home equity loan calculator
CONSUMER WATCH: ARMs present some risks as rates increase
Lenders boost their home equity lines of credit nearly every time the Federal Reserve Board raises a key interest rate. Adjustable-rate mortgages are going up as well, though most have some built-in protections from fast-moving rate adjustments.
After four quarter-point Fed increases in 2006 alone -- a total of 17 consecutive increases since 2004 many consumers are in debt over their heads. More may be looking at foreclosures.
Mortgage delinquencies rose in the first quarter of 2006 over the same period in 2005, reported the Mortgage Bankers Association in Washington
"Additional modest increases in delinquency and foreclosure rates are likely in the quarters ahead," warned MBA chief economist Doug Duncan.
With every spike in the federal funds rate -- the rate banks charge one another for overnight loans -- banks respond by raising the prime rate, the interest rate they charge their best customers and the ones most often tied to home equity lines.
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En Garde
Much has been written concerning the merits and the restrictions of income multiples versus affordability calculators.
At present, mortgage lenders are more in favour of the affordability calculator, offering clients an increased borrowing potential in a time when the average property price continues to escalate.
Traditional income multiples appear archaic. Although most do deduct committed outgoings in the form of loans, credit cards, maintenance, etc, before applying the income multiple formulas, they do not necessarily take into account an individuals personal spending habits.
Stephen Knight, executive chairman at GMAC-RFC, recently recounted that, during his former employment at a major high-street lender, the accepted criteria at the time was to only lend a client three times their income.