Economy is opening the door to a surge in home equity loans
With home equity loans poised to double over the coming years, lenders are expected to compete with new high-tech personal loan providers.
There has been a lingering reluctance by homeowners to borrow money against their property in the aftermath of the 2008 housing crisis, but that is changing quickly. Home prices are rising dramatically and new homes are selling at their fastest rate in a decade.
In a CNBC report this week, TransUnion now projects that the number of people who will open up new home equity lines of credit (HELOCs) over the coming four years will more than double, reaching a potential peak of 10 million. Already more than twice as much home equity sits available in American homes than in 2011.
The dry spell was caused in part by banks that implemented tighter underwriting guidelines or abandoned HELOCs altogether after the financial crisis, but as interest rates rise – the Mortgage Bankers Association predicts they’ll go from 4% today to 5.3% in 2020 – home equity loans are likely to become more attractive.
However, they’ll have to compete for market share against new tech-savvy personal loans, which have evolved thanks to sharing-economy innovations by startups like LendingClub, Prosper and others.
“The supply spigot will start to turn up,” said TransUnion senior vice president Joe Mellman. “Fintechs have done a fantastic job innovating their products that younger generations have gotten used to. HELOCs have not seen that innovation.”
The new wave of home equity loans is likely to fund an anticipated $330 billion in home repairs and renovations over the next year, as well as to help homeowners consolidate existing debt with lower interest rates or more favorable terms.
To help you understand what you can expect from a personal loan these days, finder.com has comparisons based on interest rates, short- or long-term needs, creditworthiness or purpose, including debt consolidation, purchasing a vehicle or expanding a business.