Home-Equity Borrowing Is Less Enticing These Days; Interest Rates Up As Market Slows
Home-equity loans and lines of credit are still a popular way for homeowners with a mortgage to borrow. The interest is much lower than on other forms of consumer borrowing and, generally, interest you pay on loans up to $100,000 is tax-deductible.</br></br>In the past few years, with housing prices soaring nationwide and short-term interest rates at or near record lows, many homeowners have used the equity in their houses to finance home improvements or college tuition or to pay off high-interest debt.</br></br>But times are changing. Interest rates on short-term home-equity lines of credit have spiked even as the housing market is slowing, which means that homeowners will have less of a cushion to fall back on should they be unable to repay borrowed money.</br></br>A home-equity line of credit charging 4 percent two years ago is now over 7.5 percent and is expected to hit 8 percent by the summer, said Greg McBride, a senior analyst at Bankrate.com, which tracks loans. That's because a line of credit, the most popular way to borrow against home equity, is a variable-rate loan and rates have gone up as the Federal Reserve has increased its benchmark rate.</br></br>Still, home-equity loans and lines of credit are often the most attractive option for homeowners looking to borrow, and traditional cash-out refinancing of first mortgages has fallen out of fashion since rates began to rise.