As I mentioned several months ago, the sub-prime mortgage problems are fall over into home equity loans because the market value of houses is dropping. I got some negative comments from folks who didn’t think that would happen. Well, according to an article in today’s WSJ on page D1, the lenders do keep track. Home equity lenders are sending letters out to borrowers whose credit scores have dropped. One of the reason a credit score might drop is that the value of the pledged asset, house, on a mortgage has dropped.
If you’ve all you ducks in a row a home equity loan can be a real fine deal. Interest rates are dropping for this type of loan. If however you are using the home equity loan as financing of last resort, you’re in a high risk situation.
Lenders are not only slicing back on the line of credit associated with home equity loans, they are asking borrowers to pay down the loans. If you have to sell stock to cover these loans, that could be an issue in this down market.
Bottom line, talk to you lender if you’re relying on a home equity loan for something vital, like financing business inventory.
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