A larger number of homeowners are open to accessing their property's equity compared with three years ago, but an education gap remains regarding the product, an update of a 2022 survey from MeridianLink found.
The interest in home equity products increased to 28% of consumers saying they are somewhat or very likely to take out a home equity loan now from 21% three years ago, noted JP Kelly, senior vice president of
"There is still a little bit of a barrier due to a lack of knowledge of the potential use cases," Kelly said.
Why consumers are reluctant
Consumers' hesitation is around high interest rates, cited by 63%; the fear of risking homeownership, 22%, and uncertainty about repayment terms, 18%.
Americans have a record amount of equity tied up in their homes, about $35 trillion. But financial institutions in particular need to educate consumers about what they can use a home equity loan for, he said.
The amount of tappable equity, the amount available leaving borrowers with an 80% loan-to-value cushion, is
Among the obvious reasons to tap ones' equity is
Teach consumers how to use their home equity
People might not be aware of other reasons, such as paying down higher cost debt such as credit cards or other forms of adjustable rate financing.
"It's important that we have to educate the home borrowers that it's a much more affordable use to use their equity to
Only 16% of the respondents said they would take a home equity loan to consolidate debt. The leading reason, cited by 45%, was to use it for renovations or home improvements.
Meanwhile, 16% would use the money to invest in new properties, 11% said they plan
Fixing the product and the process
Besides educating the customers, lenders can also work on simplifying the process and developing flexible loan terms and repayment options, the MerdianLink survey found.
Most home equity lines of credit are adjustable-rate products, and this is what caught many borrowers in the storm of the financial crisis.
The volatility generated in the markets by the headlines over the Trump Administration's tariff policies are a
"Right now, most of the borrowers are of the mindset that we're going to be in an interest rate environment that will go down, so HELOCs don't scare them as much," MeridianLink's Kelly said. "But educating them to the potential pitfalls of a variable interest rate product, and making sure that they are taking amounts that are comfortable and safe for them if rates were to go back up, that is a key component too."
Pitfalls in home equity for lenders
Lenders need to be mindful of these pitfalls as well. "I think it's important for us, as an industry in general, to make sure we keep our guard rails up and be diligent around that as well, and not overly loosen and put people into products they have no business gaining," Kelly said.
When looking for a home equity lender, 72% of borrowers prioritize competitive interest rates, 43% also look at the lender's reputation and 41% value convenience and personalization.
These products used to exclusively be in the purview of depositories, as they had to be put into portfolio, but a secondary market has now developed which independent mortgage bankers could now take advantage of, Kelly said. Another competitive threat is companies like Point or Unison, which
Rate volatility cuts both ways
As for the recent volatility in
"I don't think it has to be one way or the other necessarily, as long as we go back to that educational point of view, and they're making sure that they're educating the borrowers on what they can use the equity for in their home, and again, making sure they're aware that that volatility can affect their rates as they're adjusting," said Kelly.
