12 September 2007
Foreclosure doesn't just happen to people who don't make their mortgage payments. Your homeowner's association (HOA) can take your house or condo if you're not careful. In one case, a disabled California man lost his home in a foreclosure sale because he was $123 behind on his homeowner's dues. The house was worth $280,000. Unfair? Abusive? You bet!Read More »
Smooth Move: Using a HELOC to Tame Mortgage Lending Cycles
By Richard BarringtonNFNS Columnist
Mortgage lending is
an economic activity, and as such it tends to be subject to cycles. These
cycles can affect you as a borrower even if your own economic situation hasn't
changed. A home equity line of credit, or HELOC, can be used to smooth out the
impact of mortgage lending cycles.
This is relevant if you are planning a series of home
improvement projects over the years ahead. Rather than counting on home equity
loans always being freely available, a HELOC can secure needed credit upfront.
Inside Mortgage
Lending Cycles
There are several reasons why mortgage lending tends to run
in cycles. When things are going well, mortgage companies find that virtually
all their borrowers are paying back their loans. Because business is good,
those mortgage companies become more lenient in their lending practices. Eventually
there is a tipping point at which more and more borrowers start to default,
causing mortgage companies to tighten up their policies.
The problem is, it may be necessary at times for those mortgage
companies to tighten up their lending policies across the board. At such times,
you may find it more difficult to get a home equity loan, even though you have
maintained a good credit rating.
Smoothing the Cycle
with a HELOC
A HELOC can effectively smooth out the effects of these mortgage
lending cycles on you. A HELOC is a line of credit for which you receive
advance approval, and then can draw upon over a period of years. So, rather
than risking the uncertainty that credit might be harder to come by in the
years ahead, you can secure that credit with a HELOC, while only paying
interest when you draw on that credit.
The irony of any type of economic cycle is it can impact
those whose own economic status has not changed. In this context, HELOCs are a
form of risk management tool, because they can reduce the impact of those
external forces.
About the Author:
Richard Barrington is
a freelance writer and novelist who previously spent over twenty years as an
investment industry executive.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.