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Homebuyers have an estimated $20 trillion worth of home equity, driving demand for home equity lines of credit and home equity loans.
According to CoreLogic, HELOC activity reached its highest level in the first two quarters of 2022 since the first half of 2007.
During that period, lenders originated over 807,000 new HELOCs, totaling nearly $131 billion. In 2022, both HELOC volume and value will grow 30% year-over-year.
Meanwhile, mortgage rates hovered around 3% to 7% this year, combined with soaring house prices, have dramatically reduced the number of people looking for a mortgage this year.
Home loan applications, which hit a record $4.4 trillion in 2021, are expected to shrink to $1.52 trillion in 2022, according to a recent forecast by Fannie Mae.
A study by TransUnion found that the raging pandemic market has boosted home values to $20 trillion from $16 trillion in 2021 and $12 trillion in 2012.
This is both good and bad for the housing industry, said Jeff Taylor, founder and managing director of MphasisDigital Risk and board member of the Home Loan Bankers Association.
“The homeowner who once considered selling the house and moving up didn’t want the 3% interest rate to stay at 7%, so now he’s firmly entrenched and wants to use the asset to renovate the house. They need to put money back into buildings and extensions,” he says. “The good news is that from an origination perspective, many lenders and banks have been able to move quickly to HELOC products and keep people employed.”
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HELOC allows homeowners to borrow up to 85% of their home’s value, then repay and redeem it as needed.
So far in 2022, Seattle has the highest amount of HELOCs approved, with a total of about $610 million, a 63% increase from 2021. Los Angeles followed with his $606 million and Phoenix with his $504 million he ranked third.
“In general, markets that have experienced strong home price appreciation over the past two years are among the markets with the strongest HELOC activity and the fastest growth. I’m getting it,” he told USA TODAY.
How much has your home equity grown?
CoreLogic analysis shows that U.S. homeowners with mortgages (about 63% of all properties) will see their combined wealth increase by more than $3.6 trillion from the second quarter of 2021, a year-over-year increase of increased by 27.8%.
HELOC vs Home Equity Loan?
Both HELOC and Home Equity Credit Lines allow you to borrow against the equity accumulated in your home.
A home equity loan offers a lump sum amount that is paid back in fixed installments over a period of time, whereas a HELOC is a revolving line of credit. During the lottery period, you can borrow up to a certain limit set by the lender, and you can borrow again after repaying the amount you borrowed.
What do I need to do to qualify as a HELOC?
Many mortgage lenders require a minimum credit score of over 650, said Michele Raneri, vice president of financial services research and consulting at TransUnion.
Lenders also require borrowers to have about a 20% stake in the home to qualify, she said.
“They must have at least 20% of their equity capital available and not have another mortgage.”
And banks typically don’t lend less than $10,000 on home equity lines of credit, she said.
Should I Get a HELOC or Home Equity Loan?
“HELOCs and home equity loans are important right now because they are the right tools for consumers at the right time,” says Ranieri.
With a cash-out refinance, you’re refinancing your entire home, but given the high interest rates, a home equity line or loan makes sense because it allows you to strip just the portion of your equity you need.
“And while the interest rate may be higher than your mortgage, you’re just financing that part at a higher amount,” she says.
What should I consider when taking a home equity loan?
Given that homebuyers use their home as collateral, anyone considering a loan should know how they’re going to pay it back.
“If you borrow money, you should know that you have enough income to pay it back,” says Ranieri. “And they should make sure they shop at the best rates.”
“I think people have a little bit of stigma and fear because of the Great Recession because there were a lot of home equity loan delinquencies,” says Ranieri.
But she believes stronger mortgage underwriting standards this time around should prevent that.
Are there good or bad uses for home equity loans?
“It’s a great opportunity to open a home equity account, but just make sure they have a clear vision of what they want to spend and what they want to spend the money on,” said Taylor. increase. “There are uses for HELOC that make sense and uses that could make borrowers worse off.”
The best use of HELOC is to reinvest in a home to maintain or improve its value, such as an addition, renovation or major renovation, all of which are valid uses for HELOC.
Many borrowers choose to use HELOC as a debt consolidation tool. HELOC rates can be adjusted according to market conditions, but are generally lower than credit card rates, car loan rates, and student loan rates.
With lower interest rates, borrowers can borrow more money each month to pay off balances or use it for other financial goals.
The problem starts when borrowers overuse HELOC like a credit card. That is, we fund lifestyle spending and do not reinvest in the value of our assets.
“What I want to watch out for is people taking home equity lines and going on vacations or buying new cars.
Swapna Venugopal Ramaswamy is USA TODAY’s housing and economics correspondent. Follow her on her Twitter @SwapnaVenugopal and sign up for her Daily Her Money newsletter here.
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