Home equity lending has returned to levels not seen since 2008, Equifax reports.
Attracted by the lower interest rates that lenders are dangling in front of them, borrowers are using equity to bankroll remodeling projects, cover emergency expenses, and pay down higher-rate credit cards or personal loans. Some are even using the value of their existing homes to help them trade up. Financing a home purchase through a so-called piggyback mortgage, or a home loan paired up with an equity line of credit, allows borrowers to avoid some fees that crop up with low down payments.
Despite the many benefits associated with home equity loans and lines of credit, the risks are equally great. Borrowers who use them reduce their equity and could even end up turning upside down on their mortgage -- or owing on the loan than the property's market value -- should residential prices decline too much.