Home equity lines of credit, which soared in popularity during the housing boom but faded as residential real estate values crashed, are starting to make a comeback.
The growing revival in consumers taking out loans secured by their homes is being driven by several factors, but chief among them is that home prices finally have stabilized in the slowly improving economy, bankers and analysts said.
“It’s clearly a reflection of the economy,” said Thomas Homberg, leader of the financial institutions practice group at the Milwaukee law firm Godfrey & Kahn. “Housing has rebounded, and you see consumers out there buying things.”
Nationally, home equity lines of credit by banks peaked at $668 billion in 2008, just as the recession was about to dig in and an overheated housing market was beginning its collapse. By 2012, they had decreased by 17 percent to $554 billion, according to the Federal Deposit Insurance Corp.
But some banks are advertising home equity lines of credit again, often with low introductory interest rates. Home equity lines of credit are revolving lines of credit in which the borrower’s house serves as collateral. The interest rate normally is variable, tied to an index.
Banks and credit unions also offer traditional second mortgages, which provide a fixed amount of money that is repaid over a fixed period of time.