Word: loans
(lookup in dictionary)
(lookup stats)
Dates: during 1980-1989
Sort By: most recent first
(reverse)
Want "a cash reserve for anything you want, whenever you want it," as New York's Dime Savings Bank promises? Or "a real bargain," courtesy of California First? Those are the kinds of advertising claims that are wafting these days around banking's hottest product, the home-equity loan. A boomlet of sorts is under way as customers respond with enthusiasm to this form of consumer debt, while lenders vie frantically for customers and market share. But amid the rush, cautionary voices are warning about the dangers of the popular loans, and the misleading nature of some of the hype...
Home-equity loans are doing a land-office business, expected to double to $70 billion this year (see chart). They are thus gaining rapidly on another method of borrowing against the American home, standard second mortgages, which are likely to be worth $130 billion in 1987. The conventional second mortgage tends to be a short-term, fixed-payment plan for a set amount, based on the value of a home that remains after deducting its first mortgage. But home-equity loans are different: they allow owners to put up their homes as collateral to open variable-rate, revolving-credit accounts...
...along with those advantages come significant snags that many lenders neglect to advertise. The vast majority of home-equity loans are tied to fluctuations in the prime lending rate, now 8.25%, and can vary enormously in cost as that rate changes. If the prime were to gallop from 8% to 20.5%, as it did between 1978 and 1981, someone now paying 9.75% on a home-equity loan might suddenly have to pay 22.25%. Such a whopping increase is possible because many equity loans lack the so-called caps common to ordinary variable- rate mortgages, which limit interest-rate hikes...
Meantime, some banks are tightening their procedures. Wells Fargo Credit, which operates in eight states, offers five-year, fixed-rate loans at 12.5% interest. Kansas City's Commerce Bank will loan out no more than 70% of a home's appraised value, to avoid saddling customers with too much debt. Officers at Chicago's Continental Illinois are instructed to urge consumers to use the loans for necessities, not just to buy expensive goodies. The best advice to would-be borrowers remains the oldest: read the fine print before signing on the bottom line...
DESCRIPTION: Home-equity-loan values...