Here’s why homeowners aren’t borrowing against their equity

Rising rates have added to the reluctance

Jul.July 12, 2018 08:30 AM

A suburban neighborhood (Credit: Pixabay)

Homeowners have more equity than ever before — but are still hesitant to borrow against it.

As home prices have appreciated, Americans have more than $5.8 trillion in equity, double the level in 2011, Bloomberg reported. But they aren’t tapping into it due in part to rising interest rates and reluctance stemming from the mortgage crisis.

“There’s a long-memory issue,” Dan Alpert, managing partner at Westwood Capital, told Bloomberg. “People got caught with home equity lines last time.”

But banks are encouraging consumers to take more risks. Lenders increased spending on direct-mail for home equity products by 30 percent in the first quarter versus a year earlier, the report said.

Borrowing against a home is cheaper, in terms of interest rates, compared with credit cards or unsecured personal loans. And, as owners stay in their homes longer, that may nudge them to borrow against the equity, the report said.

In recent years, new home equity lending has been picking up. Lenders are making roughly 98 percent more home equity loans and related lines of credit than during the recession in 2009. Still, the amount of home equity lines outstanding has fallen as borrowers pay down debt from the last decade. Bank executives it may take another year for new lending to surpass paydown of the older debt, according to Bloomberg.

The growth in home equity is being driven by increases in home values and selling prices, tight inventories of houses for sale, and paydowns of principal on existing mortgages. Affluent homeowners have various options to tap into that, including cash-out refinancing. [Bloomberg] — Meenal Vamburkar

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