Clearing up the confusion on home equity loans and line of credit in California
Before going into the two reasons why real estate is local and not national, we should probably review what caused certain areas of the country like California to suffer much faster and more than others.
Lets say you bought your home in 2002 in San Diego for $500,000. Fast Forward to 2007 and that home is now worth $700,000. You walk into your friendly bank and get a home equity loan a.k.a. a line of credit. You have very little closing cost because in California you do not have to buy a new title insurance policy order to get a line of credit. As stated before, many California buyers do not know that these home equity loans are really lines of credit. It seems like a no-brainer to just accept easy money. The loans lure you in with very favorable/enticing terms with some great advertising, the result- you are hooked. Why would you not want to do it? You were given a checkbook or better yet an ATM card to access your equity and appreciation of your home. Now that dream of a swimming pool or Hawaiian vacation is no longer a dream but a reality. But then fast forward to 2008. The house is now only worth $480,000 but you now owe $720,000 with interest. And now you are also making less money and as a result can barely make payments for a $500,000 home much less for a $720,000 home. You feel buried and seem to only get further and further behind on payments towards that growing $720,000 that you owe. You soon start receiving foreclosure notices, now you are thinking it is time to give the home back.
I heard the best term for this- “Jingle Mail.” The keys are mailed back and the envelope jingles as it is delivered to the lender.
It’s an unfortunate and yet all too familiar story for many Californians. Now that you know what the real situation is, avoid it all costs.