For the first time since the real estate bubble, your ability to borrow against the value of your home is returning.

This is significant because over the last 8 years, there was almost no home equity line of credit (HELOC) activity and almost no second mortgage activity.

But now we have the highest equity on homes that we've had for years in the United States. This may sound crazy to you if you're mortgaged up to your eyeballs, but the average equity in a home in the United States is 50%. So lenders want back into that game!

When does a HELOC make sense and when doesn't it?

This is nothing like the crazed days of everybody treating their home like an ATM, but Equifax data shows 3 bubble states in particular have seen the largest increase in home equity lending. Those states include California, Florida, and Nevada.

In Florida, as just one example, you have some people who are still upside down, but you also have many others who are buying homes for cash. With 100% equity, that makes them a perfect candidate for a loan.

We're not back to the craziness of "125s" where you could borrow the value of your house plus another 25% during the real estate bubble. But if you have 50% equity or 75% equity, this is a growth business for community banks and credit unions sitting on cash they need to lend out to low-risk borrowers.

In fact, I'm expecting the terms and conditions on HELOCs and second mortgages will get better and better for you as a borrower over the next 6 months.

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The reality is HELOCs can be a good standby for a rainy day. Let's say you have to replace your HVAC and you take out a HELOC that you pay off in 36 months or less. That's a good use of a HELOC.

On the other hand, using a HELOC to take short-term debt and turn it into long-term debt secured by your home is dangerous. It is tempting, but dangerous.

(By the way, if you're curious about the difference between a home equity line and a home equity loan, the line has a floating interest rate and the loan has a fixed interest rate.)

Remember, this is not free money. You have to pay it back and the terms of paying it back can get ugly if you stretch it too long.

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