What Reverse Mortgage Lenders Can Learn from HELOC Borrowers

Home equity lending is expected to boom in the coming years, and a recent survey from a leading consumer satisfaction company offers a window into what tomorrow’s borrowers may want from their lenders.

Almost two-thirds of borrowers with a home equity line of credit (HELOC) expressed concerns about the products, according to an inaugural survey on the topic from J.D. Power. In particular, respondents were worried about potentially borrowing beyond their means and the “variable nature of the loan.”

But those issues haven’t stopped overall interest in home equity, with the number of forward HELOCs expected to double to 10 million by 2023, according to a study from TransUnion cited by J.D. Power. 

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“Steadily rising home prices, rising equity in the home, and growing competition among lenders creates an opportunity for homeowners to tap into a low-cost source of funds,” Craig Martin, senior director of financial services at J.D Power, said in a release announcing the company’s findings. 

While mortgage lenders — of both the forward and Home Equity Conversion Mortgage persuasion — often spend considerable budgets on advertising, the survey found that 88% of potential HELOC borrowers started the process on their own, with that number ballooning to 94% among millennials.

Additionally, 55% of all respondents they’d shopped around with at least one other mortgage lender before signing on the dotted line, with 66% electing to meet with potential partners in person. Perhaps unsurprisingly, that face-to-face component was markedly less important to millennials, as 59% used desktop computers to research HELOCs, while 50% used tablets or smartphones.

While the millennial generation — now officially defined as those born between 1981 and 1996 — is decades away from HECM eligibility, younger baby boomers and Generation Xers are increasingly comfortable with conducting mortgage business online, and several players in the reverse mortgage industry have expressed interest in virtual originations.

“Lenders need to recognize that the HELOC customer experience is a journey that beings with initial consideration and evaluation and extends through to usage, with each part of the journey affecting overall perceptions,” Martin said. “Increasingly, many steps in that process are occurring in digital and mobile channels, which are areas the industry has been slow to leverage and refine.”

Written by Alex Spanko

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  • With its high front costs and startling total costs of financing HECM upfront costs after 30 years, the applicability of lessons learned from HELOCs may not be as great as perceived at first glance.

    For example the total cost of $18,000 in HECM upfront costs can grow to over $108,400 after 30 years with an average interest rate of just 5.5%. That might sound like an all right deal at closing will not sound so good projected out to 30 years when those upfront costs are financed.

    Yet no lender will spread the cost of $18,000 over 30 years so that the borrower can pay them off at $600 per year (as someone else pointed out). Using that same average interest rate, the actual cash outlay would be over $1,250 per year for the thirty year period.

  • The best HELOC product in my opinion was the 10 year interest only HELOC. However, what was missing was the opportunity to REHELOC the HELOC for another 10 years interest only payment as long as the value of the home had gone up. Hundreds of thousands of homeowners probably could have saved their homes if the REHELOC option had been offered during the Obama Administration.

  • HELOC loans will be subject to inflation, being decrease or cancelled when housing crashes… again. One of my clients was left with an unfinished roof when the bank lowered his HELOC. Knowing your HECM funds will be there in the future, guaranteed, is priceless. The HECM client will be the only kid left on the block with money when all the HELOC clints are crying poor.
    Learn from the past, secure for the future.

  • Rather than getting into number comparisons, let’s look at what this means for our industry and the benefits of the HECM over the HELOC! The more interest being shown in HELOC’S means more opportunities for the HECM!

    Let’s look at what the HELOC borrower is looking for, providing they are a senior 62 years of age or older?

    Let us say our senior borrower wants a line of credit to be able to tap into if and when the need arises, why a HELOC, the HECM, yet has closing costs that are higher but also has a growth rate. Every month the amount of their line of credit increases, which means more can be borrowed and be available than what the original line was for! Plus, with the HECM, no monthly payments.

    Does our senior borrower want to pay off debt, by a new Motor Home, buy a new car or a combination of all three? The HELOC will put the senior in a heavy monthly payment mode! The HECM will get the senior borrower all they want with no monthly payments for life!

    I could get into many more examples but I think my point is understood, The HECM, much better and the more HECM’s closed the happier we all get every day!!

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      What needs to be addressed is overcoming today’s HELOC with today’s HECM. The front costs of the HECM are turning seniors off who otherwise might use a HECM in retirement planning or as a cash reserve.

      What do you suggest as a clear comeback?

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