Rising home values and interest rates have more homeowners turning to home equity products to meet their personal funding needs.
At the beginning of 2018, most borrowers interest in home equity was dinged by the confusion over whether tax reform would totally or partially remove the interest deductibility.
Since the IRS clarified what is deductible, TD bank is “bullish on home equity. There was a little bit of a hit in the first half of this year, the second half of this year is going to get back to normal and then smooth sailing in 2019 and beyond,” Kinane said.
“Responsible home equity borrowing can be a valuable source of funds for life events,” Tendayi Kapfidze, LendingTree’s chief housing economist, said in a press release. “It’s important to note that this new wave of home equity lending is far different from the equity extraction that occurred prior to the financial crisis, and lending standards are much more stringent today. Most home equity borrowers today have far higher credit scores and borrow less of the accumulated appreciation in their home.”
At the same time, “lenders are much more responsible in their underwriting of home equity then they were precrisis. Lenders are more careful on second position liens,” Kinane said. “And consumers that are getting this product are much more careful about how they’re using this product and much smarter than they were precrisis when it truly was using your home as a piggybank.”
Here are the five most popular reasons for tapping into home equity, based upon searches of LendingTree loan products in 2018.
- Retirement Income (1.3%)
Average property value: $293,388
Average loan amount: $74,207
Average LTV: 56%
- Other Investment Purposes (7.8%)
Average property value: $252,992
Average loan amount: $80,241
Average LTV: 70%
- Unspecified Reasons (9.3%)
Average property value: $227,529
Average loan amount: $63,633
Average LTV: 68%
- Debt Consolidation (38.2%)
Average property value: $206,435
Average loan amount: $37,000
Average LTV: 74%
- Home Improvement (42.9%)
Average property value: $206,284
Average loan amount: $38,662
Average LTV: 67%