After the Great Recession, home equity lines of credit (HELOCs) became scarce, as the mortgage industry had gotten itself into deep water because of the high volume of HELOCs that were approved, and subsequently defaulted. Because of this, banks and credit unions became far more strict with HELOCs approvals.
However, times have changed. Thanks in large part to an improving economy and real estate market overall, people are once again looking to get approved for a mortgage, and in turn the HELOC market is heating up. Before we look at the future of the HELOC market in more detail, let’s take a trip down memory lane.
HELOCs in the Past
HELOCs were at their height in the mid-2000s, which unfortunately didn’t prove to be a good thing for either lenders or borrowers. The number of HELOCs that were being awarded were incredibly high (up roughly 70% from the $56 billion HELOC market today), but many people were in over their heads and could not make good on their loan.
The majority of HELOCs were awarded between 2004 and 2006, and many people were turning to these lines of credit to try and get out from under mounting bills and other payments. However, the economy eventually crashed and the real estate market tanked, resulting in tons of foreclosures and unpaid mortgages. Because of this, lenders have been wary to hand out HELOCs as generously as they did in the past.
What Does the Future for HELOCs Hold?
However, the economy has changed, and with it the mortgage and real estate industry. People are once again interested in buying a home and are turning to local lenders to do so. Lenders are undoubtedly more cautious than in the past when it comes to approving HELOCs, but the people applying for loans have also changed. These days, HELOC customers are typically A+ credit grade who have more equity available in their home. For these borrowers, HELOCs are a great option because they provide access to equity in their home, in the event they need it—without undue risk to the bank or credit union.
According to industry experts, interest rates are expected to remain low, which is just one reason why we are predicting a resurgence in the HELOC department. In addition to low interests rates, home values are on the rise, which gives homeowners more equity and, in turn, confidence to draw from their HELOC.
HELOCs are also a viable alternative to credit cards for people needing to make home improvements or fund large purchases. Credit cards were a large part of the floundering economy, as people couldn’t keep up with their bills and resorted to credit cards with high interest rates. Today, HELOCs have a much lower interest rate and are far more secure than credit cards (for the appropriate borrower).
To learn more about what you can expect for the future of HELOCs and how this is impacting the mortgage industry as a whole, please check out our recent ebook, Why You Should Consider Tracking HELOCs.