American homeowners are spending more time at home and are looking to upgrade the spaces where they spend most of their time. Fortunately, many of them are “equity-rich” due to rising home prices, which have increased an average of 42% since the pandemic began in early 2020.
A recent report shows that homeowners with mortgages currently have an average of $207,000 in home equity. In the first quarter, 44.9% of the homes in the U.S. were considered “equity-rich,” meaning the balance of the loan on the house was 50% or less of the estimated market value.
Acting on this knowledge is an excellent example of anticipating a customer’s needs. Customers in these circumstances are likely to qualify for a home equity line of credit (HELOC).
Between January and May 2022, fixed 30-year mortgage rates increased from 3% to over 5%. According to the Mortgage Bankers Association, the average monthly payment on a new mortgage has gone up by $513 since 2008. This is because interest rates and home prices have gone up quickly.
Nonetheless, HELOCs have grown significantly in popularity in the last year because they allow homeowners to withdraw cash from their homes without changing the interest rate on their entire mortgage loan. According to TransUnion, while a borrower’s interest rate on a HELOC may be higher than the interest rate on the mortgage, it is still likely to be lower than the interest rate on a personal loan.
Capture the Growth Potential
With HELOC and home equity financing more readily within reach of homeowners, lenders need to step up marketing efforts and enhance overall communication with borrowers to engage them in a conversation about the benefits of leveraging home equity. Many opportunities are available for intelligent lenders with the proper home equity marketing in place.
The top home equity lenders must focus on the following six actions to best position themselves, capture a market that is gradually coming back to life, and capitalize on a tremendous opportunity:
- Boost their digital ecosystem;
- Integrate and optimize search engine marketing;
- Leverage data as a strategic asset;
- Excel at turning leads to loan applications;
- Bring out a customer-centric fulfillment model; and
- Streamline the fulfillment process.
The Bright Side of our Turbulent Times
It’s been a crazy two years for many reasons. Between February 2020 and January 2022, the mortgage industry witnessed something we never thought we’d see: 30-year fixed-rate mortgages below 3.5%. These rates attracted a record number of refinances, with cash-out refinances reaching $1.2 trillion by 2021.
Then, in what seemed like an instant, mortgage rates skyrocketed in the first quarter, effectively ending the refi boom. Home buyers are getting nervous; refinances are drying up, and lenders are scrambling. As interest and mortgage interest rates rise, consumers turn to home equity lines of credit (HELOCs) to access a portion of their equity.
We all still want our updated bathrooms, kitchen remodels, and for the lucky few, backyard pools.
We cannot, unfortunately, predict the future. But we can prepare for it.
A HELOC can give one the financial flexibility one needs to deal with whatever comes one’s way, good or bad. Whatever the situation, one will be ready to seize incredible opportunities or protect oneself from the stress that life. According to a recent Bankrate survey, 14% of millennial mortgage holders say they’d tap home equity to bankroll a vacation, compared with just 4% of Generation X and 3% of baby boomers.
Why are Homeowners Seeking HELOCs?
HELOCs offer flexibility. Consumers are showing a growing interest in home equity loans and home equity lines of credit as a means to access more affordable capital and take advantage of rising home values.
For example, in Carlsbad, Calif., home sale prices have increased by 64% in the past two years. That is a lot of equity. Homeowners don’t have to borrow the entire credit line with a HELOC and are only charged interest on the amount they do borrow. Borrowing no more than one absolutely needs during times of interest rate volatility can help keep one’s payments more manageable. A home equity line of credit, or HELOC, is one of the best options on the market right now for homeowners looking to tap into their home equity.
How Lenders Can Navigate HELOC and Embrace Touchless
Whether a lender is seeing a flood of HELOC consumers and wishes to deliver a seamless borrowing experience, or is planning to add HELOC to its portfolio to seek growth in a declining refinance market and cross-sell opportunities to its existing customer base, it needs to be proactive.
At our firm, we leverage a heuristics research, in-depth industry knowledge, and engineering expertise to provide a simple and frictionless experience to consumers tapping into the home equity market. We expanded our Touchless Lending platform for the lending industry’s home equity line of business and offer software that enables HELOC to help users deliver a seamless channel, device, and interaction-agnostic experience across the loan application process.
Over the last 12 months, our firm has helped home equity lenders serve five times more customers than they ever served as a business, providing them with the scale to meet their borrowers’ demands.
The Bottom Line
HELOC has come back as people seek alternative ways to access equity in their homes. The rest of 2022 could be a record year for HELOCs, just as 2021 was a record year for refinancing. Understanding the dynamics of the home equity market can help mortgage lenders identify homeowners in the market for home equity.
Brad Sivert is head of marketing and proptech for software firm Tavant.
