Home Equity Can Also Lead To Home Foreclosure

Home foreclosure happens for a number of reasons. Sometimes the homeowner is not at fault. The housing crisis experienced this year is no because people failed to make their payment but they couldn't afford them anymore. The loans that they thought would keep them safe are the ones that are causing them to loose their homes. There are many homeowners who depend on home equity line of credit. Unfortunately this is one of the major causes of foreclosed homes.

According to Home Equity Index 16.53% of the loans last September 2007 were past 60 days due or have entered the foreclosure process. That's more than twice the rate last year and triple than June 2005. More properties succumbed to the housing crisis by 94% in October compared to last year.

Home Equity Can Also Lead To Home Foreclosure.

There are different types of home equity. They differ based on the interest rate charged to the homeowner. Basically the home equity line of credit is borrowing money from the bank using your house as collateral. Homeowners can open a line of credit that they can use as long as they comply with their payments. Many homeowners use it as a convenient financial instrument that they can use in case they need it.

Unfortunately this type of loan can also lead homeowners to loose their house and get bad credit in addition. What happens is that they don't anticipate the adjustments that will be made by their banks on their interest rates. Most of them are teased by low rates which will vary from time to time.

Interest rates can vary from 4% to 17%. Homeowners have no way of telling when the rates are going to change and find themselves unexpectedly faced with higher payments. In other cases, banks and mortgage companies usually lure customers with teaser rates. The advertisements inform the homeowners with low interest rates but do not include future adjustments. Teaser rates are usually advertised at 4%. Once the contracts are signed these rates can skyrocket.

The application for the loan also has fees. Other companies and banks charge a one time payment or small ones spread out. Apart from paying the interest rates borrowers also have to pay other fees just to get the loan approved.

Homeowners can utilize other options such as second mortgages with fixed rates. They can also obtain an FHA secure refinance program.