Americans Leaving Trillions in Home Equity on the Table

American homeowners have seen a vast increase in their home equity over the past year, thus creating trillions of dollars worth in tappable equity from which to borrow, according to a recent report.

The amount of tappable home equity is at $4.2 trillion, an increase of $600 billion over the last 12 months, according to the latest Mortgage Monitor Report released this week by Black Knight Financial Services, Inc. (NYSE: BKFS).

Based on data compiled as of the end of November 2015, Black Knight’s report looked at the amount of tappable home equity available on each home with a mortgage, by using an upper limit of 80% current combined loan-to-value (CLTV), including first and second liens.

In total, Black Knight found over 37 million borrowers with current CLTVs below 80% that have an average of $112,000 equity available to tap in their homes, an increase of 3.1% from a year ago.

Roughly half of that tappable equity belongs to borrowers whose first-lien mortgages have current interest rates higher than today’s 30-year rate—making them potential candidates for cash-out refis—but the other half are under 4%, said Ben Graboske, Black Knight’s senior vice president of data and analytics. .

“While it’s not a hard and fast rule that borrowers won’t refinance into a higher rate in order to tap available equity—23 percent of cash-out refi borrowers over the past six months did just that—for the most part, as rates rise, HELOCs will continue to become more popular to homeowners looking to tap available equity,” Graboske said in a prepared statement.

Data show Home Equity Line Of Credit originations continued to rise, with total line amounts originated climbing 35% year-to-date over 2014 levels. Meanwhile, average HELOC amounts are sitting at the highest level they have ever been since Black Knight began tracking this data in 2005.  However, Black Knight notes that while HELOC line amounts may be at 10-year highs, initial utilization rates are near 10-year lows.

In the Mortgage Monitor Report, Black Knight also looked at the number of borrowers who may be able to benefit from refinancing their mortgages.

The analysis found there are approximately 5.2 million U.S. homeowners who could likely qualify for refinancing their mortgage at today’s interest rates. This estimated figure derives from Black Knight’s analysis of current interest rates on existing 30-year mortgages and a set of broad-based underwriting criteria.

This eligible population, however, is diminishing—falling from over 7 million as recently as April 2015, when rates were below 3.7%—and will only continue to shrink as mortgage rates rise, said Graboske.

“If rates go up 50 basis points from where they are now, 2.1 million borrowers will fall out of the running; a 100 basis-point increase would eliminate another million, leaving only 2 million potential refinance candidates, the lowest population of refinance candidates in recent history,” he said.

That said, Graboske noted some 2.4 million borrowers are looking at potentially saving $200 or more on their monthly mortgage payments after refinancing.

“Again, this is a very rate-sensitive population; after a 50-basis-point rise in rates, a million borrowers would lose out on those savings,” he said.

View the Black Knight Mortgage Monitor Report.

Written by Jason Oliva

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