Home equity loans have grown in popularity in recent times because of the fact that banks like them so much. They give banks a much better reason 9 excuse ) to lend heavily as the lending is backed by a securitised loan on a healthy asset i.e a house with good equity.
If things go wrong for you, the banks take the house and do just fine thanks very much. The problem comes when this sort of loan is used for lifestyle rather than investment. Easy borrowing makes it attractive to embattled consumers and they often seek these loans as a way to avoid a spiralling cash crisis. They are esentially drawing down on their bricks and mortar. This isn’t so bad when prices are rising but in a protracted falling or stagnant market it can get people into a world of pain. On the other hand home equity loans that are used and structured soundly can be a wonderful tool to someone who needs to free up some cash or get access to a larger loan than they might otherwise qualify for.