Homeowners still want to spend their home equity. However, high mortgage rates make a refinancing less attractive, so they’re turning to home equity lines of credit.
LOS ANGELES (AP) – Homeowners are increasingly tapping their equity, taking advantage of big gains following years of soaring housing prices. Some 333,537 home equity loans were taken out by homeowners in the third quarter last year, according to data from TransUnion.
That’s about a 47% increase from the same quarter in 2021, the most home equity loans on records going back to 2010, the credit bureau said.
Banks also granted some 405,646 home equity lines of credit, or HELOCs, to borrowers in the third quarter, up 41% from a year earlier, TransUnion said.
“HELOCs and home equity loans continue to grow at unprecedented levels as homeowners increasingly take advantage of the record levels of tappable home equity they have built in their homes,” said Joe Mellman, mortgage business leader at TransUnion.
The change is part of a broader uptick in the use of credit as higher prices for food, gas and other necessities squeeze household budgets.
Credit card balances climbed to a record-high $931 billion in the last three months of 2022, a nearly 19% increase from a year earlier, TransUnion said. Unsecured personal loan balances reached a record $222 billion.
Homeowners use the equity available to them mainly to consolidate debt, finance home improvement projects and pay for big-ticket purchases.
Years of rising home values have made home equity a tempting option. Tappable homeowner equity jumped 18% in the third quarter from a year earlier to an all-time high of $20.2 trillion, TransUnion said.
In 2021 and 2022, when mortgage rates were near historic lows, many homeowners drew upon their big home equity gains via cash-out refinancing. But that all changed last year. A sharp rise in mortgage rates knocked the housing market into a nearly yearlong slump in 2022. As rates on a 30-year home loan soared to the highest level since 2008, home sales cratered and demand for mortgage refinancing slowed to a crawl.
By the end of the third quarter, refinancing was down 84% from a year earlier to a record-low, TransUnion said.
“This overall demand to tap home equity has been around for a few years now, it’s just shifting from cash-out refi into HELOCs and (home equity loans),” Mellman said.
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