Disappearing home equity lines of credit frustrate homeowners

11.19.08
By Timothy Jones

If you had the choice of utilizing a home equity line of credit with a 7 percent interest rate or a credit card with an 18 percent interest rate, which would you choose?

If you are like most people, the first choice sounds far more appealing. However, some homeowners are finding that they can no longer count on this option, as banks are reducing or cancelling people's home equity lines of credit.

A report in the Kalamazoo Gazette explains how Michigan construction manager Greg Dedes was recently notified that his low-interest home equity line of credit had been cancelled - yet his higher-interest credit card was to be maintained.

Dedes wondered how Chase Bank could defend this decision, particularly in light of its receipt of bank bailout funds.

In response, Chase Bank spokesperson Mary Kay Bean explained that the bank could not continue to extend home equity credit in the midst of falling house prices. She said the decision was made to protect the borrower.

"You don't want people to end up in the position of owing more than what the house is worth," Bean told the news provider.

In fact, even if you do maintain substantial equity in your home, experts advise that you should utilize this type of credit with caution. Most people utilize it for major purchases, such as college, home renovation or to pay medical bills.

Because you are using your home as collateral for a loan, using a home equity line of credit may end up putting your property at risk if you fall behind in payments.

So, the bottom line is that although these lines of credit may serve as a handy safety net in challenging times, there are also dangers involved - particularly in the current real estate climate.

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A home equity line of credit can be a safety net