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Finding Opportunities in Home Equity

With mortgage applications down more than half from last year's figures, lenders might be better served in the year ahead by home equity loans, says CoreLogic's chief economist.

In a blog post, CoreLogic's Mark Fleming notes that as of the most recent numbers, mortgage applications are down 54 percent compared to a year ago, with much of that decline stemming from a plunge in refinances (down 65 percent year-on-year).

However, while rising interest rates have removed some of the incentive homeowners had to move or refinance, improving home prices have created a greater space for home equity loans.

"When homeowners decide they want to increase the utility they receive from their shelter, they can choose to either sell their existing home and buy a bigger home, refinance their entire mortgage and get 'cash out' to do home improvements, or get a home equity loan or home equity line of credit (HELOC) to pay for home improvements," Fleming said. "In a rising interest rate environment, the first two options are more expensive, as the cost of borrowing increases for even the original loan balance."

As prices and interest rates continue to rise, lenders with the right mindset stand to benefit, he adds.

"This is good news for the home improvement industry and mortgage lenders who focus on home equity lending, as both will benefit from the resurgent consumer demand."


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