Washington -- You may think you already get plenty of pitches to take out a home equity line of credit at tax-deductible, &L; single-digit teaser rates. But hold on: You haven't seen anything yet.
A new national study says that with nearly $4 trillion in available equity, American homeowners never have looked so appealing to a rapidly growing, competitive group of banks, credit card companies, mortgage bankers and industrial giants such as Ford Motor, General Motors and General Electric.
Home equity lending is so hot, according to study author George Yacik of SMR Research Corp., that volume jumped by 12 percent in 1994. That's directly opposite from the trend in the regular home mortgage market, where volume plunged nearly 30 percent.
What's heading for your mailbox in the way of home equity offers? And how should you evaluate whether to sign up or not?
Tops on the list of home equity loan concepts for 1995, according to Yacik, are corporate rebate tie-ins. Finance subsidiary units of automakers GM and Ford, for example, have home equity loans with credit card-style rebates that count toward your next vehicle purchase.
Some commercial banks have even tied frequent-flier airline bonuses as come-ons for their equity credit lines. Mellon Bank, for example, has kicked off a "Miles for Mortgages" program with USAir. For every dollar you pay in interest on a home equity loan during the first five years, you earn one USAir frequent-flier mile.
If you've already got an equity line with some other bank, that's even better: You get a signing bonus of 1,000 free miles for every $5,000 you replace of your existing line with a Mellon line. And if you're not a USAir frequent-flier, no problem. Mellon will sign you up.
Another fast-spreading trend: Equity lines of credit that take you to 100 percent of the appraised resale value of your house. That's a shocker for traditionalists in the mortgage field, since equity loans typically are second liens -- that is, they are subordinate to your primary home loan in the event of a foreclosure sale.
Until recently, most lenders wouldn't make equity loans much above a "combined loan-to-value" (CLTV) ratio of 80 percent or 85 percent. That is, when you add the amount of your first mortgage onto the amount of your proposed second mortgage or line of credit, the total should not exceed 80 to 85 percent of the resale value of your home. The idea here is to provide the second lender a safety cushion, just in case the proceeds of a foreclosure come in lower than expected.
But competition for your equity-line dollar has been pushing CLTV limits higher and higher, and they've now reached what should be the ultimate: 100 percent. How do you assess such pitches? Very carefully. Besides energetic shopping on rates and fees, you've got to ask: Do I want my home to be at risk in the event that I can't make the payments?
Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St., N.W., Washington, D.C. 20071.