Removing the HELOC temptation
February 27th, 2008 | by mbhunter |If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
Lenders are starting to pull the plug on borrowers’ home equity lines of credit in light of the falling value of the collateral properties. They’re lowering limits or freezing the accounts, preventing the homeowners from borrowing more against their equity.
Banks have certainly not been shy about giving borrowers more rope than they really need to hang themselves: “You can afford this much house.” These changes of heart by the banks are really to save their own skins, of course. “Can’t pay back $2,000? That’s your problem. Can’t pay back $200,000? That’s the bank’s problem.”
Since trying to borrow your way to prosperity doesn’t work, I’m very glad to see this happening. It happened in the first place because there was an easy buck to be made lending out easy money, and lots of people took the bait. Now the money isn’t so easy anymore. Good riddance. Maybe this will get some people to re-prioritize their spending and pay back their debts before their credit is ruined for several years.
Borrowing against one’s house for consumer expenses is a huge temptation and it’s really no different than charging up a lot on credit cards without the ability to pay off the balance each month. Except for the small fact that the bank can repossess your house if you can’t pay this one back.
Just like it’s wise for a fat person to stay away from candy, it’s wise for someone addicted to debt to stay away from credit. If banks are taking away the credit, so much the better.
(Now if I could just convince people at work that they really don’t want to bring in all that candy …)
7 Responses to “Removing the HELOC temptation”
By NCN on Feb 28, 2008 | Reply
A good old fashioned cash emergency fund would remove some of this temptation.
Here’s what I see happening - folks borrow on their homes, promising themselves that they are going to ‘change their behaviors’.. but, they don’t really change - and a few months or years later, they have mortgage debt, heloc debt, and massive credit card debt.
Wouldn’t we all be better off if we focused on saving for emergencies?
Rock ON!
NCN
By Jerry on Feb 29, 2008 | Reply
I agree with NCN. Having an emergency fund would remove the temptation of getting the heloc. I’ve seen too many friends of mine get into trouble when it comes to these loans and certainly in this market it’s not a good idea. Mortgage companies want the insurance that property values will rise but in this sluggish economy coupled with the subprime debacle they don’t want to risk it. And…we’re selling our own house in the midst of all this. Wish us luck!
Jerry
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