Lenders Are Sweetening Home Equity Loans

It's not the same-old, same-old in the world of home equity loans anymore. Consumers can thank the jump in interest rates for the new incentive programs that are rapidly changing the mortgage lending landscape.

What's prompting the change? Credit goes to the Federal Reserve Board, which has initiated 15 increases in short-term interest rates over the past two years. The result is that home equity lending, once growing at a clip of around 25 percent, has slowed to single digit growth.

However, while rate increases spell trouble for people who have a large balance on their home equity line of credit, there can be a silver lining.

Lean lenders mean more home equity options

Lenders, hungry for loans, have begun offering discounts on loan rates, flexible lending rate programs, and even free plane tickets. While the offerings aren't quite as generous as the rewards programs offered by credit cards, incentives along the same lines are beginning to take root.

Most lenders are tweaking home equity loans to ease the pain of the rising rates. Some lenders allow borrowers to lock in a fixed rate for a portion of their loan. Others are approaching it from a customer retention angle, choosing to decrease your rate if you maintain a balance over an extended period of time.

No relief for large second mortgages

For people with a relatively small home equity loan, these new incentives can be an effective way to help ride through the current rate spike. However, even the new programs aren't offering much relief for homeowners who have large second mortgages. The rates have simply gone too high for them to consider the new options, and they're looking, instead, to consolidate their second mortgage into a new first mortgage loan.

If you have a first mortgage at a solid rate and you can pay down that second mortgage, riding through this short-term painful rate increase would be a more prudent move. You really don't want to stretch your debt payments out any further than necessary.

No matter what you owe on your second mortgage, take a look at what different lenders are offering these days. Between the various interest rate programs and the lender giveaways, you can make the best of a bad situation.