I came across a CNBC story recently about homeowners and the $14.4 trillion in equity they’re about to be able to dig into. New research, according to the article, suggests that home equity is about $1 trillion higher than its peak in 2005 before the Great Recession.
With interest rates rising on consumer debt, the article states, home equity loans or lines of credit could be an appealing option for consumers looking to borrow money at a lower cost. Homeowners no longer need to refinance just to take out equity. This is the aspect of the story I really want to focus on. First, a graph from the story:
Why consumers tap their home equity
Use
Description
Percent using*
Major expense
Take cash out, often for a large expense like home remodeling
91 percent
Debt consolidation
Consolidate balances from other accounts
41 percent
Refinance
Refinance to get a better rate or term
23 percent
Piggyback
Concurrent with a mortgage origination, often used for down payment
(*Based on 2.4 million home equity loans originated between July 2016 and June 2017)
During the meltdown, people were using their homes like they were ATMs; as interest rates dropped they kept refinancing and taking out money to buy a boat, a big trip, etc., but when equity dropped, or they lost their job, they were in trouble. Use a HELOC (Home Equity Line of Credit) wisely. If it helps you get into a home or remodel a home to add value, it will be a smart decision. And always remember as rates go up, so does the interest on a line of credit.
