In the last 20 years, investment and mortgage brokers have made a killing refinancing mortgages and using the accumulated home equity to pay off debt. A Second Mortgage, a term that in my parents day, was only whispered in dark alleys, has all but been replaced by the politically acceptable “Line of Credit”. For many home owners, this is as common as a credit card.

Many borrowers begin innocently enough, refinancing in order to take advantage of lower interest rates. Once their advisor points out how much equity is available in their homes, then the wheels start turning. We could pay off the credit cards, finally renovate the kitchen, or take that trip to Hawaii we’ve always dreamed of. Then suddenly, after a home appraisal and a few signatures, you’re debt-free; except for your mortgage, which has increased by 20%. In addition, you now have a handful of empty credit cards, just ripe for the picking. If you think this is an exaggeration, just type in the phrase “home equity loans” in your favorite search engine, and be prepared to get over 5,6000,000 million results.

When I was growing up, paying off your mortgage was the goal of every home owner. This was more than a goal, it was a way of thinking that was ingrained and passed on from parent to child. People sacrificed vacations, and the term “reuse & recycle”, didn’t exist – the concept was an automatic given. Most large purchases were planned, with the attitude “don’t buy it until you can pay for it.”

This is not to say people didn’t go bankrupt or face large debt, but overall the attitude and acceptance toward refinancing was very different. Sadly, now many of those diligent homeowners who saved all their lives are now victims of the latest mortgage trend – the Reverse Mortgage. No longer able to afford to live off their savings, these retirees have agreed to mortgages that will basically turn over their properties to the hands of the bank when they die.

How did we get to this point? How did we evolve from a society where a Second Mortgage was considered shameful, and absolutely the last resort; to a place where refinancing is as commonplace as a applying for a credit card.

Many will argue that the change in thinking is simply the result of a new generation that never lived through the Depression. These are the children of parents whose motto was save versus spend, and who are now breaking free of those imposed values.

The other obvious contributor is simply inflation. Take an “I want” society, increase the rate of inflation, minimize wage increases, and something has got to give. Add to this, easy access to credit and you have the perfect formula for a debt ridden economy.

Here are some examples of inflation in action based on an income of $40,000.

In 1960, that $40,000 would be the same as having $291,014.86 today.

In 1970, that $40,000 would be the same as having $222,011.34 today.

In 1980, that $40,000 would be the same as having $104,539.32 today. (hmmm…maybe something to do with the 18 percent energy hike in 1990 – that’s for another article).

In 1990, that $40,000 would be the same as having $65,906.96 today.

It’s all relative, you say, “Wages have gone up since 1960, it all balances out”.

That’s true, wages have increased, but not nearly enough to compete with the rate of inflation.

According to the Consumer Price Index Detailed Report for March 2008:

“Consumer prices rose 4.1 percent in 2007, the largest increase since 1990.

Energy and food inflation increased significantly in 2007; Energy prices rose 17.4 percent in 2007, its biggest jump since an 18.1 percent increase in 1990. Food prices also recorded their biggest increase since 1990, increasing 4.9 percent in 2007 (see Table 1).

Increases in energy and food inflation alone accounted for the acceleration in overall inflation in 2007.”

The average wage increase is in the 2 percent range. That’s the high end and if you are lucky to have a job. The current national unemployment rate is at 9.4 percent.

Have we as a society, swung too far in the other direction? Would we be in this mess if we had of retained more of those Depression era values. It’s hard to say, but suddenly I have more respect for the frugal ways of my grandparents.

There is something you can do to overcome such a problem. In fact, you can get a home equity loan which allows you to borrow a certain amount of money and not have to deal with sky-rocketing interest rates.

The problem with having a bad credit is that as soon as the lending institution sees your records with a lot of stains on it, they will immediately see you as one of the high risk customers and to counteract such risk, they will either turn you down or pin you down on interest rates.

The answer to this problem would be home equity loans. This is a type of secured loan that puts equity on your home. Since it does not put the lending company in any risk, the interest rate would only be based on the value of the current equity, notwithstanding your credit rating.

There are many advantages to home equity loans:

• Home equity loans have lower interest rates compared to unsecured loans such as that of credit cards, personal loans and fast cash loans.
• Payment terms are quite flexible, and for some companies, you can even request for a longer payment period.
• There is a possibility of getting approved for a line of credit which you can use in the future. This can be handy when you are in need of some money later on.
• You can get a much lowered interest rate if you can pay off your loan in a shorter period of time.

When you have decided on getting a home equity loan, avoid making the mistake of jumping in to the very first offer you are given. While this may seem like a very good deal, you could never really know unless you compare the offers of several lending institutions.

Moreover, you want to make sure that you are getting a loan from a reputable company, to avoid becoming victims of scam or fraud. Reality check: there are many of such unscrupulous companies online and the best way to avoid them is to always do a good amount of research before making a decision.

Request for loan quotes from various lending companies so that you can get an idea of the rates, costs and fees. From there, you can then make a sound decision as to which company to choose.

Those of us who did not take out massive equity loans on our homes were insulated from all of this mess, and this would be the best time to take a home equity loan out from your house to actually increase the value of your home. The reason why now is the best time to do this is because all expenses associated with home improvement have come down. You can now hire the top notch home improvment experts at a fraction of the cost they would have normally charged during the housing boom to come over and make the upgrades that are needed to increase the worth of your home. Many smart homeowners recognize this and are doing it right now. Right now most people can’t afford to make any upgrades on their homes because they spent their home equity loans unqisely on things that weren’t associated with their homes but now you can take advantage of the windfall and make all the upgrades you need and because home improvement experts are so desperate just for any kind of work they will lower their bids on your projects and happily take the work at a steep discounted rate. By being a mizer during the boom times you can increase the value of your home during teh bust times. It always helps to have a clear head and a wise approach to spending and this time it will pay off handsomely for you.