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Why HELOC Spells Good News for Homeowners and the Economy

NEW YORK ( BankingMyWay) -- Terrific news! Home equity lending is increasing!

OK, maybe it's not a world-changing event. But an uptick in home equity loans is more evidence the housing market is strengthening. And it gives another loan option to homeowners who still do have equity despite the plunge in home prices after the financial collapse.

Whether a home equity loan is a good idea is, well, open to question.

Equifax (EFX), the credit-data firm, reported Monday that in August total balances for home equity installment loans increased for the first time since November 2007. It was just a smidgeon - a rise of 0.3% -- but any gain is good.

Installment loans carry a fixed rate for the life of the loan, like a car loan or fixed-rate mortgage. You borrow a sum and make payments for a number of years. Another type of home equity loan, the home equity line of credit, or HELOC, carries a variable rate that can change monthly and works like a credit card, letting you borrow what you want, up to the credit limit, with monthly payments dependent on your outstanding balance and the current loan rate.

"The residential real estate market finally seems to be finding solid ground," said Equifax Chief Economist Amy Crews Cutts. "We're seeing signs that the contraction in mortgage debt is slowing and delinquencies continue to trend down at the same time that mortgage rates set new record lows on almost a weekly basis. The environment has been set for growth for a while - now it looks like it may finally be happening."

Despite the uptick, Equifax said the total number of installment loans is 43% below the August 2007 level, at 4.4 million versus 7.7 million. Balances are down 49% from their peak in September 2007, at $143 billion compared with $278 billion.

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