California's home equity loan market just got a little hotter after a bid from the state's fifth-largest bank to grab consumer interest with rock-bottom rates.

San Francisco's Sanwa Bank California has seen higher interest rates pull the rug out from under many bank loan programs. For the $7.4 billion-asset bank, home equity loans are seen as a way to generate business in this sagging market.

A Way to Tap Real Estate Market

Sanwa said it plans to aggressively pursue a larger slice of the real estate lending market in California by offering homeowners cut-rate home equity loans with initial interest rates as low as 6.25%, according to Gene Galloway, executive vice president of Sanwa's retail banking division.

"We believe this home equity product to be among the best offered by a major bank in the-state, and we are prepared to have consumers compare it with any others on the market," said Mr. Galloway.

The loan program, which started today, will first target existing customers wanting to borrow between $5,000 and $500,000 through an adjustable-rate second mortgage.

The competition has yet to follow suit and drop their rates to Sanwa's level, said Mr. Galloway, but he expects that may change.

"Anytime you aggressively market something, you run the risk of competitor intervention," he said.

Sanwa is marketing the loan program throughout its more than 100 branches across California and four stand-alone loan production offices that are devoted to generating consumer loans.

Sees State as Back on Even Keel

After years of economic turmoil in the state, Mr. Galloway said California has finally stabilized and expects that the program to have a good turnout.

Originations will most likely be higher in the northern half of the state, he said, but because 60% of the bank's branches are located in the southern half, the program should generate equal results across California.

The new variable-rate home equity loans have a 6.25% initial interest rate, with terms ranging from one to 25 years. Rate adjustments are made every six months. The maximum change is 1% every six months, and 6% over the life of the loan.

'No Points, No Closing Costs' up to $150,000

While the bank advertises "no points, no closing costs" for the new loans, that offer only applies to loans up to $150,000.

"The start rate on this loan will allow those homeowners who thought they'd missed the low-interest-rate cycle of the previous 24 months to grab their share of it," Mr. Galloway said.

"And, although we haven't put a time limit on the product, the special rate will only be available for a limited period."

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