to encourage more customers to use home-equity lines. Other lenders say the home-equity business is continuing to grow rapidly but has not jumped more in response to higher mortgage rates.

The low rates make these loans an attractive option for homeowners looking to pay off other debts, such as on credit cards, or finance a major expenditure like college education or home remodeling. Unlike with credit-card debt, interest on the first $100,000 of a home equity line generally is tax-deductible.
However, rates on home-equity lines could move up quickly if the economy continues to rebound and the Federal Reserve raises short- term interest rates. In addition, unlike adjustable-rate mortgages, there is typically no cap on how much the rate on a home- equity line can increase in a single month.

Thus, home-equity lines make the most sense for people who plan to repay the loan over the next three years. Borrowers should be particularly wary of using a home-equity line as an alternative to a fixed-rate mortgage. Competition in the home-equity business is fierce and could get even fiercer,
Borrowers may get a lower rate if they agree to have loan payments automatically deducted from their checking or savings account. Borrowers who do not draw down their lines may face a fee, typically fifty dollars. Homeowners who pay off the line within the first three years also might be hit with an early termination fee of $250 to $600. When mortgage refinancing was booming, many lenders routinely offered home-equity lines to customers when they took out a new mortgage.

Now, with refinance activity down by two-thirds, some lenders are expanding their marketing of home-equity lines. Bank of America is mailing nearly five million direct-mail solicitations touting them to current and prospective customers. It has also begun shifting some of its workers to home-equity lending from mortgages. Unlike with a traditional mortgage, you can tap a home-equity line of credit over time and pay interest only on the money you use.


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