Home equity is at an all-time high, but consumers aren't taking advantage of this financing option, according to a LendingTree report.
Home equity is sitting above the $15 trillion mark nationwide, according to the Federal Reserve, but interest in more costly forms of debt, like credit cards or personal loans, has been outpacing that of home equity loans and lines of credit since the financial crisis.
For one, lending standards for home equity loans have become much stricter, which could contribute to the loan type lagging behind other forms of debt. Home equity loans typically go to homeowners with strong profiles, with the average borrower score being above 720.
Consumers may also shy away from this type of financing to prevent their credit scores from taking a hit, which could be an opportunity for mortgage lenders to educate homeowners on how this move affects their financial health.
Credit scores don't move much for consumers pursuing home equity loans, with scores declining 13 basis points for the average borrower and recovering within a year of consumers accessing their equity. This is based on a LendingTree analysis of over 2,500 homeowners who took out home equity loans in 2017.
After taking out a home equity loan, the typical borrower credit score reached bottom after 158 days, and recovered after about 163 days, so the time to decline and repair were pretty much equal, according to LendingTree. What's more, scores rose higher after recovery as on-time payments helped them improve further.
Of all cities, borrowers saw the smallest credit score declines after take out a home equity loan in San Diego, where they dipped only five points on average.
