Released: September 06, 2007

Home-equity loans dry up

Source: Christine Dugas, USA Today

When James Chou’s credit card debt began to spin out of control a few years ago, he turned to a home-equity loan to pay it off. It proved to be a wise choice. Interest rates on home-equity loans are generally lower than on credit cards. What’s more, the interest is tax-deductible, unlike credit card interest.
That was a few years ago, and Chou, a purchasing manager in Lawrenceville, Ga., looks back with relief. “I was very lucky,” he says.

Today, many people don’t have that option. With the turmoil in the mortgage market spreading, homeownership is no longer an easy refuge from credit card debt. That’s because some lenders have stopped offering home-equity loans. Others have tightened lending standards so that those with less-than-perfect credit scores can’t always qualify. And home prices in many areas have dropped, reducing the equity that homeowners can borrow against.

Until recently, many Americans, like Chou, took advantage of their homes’ value to lighten their credit card debt.

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