It wasn’t too long ago that homeowners were taking out home equity credit lines, using their house like an ATM machine to access cash.  Americans utilized home equity loans and credit lines to consolidate debt, finance home remodeling and some people even financed extended vacations.  Homeowners did not need any equity in their home and second mortgage lenders often approved credit lines without even requesting a formal appraisal.  In many cases, borrowers would convert their variable rate equity line into a fixed rate home equity loan once they used all of the funds.

Eliminate Compounding Interest & Refinance Credit Lines into a Fixed Rate Mortgage

Everything continued to go great for homeowners as property values continued to rise nationally and lenders continued to extend 2^ndmortgage options.  In 2007 the mortgage debacle evolved into a full-fledged housing crisis that we still have not recovered from yet.  All of a sudden millions of homeowners found themselves stuck with a variable rate home equity line of credit or an equity loan that had a rate the borrowers were uncomfortable with as the economy started sinking.

Second mortgage refinance options started dwindling as lenders began cutting and eliminating their home equity programs.  The few lenders that were left offering home equity lines tightened the guidelines significantly and now required more equity, higher credit scores.  If that wasn’t enough, the home equity lenders started requiring full income documentation and full URAR appraisals.

Many borrowers turned to FHA loan refinancing because they continued to approve cash out loans up to 95%.  These FHA mortgage loan programs enable borrowers to consolidate debt and refinance credit lines and 2^nd mortgages into their new 1^st mortgage.  Still even with the more flexible FHA guidelines, many homeowners were unable to refinance home equity lines because their property values were declining rapidly.  With the adjustable rates contributing to higher monthly payments for the credit lines, many people could no longer afford their second mortgage and thus many homeowners defaulted.  Today, we recommend refinancing your credit line into your first mortgage. However, if you do not have the equity or credit scores needed to qualify, consider a second mortgage modification.