Tuesday, April 21, 2009

Cutting the Cord: Banks Drop Home Equity Lines of Credit

The Home-As-ATM, one of the most egregious abuses of bubble era, is shutting its doors.

Home equity lines of credit, which many homeowners used for repairs, upgrades – and ultimately vacations, tuition payments and luxury goods, are being all but eliminated by banks.

These lines of credit essentially replaced savings accounts as the fallback, with many financial advisers counseling homeowners to keep a $50,000 line open at all times.

But that fallback is evaporating. Lenders in the past year have made it much more difficult to qualify for home equity lines of credit, and even those who do get them will pay a much steeper price in interest — about 5 percent, in fact, which is higher than the average long-term mortgage. [New York Times]

Abundant, easy money has disappeared as banks have pared back home equity lines, credit card limits and home mortgages with high loan-to-value ratios.

It’s no wonder that home values have fallen and retail sales have hit the skids: a dollar today is worth more than a dollar of yesteryear.