A recent survey from TD Bank found that nearly 90% of respondents indicated an increase in equity since purchasing their home, but far fewer are planning to tap into this potential source of funds within the next 18 months. Meanwhile, almost 50% of homeowners know how much equity they have in their home compared to 32% in 2019.
Unlocking Home Equity
With inflation reaching a 40-year high during the summer, 70% of respondents still consider themselves very or somewhat financially stable. But with continued economic and market volatility, many Americans are exploring ways to cut unnecessary expenses and pay down any high-interest debts. Home equity lines of credit (HELOCs) and home equity loans can be a relatively low interest way to access equity built from owning a home. However, more than half (52%) of homeowners who previously had a HELOC or home equity loan or never did but know what it is consider themselves not at all or not very likely to consider applying for either in the next 18 months. This is despite having an interest in renovations or debt consolidation.
"Many Americans have more equity in their homes than ever before, so utilizing it to their advantage may make financial sense," said Jon Giles, Head of Consumer Direct Lending at TD Bank. "When used responsibly, HELOCs and home equity loans are effective, affordable tools which can assist in paying down higher interest debt, covering education costs or allowing for home renovations, which add value to the property."
Some 65% of participants who have any debt other than their mortgage indicated they would be interested in consolidating some or all their debt under a lower interest rate loan, with 47% viewing this as the most important trait of their debt consolidation tactic. And while HELOCs and home equity loans typically have lower interest rates than many personal loans, a third (33%) of those who have debt other than their mortgage and are interested in consolidating it at a lower interest rate, feel neutral or uncomfortable doing so using their home as a collateral. In fact, 43% of those 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 to utilize home equity," said Steve Kaminski, Head of Residential Lending at TD Bank. "Lenders can help borrowers understand what products align with their financial goals, their current equity level and how they plan on using the money. They'll also help make sense of the current market so you can understand what your payments will look like and how they can change based on today's interest rate environment."
While debt consolidation continues to be a priority for many, the kind of debt homeowners carry varies. The survey found that 69% of participants who have any debt other than their mortgage have credit card debt among the highest interest rate category for borrowers. Other forms of debt among these respondents include car 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 HELOC or home equity loan for their renovation projects. And supply chain challenges aren't curbing enthusiasm for consumers. Seventy-eight percent of those who noted speed as their top priority in their renovation still plan to move forward. And almost half (49%) of those who noted overall costs as their top priority still plan to move forward with renovations as labor and supply chain shortages complicate the process further. Kitchens were the most popular room/area to renovate (55%).
"As homeowners look for flexible lending options to power their renovation projects, home equity loans and HELOCs are great options to consider," said Kaminski. "HELOCs, in particular, lend themselves to flexibility with borrower's ability to draw funds as needed. With supply chain disruptions and rising inflation continuing to impact the total cost of home renovations, flexibility will be key in accessing funds throughout the process."
As renovation costs rise, many are also considering do-it-yourself projects when tackling home fixes. The study found 42% of respondents who are planning or currently executing home renovations will hire professionals to do all the work, while another 36% plan to do some of the work themselves and hire a professional for other tasks.
To read the full report, including more data and methodology, click here.