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Homeowner Debt and HELOCS

Personal loan volume increased threefold between 2011 2018, following a pre-recession high of $1.03 trillion. In a new report, Figure Technologies estimated American homeowners’ potential savings from refinancing as this debt level continues to grow. Figure analyzed the financial situation of American homeowners who are carrying unsecured debt (personal loans and credit cards) but who simultaneously own sufficient equity in their home to at least partially refinance their debt.

According to Figure, their analysis confirms that millions of U.S. homeowners have significant opportunity to use HELOCs to replace higher cost sources of credit, with potential savings totaling over $100 billion. Across the 16.3 million households in the study, using HELOCs to reduce interest cost could help in paying down debt and strengthening household’s overall financial position.

Equity borrowing via HELOC has been declining, falling over 40% since 2011 to Q2 2019. Homeowners are carrying is $233 billion. Overall, the homeowner will spend $984 + $8,041 = $9,025 in interest and have debt 2.5 years longer than if the homeowner consolidates the debt with a HELOC. Using a HELOC, the homeowner eliminates the debt in five years and spends only $2,799 on interest, which represents savings of $6,225.

Figure notes that the homeowner could pay off the debt faster and pay less in interest, but if the homeowner is able to pay off those loans faster, they could also pay the HELOC off more quickly and pay less interest there as well.

“The key point is that in our calculations, the monthly payments for the HELOC versus the unsecured debt are the same.”

“Adding to the appeal of HELOCs is the new generation of technology-driven nonbank lenders such as Figure that make the process of accessing this credit far more efficient and streamlined than services offered by traditional banks and lenders,” said Figure. “A Figure HELOC provides a typical applicant a funding decision in as few as five minutes and with funding in as few as five day.”

About Author: Seth Welborn

Seth Welborn is a Staff Reporter for DS News and MReport. A graduate of Harding University, he has covered numerous topics across the real estate and default servicing industries. Additionally, he has written B2B marketing copy for Dallas-based companies such as AT&T. An East Texas Native, he also works part-time as a photographer.
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