A vast majority of participants in a new TD Bank survey saw their equity increase since purchasing their home, but with both the real estate market and economy at large cooling, many homeowners are choosing to keep this source of funds in reserve.
Per the bank’s home equity line of credit (HELOC) survey of U.S. homeowners who bought within the past 10 years, 87% of respondents indicated that their equity has risen after their home purchase. But of the survey respondents who have either accessed their home equity credit or are aware of home equity loans, 52% consider themselves “not at all” or “not very likely” to consider applying for a HELOC or home equity loan in the next 18 months.
Notably, this response comes despite many survey participants indicating an interest in renovations or debt consolidation. Sixty-five percent of respondents carrying non-mortgage debt said they would be interested in consolidating some or all of their debt under a lower-interest loan.
But while HELOCs and home equity loans can have lower interest rates than personal loans, 33% of debt-carrying respondents who are interested in consolidating feel neutral or uncomfortable about using their homes as collateral for debt consolidation. Of these respondents, 43% would rather opt for a personal loan for this purpose — indicating a potential need to educate homeowners about tapping into their equity, TD Bank reported.
“Many Americans have more equity in their homes than ever before, so utilizing it to their advantage may make financial sense,” said Jon Giles, head of consumer direct lending at TD Bank. “When used responsibly, HELOCs and home equity loans are effective, affordable tools which can assist in paying down higher-interest debt, covering education costs or allowing for home renovations, which add value to the property.”
“As homeowners look for flexible lending options to power their renovation projects, home equity loans and HELOCs are great options to consider,” said Steve Kaminski, TD Bank’s head of residential lending. “HELOCs, in particular, lend themselves to flexibility with a borrower’s ability to draw funds as needed. With supply chain disruptions and rising inflation continuing to impact the total cost of home renovations, flexibility will be key in accessing funds throughout the process.”
Indeed, home upgrades remain one of the most common reasons homeowners are tapping into their equity. Forty-three percent of survey respondents who are currently renovating their homes or planning to undergo renovations intend to use a HELOC or home equity loan for their projects. Kaminski encouraged homeowners who are curious about accessing their equity to speak with a lender to better understand the rewards and risks of the process.
“Consumers should always consider their unique financial situation and speak with a lender first when exploring options to utilize home equity,” he said. “Lenders can help borrowers understand what products align with their financial goals, their current equity level and how they plan on using the money. They’ll also help make sense of the current market so you can understand what your payments will look like and how they can change based on today’s interest rate environment.”