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HELOCS Not Faddy – Misunderstood – Not Forgotten

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Most homeowners say they are reluctant to take out home equity lines of credit (HELOCs) to meet other financial needs. At the same time, one in five are unfamiliar with the common loan instrument and 30% do not know how to apply for one. Ongoing hikes in interest rates by the Federal Reserve are deterring 92% of those who might borrow HELOCs from applying at this time. 

The survey of 1,038 U.S. homeowners by Digital Risk, also found 22% of respondents said they would currently consider borrowing against equity for financial needs such as tuition, medical expenses or debt consolidation.

Sixty-five percent of respondents said they had never taken out a HELOC loan, although 78% said they were familiar with this product, and over half hold over $100,000 in equity in their home. Asked if they knew what a HELOC loan is, one in five (21%) said they did not, while nearly one third (30%) said they did not know how to open one.

Among those contemplating a HELOC, home improvement was the most popular use of the proceeds, cited by 58% of respondents (who were able to choose multiple answers to this question). The second most common expense was a health emergency (48%), followed by paying another debt (32%) and credit-card consolidation (18%). Eighteen percent cited unemployment as a circumstance that might drive them to use home equity to meet expenses, while 15% said they might leverage the funds to purchase another home.

Reflecting angst about rising rates, about one third (32%) said they were concerned about the ability to meet adjustable-rate HELOC payments with additional Fed increases on the horizon.

Of those who have opened HELOCs (35%), most respondents attributed their choice to the flexibility to control the loan balance: Fifty-two percent cited an ability to draw the funds as needed, while 54% cited the ability to repay and reuse the funds without a separate application process. Just 6% said they were advised by a lawyer, bank or other party to apply.

The majority of respondents, 45%, were over age 60, while the smallest share, 8%, were ages 18-29. The respondents were 56% female and 44% male.

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