Home equity lines of credit (HELOCs) continue to make a comeback, fueled by rising home values and compliance burdens on other loan products, according to a new report.
Credit reporting agency Equifax released on Monday its latest National Consumer Credit Trends Report, revealing that the total balance of new credit for revolving home equity loans in the year's first seven months was $65.9 billion. The figure, up 21.4 percent year-over-year, marks a six-year high.
At the same time, the total number of new loans year-to-date through July was more than 670,000, an increase of 16.1 percent over the same time a year ago.
The report echoes a similar release from RealtyTrac earlier this month, which showed HELOC volumes coming to nearly 800,000 for the 12 months ending in June, an increase of 20.6 percent from the prior period.
Equifax Chief Economist Amy Crews Cutts said the rise in HELOC lending is a result of both increasing home equity nationwide and a change in focus among lenders away from home equity installment loans and toward lines of credit.
"Home equity installment loans require a higher compliance burden on lenders and for consumers home equity lines of credit offer tremendous advantages in terms of when they draw the loan money and how the payments are structured," Crews Cutts said. "More and more lenders are offering amortizing HELOCs in addition to their HELOCs with an interest-only term."
Even with this year's increase, Crews Cutts noted that the total volume of HELOC lending right now is still just more than a third of what it was before the financial crisis hit. However, the HELOC segment is expected to continue gaining momentum "as homeowners who want to renovate their homes or fund other needs will not want to do a cash-out refinancing if the interest rate on their first mortgage is very low," she said.