MAITLAND, Fla. – APRIL 27, 2017 — A decade after the housing market crisis, most homeowners say they are reluctant to take out home equity lines of credit (HELOCs) to meet other financial needs. At the same time, one in five are unfamiliar with the common loan instrument and 30 percent do not know how to apply for one, according to survey data released today.
The survey of 1,038 U.S. homeowners by Digital Risk, the nation’s largest independent processor of mortgage loans, also found that ongoing hikes in interest rates by the Federal Reserve are deterring 92 percent of those who might borrow HELOCs from applying at this time.
The survey of was taken March 14-18, just as Chairwoman Janet Yellen announced an increase in the benchmark federal funds rate by 0.25 percent.
Twenty-two percent of respondents said they would currently consider borrowing against equity for financial needs such as tuition, medical expenses or debt consolidation.
Sixty-five percent of respondents said they had never taken out a HELOC loan, although 78 percent said they were familiar with this product, and over half hold over $100,000 in equity in their home. Asked if they knew what a HELOC loan is, one in five (21 percent) said they did not, while nearly one third (30 percent) said they did not know how to open one.
Among those contemplating a HELOC, home improvement was the most popular use of the proceeds, cited by 58 percent of respondents (who were able to choose multiple answers to this question). The second most common expense was a health emergency (48 percent), followed by paying another debt (32 percent) and credit-card consolidation (18 percent). Eighteen percent cited unemployment as a circumstance that might drive them to use home equity to meet expenses, while 15 percent said they might leverage the funds to purchase another home.
“Homeowners are using debt for responsible reasons, like affordable improvements that increase the value of their homes,” said Jeff Taylor, managing director of Digital Risk. “Remodeling is at an all-time high and it’s much more efficient to fund that activity with a four percent HELOC than a credit card charging 17 percent interest.”
Reflecting angst about rising rates, about one third (32 percent) said they were concerned about the ability to meet adjustable-rate HELOC payments with additional Fed increases on the horizon.
“There is greater scrutiny of the lending market now and more attention on the part of the lenders to credit quality, which is another positive sign for the health of the overall mortgage market,” said Taylor. “Rates are likely to rise this year – and the activity we are seeing is homeowners being judicious about how they use debt in the face of that reality.”
Of those who have opened HELOCs (35 percent), most respondents attributed their choice to the flexibility to control the loan balance: Fifty-two percent cited an ability to draw the funds as needed, while 54 percent cited the ability to repay and reuse the funds without a separate application process. Just 6 percent said they were advised by a lawyer, bank or other party to apply.
The majority of respondents, 45 percent, were over age 60, while the smallest share, 8 percent, were ages 18-29. The respondents were 56 percent female and 44 percent male.
About Digital Risk, LLC
Digital Risk, LLC is a leading risk, compliance, and technology services company that offers differentiated solutions to the mortgage, consumer lending, and other regulated industries. The individual talents of Digital Risk’s thousands of analysts are amplified by the company’s proprietary technology and advanced analytics performed using the Making Mortgages Safe™ solutions suite. Digital Risk, LLC is a wholly owned subsidiary of Mphasis Ltd. To learn more, visit www.DigitalRisk.com