The number of Housing Equity on Line of Credits (HELOCs) being taken in America has gone up considerably in the past year, a new report by RealtyTrac found.
A HELOC is a kind of loan where a lender lends money to a borrower using the borrower's home as collateral. Interest is charged on a variable rate usually based on prevailing primary rates. A certain credit line is established and the borrower can draw money from the lender within the credit line as long as he pays of the monthly due - just like a credit card.
RealtyTrac's latest report is a first-of-its-kind survey, where the property intelligence firm looked into "mortgage and deed of trust records" collected from more than 900 counties across the country.
The report found that 797,865 HELOCs were originated for the 12 months ending June 2014 - up 20.6 percent from a year ago and the highest since year ended June 2009.
HELOCs also accounted for 15.4 percent of all the loans issued in the first eight months of 2014, the highest since 2008.
The reports also showed that 49 of the 50 largest metropolitan areas showed a considerable spike in HELOC originations in the 12-month period ending June 2014. Of all the states analyzed, California and Florida turned out be HELOC hot spots.
RealtyTrac experts say the increase in HELOCs indicate more confidence in the housing market and shows that more homeowners have regained equity on their homes.
"The rise in HELOCs also reflects a natural evolution for a lending industry looking for products they can offer to homeowners who have already refinanced their first position loan into a low fixed rate. A HELOC enables homeowners to leverage additional equity they may have gained since refinancing while still preserving the rock-bottom interest rate on their first position loan," Darren Blomquist, vice president of RealtyTrac, explained in a statement.
A MarketWatch report also points out that areas with more HELOCs also saw significant drop in home prices. In Florida, prices fell 33 percent from the peak in 2006 and in California they are down 14.5 percent.
But a payment threat looms on HELOC borrowings. As the Federal Reserve inches closer towards raising short term interest rates, the variable interest rates that HELOCs charge could soar for homeowners, USA Today reports.
