A recent TD Bank survey found that nearly 90% of respondents indicated an increase in equity since buying their home, but far fewer plan to tap into this potential source of funds over the next 18 months. Meanwhile, nearly 50% of homeowners know their home equity, up from 32% in 2019.
Unleash Home Equity
While inflation reached its highest level in 40 years during the summer, 70% of respondents still consider themselves very or fairly stable financially. But with continued volatility in the economy and market, many Americans are exploring ways to cut unnecessary spending and pay off high-interest debt. Home equity lines of credit (HELOCs) and home equity loans can be a relatively low-interest way to access the equity that comes with owning a home. However, more than half (52%) of homeowners who had either had a HELOC or home equity loan before or never had one but know what it is, do not consider it at all or very unlikely to consider applying for either in the next 18 months. This despite an interest in renovations or debt consolidation.
“Many Americans have more equity in their homes than ever before, so using it to their advantage can make financial sense,” said Jon Gilles, head of direct-to-consumer lending at TD Bank. “When used responsibly, HELOCs and home equity loans are effective and affordable tools that can help pay off higher-interest debt, cover education costs, or afford home renovations, which adds value to the property.”
Some 65% of participants who have debt other than their mortgage indicated that they would be interested in consolidating some or all of their debt under a lower interest rate loan, with 47% considering this the most important trait of their debt consolidation tactic.. And although HELOCs and home equity loans generally have lower interest rates than many personal loans, a third (33%) of those who have debt other than their mortgage and want to consolidate it at a rate lower interest, feel neutral or uncomfortable doing so. using their home as collateral. In fact, 43% of these respondents would prefer to use a personal loan. This could indicate a gap in understanding the benefits of tapping into home equity.
“Consumers should always consider their unique financial situation and speak with a lender first when exploring options for using the equity in their home,” said Steve Kaminsky, Head of Residential Lending at TD Bank. “Lenders can help borrowers understand which products fit their financial goals, current level of capital, and how they plan to use the money. They will also help you understand the current market so you can understand what your payments will look like and how they may change based on the current interest rate environment.”
Although debt consolidation continues to be a priority for many, the type of debt that homeowners carry varies. The survey found that 69% of participants who have debt other than their mortgage have credit card debt in the highest interest rate category for borrowers. Other forms of debt among these respondents include auto loans (43%), personal loans (32%), student loans (27%) and nearly 1 in 5 (19%) have medical debt.
Home renovations reign supreme
Renovations continue to be one of the most common uses for HELOCs and home equity loans. In fact, 43% of respondents who are planning or currently renovating their home intend to use a mortgage or home equity loan for their renovation projects. And supply chain challenges aren’t dampening consumer enthusiasm. Seventy-eight percent of those who have made speed their top priority in their renovation still plan to move forward. And nearly half (49%) of those who said overall costs were their top priority still plan to go ahead with renovations as labor and supply chain shortages further complicate the process. Kitchens were the most popular room/place to renovate (55%).
“As homeowners look for flexible loan options to fuel their renovation projects, home equity loans and HELOCs are great options to consider,” Kaminski said. “HELOCs, in particular, lend themselves to flexibility with the ability for the borrower to withdraw funds as needed. With supply chain disruptions and rising inflation continuing to impact the full cost of home renovations, flexibility will be key to accessing funds throughout the process.”
As renovation costs rise, many are also considering DIY projects when tackling home repairs. The study found that 42% of respondents currently planning or executing home renovations will hire professionals to do all the work, while 36% plan to do some of the work themselves and hire a professional to do all the work. other tasks.
To read the full report, including more data and methodology, Click here.