HELOC hesitancy among consumers is real, a new survey finds

While home-equity products this year have entered the spotlight as high mortgage rates drive refinance volumes to their lowest point in over a decade, new research finds a lukewarm reception toward them from homeowners.  

A survey of over 1,800 U.S. homeowners commissioned by TD Bank determined that over half of those familiar with home equity lines of credit or similar loans — 52% — had no intention of applying for one over the next 18 months. 

At the same time, a large percentage, 65%, of respondents who also held nonmortgage loans in TD Bank's HELOC Trend Watch research indicated they would like to consolidate them to obtain a lower interest rate, something home-equity loans could provide. But one-third of them expressed neutral or uncomfortable sentiment in using their home as collateral.

The findings appear to support other recent research showing consumers casting a wary eye at using home equity as a source of funding, even as several companies introduced HELOCs this year. 

"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, in a press release. The amount of tappable equity available to homeowners surged to records this year, according to mortgage data and analytics provider Black Knight.  

Among the survey respondents who carry other debts outside of their mortgage, 69% have credit-card obligations, while 43% are paying off automobile financing and 32% personal loans. Another 27% carry student loans, while 19% have incurred medical debt.

Any hesitancy toward the use of HELOCs or closed-end home equity products might come as disappointing news to the lenders who introduced them year to help make up for declining first lien originations. The latest weekly refinance applications tracked by the Mortgage Bankers Association were off 86% on a year-over-year basis, as mortgage rates more than doubled in the past 12 months.

Previously the domain of depository banks, home-equity products have figured in the 2022 plans of several nonbanks, with the likes of Rocket Mortgage, Guaranteed Rate and loanDepot all announcing rollouts for them this year.  

While booked home equity volume has also increased during the same period, survey findings show marketing and coaxing are still needed to address consumer concerns.   

"When used responsibly, HELOCs and home equity loans are effective, affordable tools which can assist in paying down higher interest debt," Giles said. 

Persistent inflation might lead more consumers to consider a HELOC as they attempt to cut out expenses and reduce interest on personal debt. The U.S. Bureau of Labor Statistics this week reported inflation increasing again at a highly elevated annual pace in September of 8.2%. Year-over-year consumer prices have risen at an 8% or higher for six consecutive months.

Home renovation is another popular use for a home-equity product, TD Bank said, with 43% of those planning home improvements saying they expected to use a HELOC or similar loan to fund it.