Understanding the Rise of HELOCs: How Homeowners Are Tapping into Equity Amidst High Mortgage Rates
Homeowners across the country are increasingly turning to Home Equity Lines of Credit (HELOCs) as a strategic way to tap into the rising equity of their homes without having to give up their low mortgage rates. According to the Federal Reserve Bank of New York’s recent Quarterly Report on Household Debt and Credit, HELOC balances have risen by 20% since the end of 2021, marking a significant rebound after nearly 13 years of decline.
This shift comes as mortgage origination rates continue to drop, with the second quarter of 2024 seeing only $374 billion in new mortgages, a steep decline from the average of $900 billion in 2021 and 2022. The decrease in mortgage activity is largely due to the high borrowing costs that have made refinancing less attractive for many homeowners. In contrast, HELOCs offer a way to access home equity while maintaining existing low mortgage rates, which is why they have become a popular choice for many.
HELOCs are particularly appealing to older homeowners who have built substantial equity over time. They provide a flexible way to manage large expenses, pay down other debts, or make home improvements without the need to refinance at today’s higher mortgage rates. As a result, the number of HELOCs originated in 2023 and the first half of 2024 has been significant, with many borrowers taking advantage of this financial tool.
However, it’s not all smooth sailing in the broader debt landscape. The report also highlights rising concerns about delinquencies, particularly in auto loans and credit card debt. The share of auto loans that became at least 30 days delinquent has reached its highest level since 2010, and credit card delinquencies are at their highest in over a decade. Younger credit card borrowers are especially struggling, with more than 10% failing to make payments for at least 90 days by the end of June 2024.
This data underscores the importance of carefully considering financial decisions and understanding the implications of taking on additional debt, even with tools like HELOCs. While HELOCs can provide valuable access to home equity, they also come with responsibilities and risks, such as variable interest rates and the need for disciplined repayment.
As the housing market continues to evolve, it’s clear that homeowners are exploring different ways to manage their finances and make the most of their home equity. By staying informed about trends like the rise of HELOCs, individuals can better navigate their financial options and make decisions that align with their long-term goals.
The information provided in this article is for informational purposes only and should not be considered financial advice. Please consult with a financial professional before making any financial decisions
This article is based on original reporting by the Miami Herald. For more details, please visit Miami Herald’s website.
