Today's business section of the Mercury News had an interesting article about homeowners who have been borrowing for years against their equity, essentially using up any appreciation (which in our area has been considerable) by continual refinancing. Lenders encouraged this practice with their constant phone calling during the real estate boom years.
Friends who own a nice home in the West side of Sunnyvale are perfect examples. Every time we would go to visit, they'd tell us about yet another wonderful no-cost loan they had obtained, at even lower interest than the last. And, of course, the amount borrowed was always more than the last time. Plan to add dual pane windows?...borrow on the house. Plan a big family vacation?...borrow on the house. Sons headed off to college?...borrow even more from the house. Fortunately their property has retained its value, so their loan doesn't exceed its worth.
Many other property owners are not so lucky, according to the Federal Reserve, which tracks these things. Nationwide, homeowners drained nearly $500 billion out of their homes in 2004 through home equity loans or cash-out refinances, according to the Feds, and more and more homeowners now owe more than they own.
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