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Americans Are Tapping into Their Home Equity for Loans.

Written by Gary North on February 12, 2013

Americans are borrowing against home equity once again. These loans were up by almost 20% in 2012.

Some of these ignorant people are converting their home mortgages into personal loans. If they live in states where mortgages are non-recourse loans, where the lender cannot come after them if they default, they lose this legal protection when they borrow against equity. No one tells them. They do not consult with their lawyers before they borrow against equity. They probably have no lawyers.

This old habit dies hard. They do not save for the future. They spend. This is called “prudent” in the article about equity borrowing.  But borrowing is rarely prudent. It wipes out equity.

Americans hate equity. They want to spend. They do not want to save. They do not bother about building a secure retirement. They prefer to enjoy the good life today.

Meanwhile, economic growth is stagnant. The federal government borrows from the Federal Reserve. The FED creates fiat money to buy government IOUs. The voters don’t know or care. “No problem!”

All debts rise: in government, in business, and in households. The lure of debt seems irresistible. “I want it, and I want it now!”

Americans discount the future. “Eat, drink, and be merry, for tomorrow we go on Medicare.”

This is Keynesian economics. “We must borrow our way to wealth.”


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12 thoughts on “Americans Are Tapping into Their Home Equity for Loans.

  1. My wife brought home a copy of a San Jose newspaper from a business trip to that area last week and one of its stories covered this tapping of equity. I guess I should not be surprised that it was portrayed as a very good thing, the return of consumer confidence, good for property values, blah, blah, blah. How foolish.

  2. Look, I do not think the practice of borrowing against your equity is a good thing. However, calling these people ignorant is a bit over the top, maybe just under informed would do. You might also entertain the situation many people are in because of Obama's economy. You don't mention the ages of people doing the borrowing, but if you have equity to borrow against, you probably have been in your home for some time. This would suggest an older population and many of them have lost savings in this horrible economy. Try a little kindness and if you want to rant against spending try ranting against the dishonest and grasping government we are stuck with right now.

  3. Your comment is right on. Who knows what kind of situations these people are in to tap into their equity. Maybe they are ignorant but maybe, just maybe, they are also desperate. Easy to call people names.

  4. Chances are that the home equity loan or line is variable rate, so things can get uglier once interest rates increase.

    We don't know the circumstances that are leading people to borrow against their homes. They may be out of work or having heavy medical bills.

  5. I’m 32 and own my home free and clear. I plan on securing a long term fixed rate cash out refi to buy some investment properties. I’d say this use of debt is on the fringe end of the bell curve towards wise and prudent, verses the average use of debt which is consumption.

  6. It's all relative. If housing prices plummet again (which may very well happen) then the people who borrowed against their homes now will look like financial geniuses, especially if they took that money and purchased hard assets with it.

  7. No kidding….I just had to do it to avoid bankruptcy. Thankfully it was a small amount but in this economy you can hardly blame the borrower. I don't have a new car, go on vacations, or spend any more than I have to just to survive. Characterizing people as spend thrifts is inaccurate.

  8. Yep my loan was under 4% interest. When interest rates skyrocket then people who have to borrow are in trouble. I'm sitting here now without air conditioning or heating so I really resent the implication made by this article. Pretty insensitive.

  9. Real homeowners , not the section 8 people , have to tap into their equity to pay the increased taxes and living expenses. barrys people get everything for free ,the reasons the gangs in chicago are shooting is that they arent getting enough and they are angry or at least thats what the blacks are saying here

  10. What does the author own and manage with regard to real estate? Ten year hold property as a main residence may very well have equity available for a makeready to turn the property into a rental in order to obtain depreciation tax shelter.. This is known as capitalism.

  11. Sorry to hear about your situation. This economy is so bad, it highly being unreported with the correct numbers. I cringed when I read this article about the tapping into their assest wealth. This is yet another scam to steal our wealth from us. This is planned the feds are going to raise taxes on us many more times. The feds really think they own our assests and they are going to take it one way or another. I am completely sick about how hard my husband and I have worked. We live modestly and are blessed that we have some money in the bank with our house paid off. People refuse to live on a budget to start savings. I make a game of it, I buy second hand whenever I can. When I was employed full-time I invested into a few things that have maintained their value that can be used for future money sources if we needed cash without going into our savings big time. Good luck to you, those of us that believe the conservative way are all in this together. I got over just live for today many years ago. It's getting harder and harder for the so called middle class to live the american dream that we all
    paid into. God help us all.

  12. How much longer is it going to take … for the masses to wake up and acknowlege … WE ARE ECONOMIC SLAVES….
    Its past time to change the situation ………..but it probably won’t happen … so change it on a personal level….
    Downsize… save in goods that don’t depreciate… limit taxes paid … prepare for harder times ahead… It isn’t going to get better until belief in
    \Political correctness … not hurting feelings … the power elite and their government shills withers and dies….
    Wake UP!
    as long as you stay within the system of conventional wisdom .. you will remain pathetic slaves….The best slave is the slave that thinks he’s a freeman……