Curve

Despite upticks in home equity, HELOCs hit record low

Aly J. Yale
The Mortgage Reports contributor

HELOCs are heading out

Americans are sitting on unprecedented levels of home equity — $6.3 trillion, to be exact — but they don’t seem to be tapping it. In fact, according to a new analysis, the use of HELOCs has hit its lowest point in 15 years.

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No need for HELOCs

According to a new analysis from the Urban Institute, the level of HELOC debt currently sits at $399 billion — down $7 billion since the first quarter of the year and its lowest level since 2004. 

A study from the Mortgage Bankers Association shows overall demand from HELOC is down, largely due to confusion around its tax deductibility. The study also says “changing borrower sentiment” is to blame.

How Americans are using the HELOC to their advantage

Low interest rates may also holding homeowners back from borrowing against their equity, according to the Urban Institute’s Michael Neal and Laurie Goodman.

“Thanks to today’s low-rate environment, homeowners often use cash-out refinances instead of HELOCs to obtain funds for home improvements, because the refinance delivers the funds needed in addition to locking in a lower fixed-mortgage rate,” they reported. “A cash-out refinancing raises the outstanding mortgage debt and leaves HELOC debt unchanged.”

HELOC debt has been steadily declining since 2009.

Personal loan or HELOC? Which is right for me?

Tighter lending standards

But it’s more than just lower demand for HELOCs that’s at work here. Lending practices are also stricter on these products, particularly since the housing crisis. 

A recent survey of loan officers shows that most big bank LOs — who originate more than half of all HELOCs across the nation — say their equity lending standards are “tight.”

It’s no surprise, either. According the Urban Institute, home equity lending played a big role in the crisis.

“Before the housing crisis, homeowners watching their home equity grow decided to cash in, tapping into their higher home values with home equity lines of credit and cash-out refinances,” the Institute reported. “We’ve shown that a spike in sloppily underwritten cash-out refinances was a major contributor to the housing crisis.”

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Get today’s mortgage rates

Are you considering a cash-out refinance to take advantage of today’s low rates? Then shop around and see what mortgage rates you qualify for today.

Verify your new rate (Dec 8th, 2019)