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Home equity loans can be helpful, but some homeowners may need help understanding exactly how they work, says one study. (iStock)
Demand for home equity loans is on the rise, with 21% of respondents planning to take out a home equity loan next year, compared with 8% last year, according to a MeridianLink survey.
Despite growing interest, only 52% of respondents reported that they “have a deep understanding of the home equity lending process,” the study said.
However, 48% rated their understanding of home equity loans as “less than 7 out of 10” and 13% said they did not understand how these financing methods work.
Rising home prices have pushed home wealth to record levels over the past few years. According to CoreLogic, the U.S. homeowner has grown 15.8% annually since the third quarter of 2021, making him $2.2 trillion in profits overall.
However, with rising mortgage rates reducing cash-out refinancing opportunities, homeowners are increasingly turning to home equity loans as one way to free up their home equity.
Tim Wheeler, vice president of consumer finance at Fortera Credit Union, said: in a statement.
If you’re interested in drawing equity out of your home, you can consider a Home Equity Line of Credit (HELOC) to help pay off debt or improve your home. Visit Credible to compare multiple mortgage lenders at once and choose the lender with the best interest rates.
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Here’s what homeowners should consider, experts say
According to Shmuel Shayowitz, President and Chief Loan Officer of Approved Funding, rapidly rising mortgage rates and historic home price increases over the past few years have made HELOC a viable option for many homeowners. it is an option.
However, Shayowitz says homeowners must identify the purpose of the funds and the expected repayments. This makes it easier for a fixed rate home he equity to decide whether a loan or a line of credit is a better option.
“Loans typically have a fixed interest rate, but HELOCs have a floating interest rate linked to the ‘prime rate,’” Shayowitz said. “Every time the Federal Reserve raises its short-term benchmark Fed Funds Rate, the Prime Rate is proportionately affected.
“Anyone who believes the Fed is likely to continue raising rates in 2023 should factor that into higher payments on the line of credit,” Shajowitz said.
Maureen McDermatt, a real estate agent at Sotheby’s International, said homeowners should also “shop for the best interest rates on home equity loans.”
If you want to take advantage of the increased home value, consider HELOC. Visit Credible and see personalized interest rates in minutes without impacting your credit score.
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Lenders Tighten Criteria for Accessing Home Equity Loans
Fears of a slowing economy have driven home equity loan acquisitions as financial institutions tend to tighten standards for accessing this product, according to strategic financing advisor and Real Estate Bees’ John Bondan. can become difficult.
The Federal Reserve has announced seven rate hikes in 2022 and will continue to do so in 2023. Economists believe the Fed’s campaign has helped keep inflation in check, but the concern now is that the economy could slip into recession.
“During the Great Recession, when guidelines on these were fairly lax, [home equity loans]lenders were absolutely hit with foreclosure losses and defaults, so they’ve been pretty tough on them since then, and this is no exception.
According to Joshua Massieh, mortgage broker and CEO of Pacwest Funding, only a few large banks are in the HELOC game.
“Credit unions have the ability to offer good teaser rates, but only to a limited number of customers. We have completely withdrawn from this market because we are holding back.”
Mortgage Connect Chief Strategy Officer Cristy Ward said demand for the product is driving competition from many non-banks entering the space.
“What we are seeing is more competition for products. Non-banks are entering the market at the moment, which means more lenders are joining the action. ‘ said Ward. “The competition among these lenders will be better for consumers with more programs and a competitive interest rate environment.”
If you are interested in utilizing your home equity, you can consider HELOC. Visit Credible to see individual interest rates without affecting your credit score.
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