Here’s How Typical Borrowers Are Using Their HELOCs

While half of consumers who currently have a Home Equity Line of Credit (HELOC) acquired the loan primarily for home renovations, other needs served as significant motivators, a new study finds. And while the product continues to grow in popularity, confusion regarding the loan’s terms and conditions remain.

Debt consolidation (29%), major home purchases (24%), emergency funds (19%) and education costs (20%) were other top uses for HELOCs among consumers, according to the latest research from TD Bank.

“We’re seeing an increasing interest in HELOCs this year, suggesting a rebound in consumer confidence related to rising home values,” said Michael Kinane, head of Mortgage and Consumer Lending Products for TD Bank, in a written statement. “Using this type of financing to add value to your property is a strategic move when it comes to today’s real estate market. HELOCs currently offer consumers the convenience and flexibility to borrow what they need at a better interest rate than most other lines of credit.”

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TD Bank’s inaugural Consumer Borrowing Index surveyed more than 1,350 U.S. homeowners with a HELOC to provide insights into borrowers’ motivation, usage and perceptions of the loan.

Many homeowners expressed uncertainty and misunderstandings regarding the terms and conditions of their loan, data show. In fact, one in five homeowners are unsure if they are paying fees. And half of those surveyed do not know if they have any fixed-rate opportunities during their draw period.

Age also plays a key role in consumer concerns.

Twenty-two percent of borrowers nationwide are either very or extremely concerned about their ability to meet payments at the end of the draw period, data show. But when evaluated by generation data show that 73% of Millennials are extremely or very concerned about repayment, while 30% of Gen-Xers and only 8%of Baby Boomers are extremely or very concerned. 

But increasing home values are driving consumer interest, TD Bank says, noting that consumers have more equity in their homes to borrow.

Thirty percent of homeowners are applying for a HELOC of $100,000 or more, but the average loan secured is only $87,000, data show.

“Those who shopped around tended to get a higher value loan,” TD Bank says, adding that consumers who went with their primary financial institution but did consider other lenders secured an average HELOC of $92,000, or $5,000 more than those who only considered their primary financial institution.  

And borrowers don’t always use a HELOC for what they initially intended, the study finds.

While 24% of HELOC borrowers used the loan for emergencies, a smaller 19% actually anticipated using it that way. In addition, 27% purchased a new vehicle, while only 21% reported they intended to use the loan for this reason. And, although 18% of borrowers used their HELOC for medical and healthcare expenses, only 14% had actually anticipated using the loan for this reason.

Written by Cassandra Dowell

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