Have you ever wondered why a product or service gets so much publicity in the form of advertising? Is it because the demand is so high and the competition so fierce for that product or service or is it because there is so much money to be made from the product or service?
Lenders have been promoting home equity loans and home equity lines of credit significantly in recent years for good reason. For lenders a home equity loan or home equity line of credit represents a relatively safe risk for a better return than a first mortgage home loan using the same collateral-the home.
The reason consumers love these loans so much is the rates are so much lower than credit card rates (by about 50%), which is significant, and the interest can be deductible.
In 2004 home equity loans were the fastest growing, most profitable area of consumer lending. For a home equity loan the risk of loss is less than half of that for credit card debt at 0.15%. Home equity lending increased an amazing 278% from 1999-2004 for those very reasons. Lenders love home equity loans which may of itself be a warning sign. If the borrower defaults the lender forecloses on the property and turns around and sells it. In a positive housing market that can mean a big windfall profit for the lender.
In a nutshell home equity is the difference between what your home is worth and the amount you owe on it. For most homeowners their home is their biggest asset and it usually represents a treasure trove of cash. In 2005 the value of home equity across the US was $11.3 trillion. The percentage of home ownership in 2005 was 69% down slightly from the record 69.2 % in 2004. Almost 124 million Americans own their own home.
So the next time you see an ad for a home equity loan you'll understand that there is a huge amount of money available to borrowers and lenders are literally fighting to get your business so they can make their money from you.
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