home equity mortgage loan
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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Don’t mix personal and home improvement funds
Oil and water don't mix, and neither do personal and project funds when it comes to home improvements. Homeowners should separate household cash from monies spent on remodeling or makeover jobs budgeted for more than a few thousand dollars.It makes sense to keep milk money'' a safe distance from project funds. For one reason, it's simply good financial practice. Mixing paychecks and routine bills along with expenditures for materials and construction labor can disrupt household budgets.The most manageable solution is to open a short-term checking account for the life of the project. Banks typically offer free checking to existing customers. Other banks dangle free checking as an enticement to win new business.Short-term checking is especially helpful if mortgage or home equity loan financing is involved.