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Growing home values have spurred more consumers to take out home equity lines of credit (HELOCs), according to a new survey.
TD Bank reported Monday the results of its inaugural Consumer Borrowing Index, a survey of more than 1,300 U.S. HELOC borrowers created to provide insights into their motivation, usage, and perceptions of the loan.
Findings released last month from real estate data firm RealtyTrac show HELOC lending jumped more than 20 percent from June 2013 to June 2014, aided by improvements in home equity nationwide. According to the TD Bank survey, 53 percent of homeowners polled said the value of their home has increased in the past few years, giving them more equity to pull from.
"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 at TD Bank. "HELOCs currently offer consumers the convenience and flexibility to borrow what they need at a better interest rate than most other lines of credit."
Out of the homeowners surveyed by TD Bank, 30 percent applied for a home equity credit line of $100,000 or more. The average loan secured was substantially less than that at $87,000, though borrowers who shopped around tended to get a higher value loan, the bank reported.
While nearly half of HELOC consumers acquired their loan primarily for home renovations, a number of other needs also served as motivators, including debt consolidation (cited by 29 percent of borrowers as a significant factor), major home purchases (24 percent), emergency funds (19 percent), and education costs (20 percent).
Despite HELOCs' growing popularity, TD Bank found many consumers are confused or uncertain about some of the conditions of their loans, including the nearly 20 percent of borrowers who said they're unsure whether or not they're paying any form of annual, prepayment, or origination fee.
In addition, a large share of consumers are misinformed about interest rates associated with HELOCs, the survey found—for example, 59 percent of millennials surveyed think a HELOC interest rate (listed as low as 2.75 percent currently) is higher than the rate for a student loan (expected to rise to 4.66 percent for the 2014–2015 year), while 43 percent believe HELOC rates are higher than credit card rates (13.02 percent fixed).
The survey also showed more than one in five consumers—22 percent—are concerned about whether or not they'll be able to meet payments at the end of their draw period. Those concerns were mixed across age groups: 73 percent of millennials are worried about repayment, TD Bank reported, compared to 30 percent of Gen X borrowers and only 8 percent of baby boomers.
"The majority of homeowners surveyed feel the repayment requirements are manageable," Kinane said. "But it is important for consumers thinking about applying or who currently have a HELOC to focus on using the funds only on what they really need and prioritizing repayment when the time comes."
