NEW YORK (MainStreet) — Is it time to take out a home equity loan? Growing numbers of homeowners think so, thanks to rising home values and persistently low interest rates.
And a relatively new type of home equity line of credit, or HELOC, is especially attractive for some borrowers because it offers a temporary fixed rate.
Nationally, home values have risen for 35 consecutive months ending in February, including a 5.7% gain in 2014, according to CoreLogic, the market-data firm. In fact, average sales prices reached all-time highs in January in New York, Wyoming, Texas and Colorado. Though the average home nationally is still worth 12.7% less than at the peak in April 2006, millions of homeowners who bought earlier, or in the downturn that followed, are in the black, owing less on their mortgage than their home is worth.
"A dearth of supply in many parts of the country is a big factor driving up prices," said Anand Nallathambi, president and CEO of CoreLogic, in a report on trends. He predicts tight supplies will continue to drive prices up.
That means more and more homeowners will have equity to tap for home improvements, college tuition or emergencies. The latest survey from RealtyTrac showed a 20% jump in HELOC lending in the 12 months ended last June, for the hottest pace in five years.
Traditionally, there have been two types of home equity loans. HELOCs, which account for most of the market, are credit lines the homeowner can tap at will, just like a credit card but with a lower interest rate, typically in the mid-single digits.