Home equity line of credit jumped 30% in 2022 compared to 2021


Homebuyers are sitting on an estimated $20 trillion in net worth, which is driving demand for lines of credit and home equity loans.

HELOC activity hit its highest level since the first half of 2007 during the first two quarters of 2022, according to CoreLogic.

During this period, lenders created more than 807,000 new HELOCs, totaling nearly $131 billion. The number and amounts of HELOCs increased by 30% year over year in 2022.

Meanwhile, mortgage rates have hovered around 3% to 7% this year – combined with high house prices for significantly reduce the number of people looking for a mortgage This year.

Mortgage applications, after setting a record in 2021 at $4.4 trillion, are expected to decline to $1.52 trillion in 2022, according to recent Fannie Mae projections.

Home values ​​appreciated during the hot pandemic market, bringing equity to $20 trillion, from $16 trillion in 2021 and $12 trillion in 2012, according to research by TransUnion.

That’s both good and bad for the housing industry, says Jeff Taylor, founder and chief executive of MphasisDigital Risk and board member of the Mortgage Bankers Association.

“Homeowners who once thought of selling their home and moving upmarket are now firmly entrenched because they don’t want to leave a 3% interest rate for 7% and use their equity to reinvest money in renovations or additions to the home to give them what they need,” he says. “The good news is that from an origination perspective, many lenders and banks were able to quickly transition to HELOC products and keep people employed.”

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A HELOC allows homeowners to borrow up to 85% of the home’s value, pay it down, and redesign as needed.

So far in 2022, Seattle has the most HELOCs approved, totaling nearly $610 million, a 63% increase from 2021. Los Angeles followed with $606 million, while Phoenix s ranked third with $504 million.

“In general, the markets with the strongest real estate price appreciation over the past two years are among those with the most HELOC activity and the strongest growth as well. These areas have gained greater real estate capital than the national average,” Archana Pradhan, senior economist, CoreLogic told USA TODAY.

6. Arizona • Avg.  Net worth gain, 12 months through Q2 2021: +$79,000 • Median household income: $62,055 (23rd lowest) • Median home listing price: $449,950 (12th highest) • Pct .  of owners who owe more than their house is worth: 1.2% (7th at least)

How much has home equity increased?

CoreLogic analysis shows that US homeowners with mortgages (about 63% of all properties) have seen their increase in capital totaling more than $3.6 trillion since the second quarter of 2021, a 27.8% year-over-year gain.

HELOC vs. a home equity loan?

HELOC and Home Equity Line of Credit allow you to borrow against the equity in your home.

While home equity loans provide you with a lump sum that you will repay in fixed installments over a predetermined period, a HELOC is a revolving line of credit. During the drawdown period, you can borrow up to a certain credit limit set by the lender, which becomes available again once you have repaid the borrowed amount.

What does it take to qualify for a HELOC?

Many mortgage lenders require minimum credit scores above 650, says Michele Raneri, vice president of research and financial services consulting at TransUnion.

Lenders also require borrowers to have about 20% of their home’s equity to qualify, she says.

“They must have at least 20% of their equity on which they have no other mortgage.”

4. Hawaii • Avg.  Net worth gain, 12 months to Q2 2021: +$86,000 • Median household income: $83,102 (4th highest) • Median home listing price: $725,000 (2nd highest) • Pct .  of owners who owe more than their house is worth: 1.4% (14th at least)

Banks typically do no less than $10,000 in home equity lines of credit, she said.

Should you get a HELOC or a home equity loan?

“HELOCs and home equity loans are important right now because they are the right tool at the right time for consumers,” says Ranieri.

Whereas with cash-out refinancing you refinance the whole house, given the higher interest rates, a line of credit or home equity loan makes sense because it allows you to take out only the part you have need your capital, says Raneri.

“And even though the interest rate may be higher than your mortgage, you only end up that part at a higher amount,” she says.

What should people consider when taking out a home equity loan?

Considering that buyers are using their home as collateral, those considering the loan need to know how they are going to pay it back.

“If they withdraw it, they need to know that they have the income to be able to pay it back,” says Ranieri. “And they should be sure to shop around for the best rates.”

“There’s a bit of a stigma, I think, or a concern that people have because of the Great Recession because there was a lot of delinquency on home equity loans,” Ranieri says.

But tougher mortgage underwriting standards this time around should prevent that, she believes.

Are there good uses and bad uses of a home loan?

“It’s a great time to open a home equity account, but just to make sure they have a clear vision of what they want to use and how much money they want to make,” Taylor says. “There are uses for HELOCs that make sense and those that could end up making the borrower worse off.”

While the best uses for HELOCs are to reinvest in the home to help maintain or even improve the value of the home, such as additions, renovations, major repairs are all good uses for a HELOC.

Many borrowers choose to use a HELOC as a debt consolidation tool. HELOC rates are adjustable based on market conditions, but are generally lower than credit card rates, some auto loan rates, and student loan rates.

The lower the interest rate, the more money borrowers can free up each month to pay off the balance or use for other financial goals.

The problems start when borrowers overuse their HELOCs like a credit card – to fund lifestyle expenses and not reinvest to the value of the asset.

“Where I’m cautious is people taking the home line of credit and going on vacation or buying a new car, what do you have.”

Swapna Venugopal Ramaswamy is housing and economics correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.


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