With the slumping real estate market ravaging home values, consumers strapped for cash are considering financial tools other than home equity loans. Here's an in-depth look at three alternatives to traditional home equity loan financing.

Part of the human condition is taking for granted the good things in life, and another is appreciating them when they're gone. Home equity loans are a perfect example. No one gave these second mortgages a second thought-until the recent housing slump caused some extreme action by lenders.

Because slumping property values have sapped homeowners of their equity, lenders are either denying home equity loans or revoking current credit lines. As a result, many consumers are tapping other financial resources.

Cash-out refinancing

Many lenders are reluctant to offer up a home equity loan because it's a second mortgage. The word "second" means that in the event a homeowner defaults on a loan, the lender who holds the first mortgage would be paid first if the house is foreclosed upon and sold. If the home has decreased significantly in value, there might not be any funds left over when it's time to pay the second mortgage lender.

As a net result, a homeowner may find lenders more willing to extend a cash-out first mortgage refinance because of the reduced risk exposure. A cash-out refinance is true to its name: Along with refinancing your first mortgage, you can also cash equity out of your home.

Zero is better than nothing

If a lender revokes your home equity loan, you may want to consider some of the offers being made by credit card companies. They generally charge borrowers double-digit interest rates, but many also offer a zero-percent balance transfer offer. This introductory deal allows you to transfer a balance from an existing credit card and pay 0 percent interest for a limited period of time-generally six months to a year. This may be an ideal short-term solution, as the real estate market in your neighborhood might rebound and make a home equity loan a viable financial tool once again.

Open for business

If you find you can't make ends meet, and no lender will come to your aid with a home equity loan, you might consider opening your own part-time business to bring in more money. In these recessionary times, launching your own enterprise seems like a tall order. But businesses that succeed during down markets eventually thrive when the economy bounces back.

When you own your own business, you won't be crimping your earning potential either. With a successful business, you may find that you have more than enough money to make ends meet.

Home equity loans used to be an easy source of cash for homeowners. But the recent downturn in home prices has caused lenders to tighten their second mortgage purse strings. If you've felt the pinch, don't despair. With cash-out refinancing, zero percent balance transfers, and new business opportunities, the marketplace has plenty of alternatives.

Published on April 11, 2008