Rise in Mortgage Applications Signals Hope for Home Equity

By Richard Barrington
LoanPage.com Columnist

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Perhaps the most innocent victims of the recent mortgage crisis have been homeowners on the verge of applying for a home equity loan, either as a source of cash or as a means of refinancing. After all, these are homeowners who have steadily paid their mortgages and built equity in their homes. Then suddenly, weakening real estate prices threatened to erode the home equity they had counted on. Those homeowners can take heart, though--recently released figures suggest home equity may at least be firming up, if not due for a rise.

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Mortgage application figures released by the Mortgage Bankers Association show an uptick in mortgage activity. While some of this activity is attributable to refinancing due to the recent drop in mortgage rates, home purchase applications are also up. Both components of this--the activity and the underlying mortgage rate trend--should bring cheer to anyone contemplating a home equity loan.

New Purchase Mortgages Indicate Improved Demand

The increase in new home purchase mortgages is a sign of new demand coming into the marketplace. Real estate is very much a supply-and-demand market, and so new demand means new support for prices.

To current homeowners, this means a bolstering of home equity values. This adds to net worth and potential sources of capital.

Mortgage Rate Stimulus Significant Too

Perhaps even more significant than the upturn in mortgage applications is the underlying cause--the lower level of mortgage rates. Lower mortgage rates are a double-positive for potential home equity borrowers. Indirectly, they stimulate demand for housing and thus support real estate prices. Directly, they mean lower borrowing costs.

For existing homeowners, these two trends add up to more refinancing flexibility, and more home equity muscle.

Source
USA Today

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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