Does a weak economy cause your credit limit on your home equity loan to decline? Does...

Does a weak economy cause your credit limit on your home equity loan to decline? Does a strong economy cause your credit limit on your home equity loan to rise? Please form an opinion and support your opinion with facts from the readings.

Expert Solution

Question: Does a weak economy cause your credit limit on your home equity loan to decline? Does a strong economy cause your credit limit on your home equity loan to rise? Please form an opinion and support your opinion with facts from the readings.

Answer: The line of credit allows to borrow against the equity in home. Generally, lenders let customer to borrow up to 85% of the equity he/she has in his home.

Now, it is clear that a strong economy will allow lenders to lend more as repayment has higher probability as economy is booming. There will be more consumer and business confidence. Hence credit limit in such lending will increase.

If economy is having recessionary cycles then consumer and business confidence will be low. It is likely that housing prices will go down and if customer defaults then lender may not recover money. Hence may reduce the loan limits.

Reference : https://www.forbes.com/sites/taramastroeni/2019/01/15/what-is-a-home-equity-line-of-credit-heloc-how-does-it-work/#2e4d61e56b78

Rahul Sunny answered 2 years ago

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