Why HELOCs are growing more popular

A path for homeowners to protect their existing low interest rates

The past few years in the housing industry have been nothing short of unprecedented. In 2020 and 2021, many homeowners refinanced, locking in historically low 30-year fixed rate mortgages.

And now, with the impact of inflation and looming economic uncertainty, home equity lines of credit (HELOCs) are an increasingly popular choice for those who are considering tapping into their home’s rising equity while protecting their existing, low mortgage rates. 

HELOCs have continued to set the stage as flexible, helpful products that provide quick access to financing for a multitude of uses including home renovations, debt consolidations or emergency purchases.  

Extended renovations call for extended financing 

As rising mortgage rates combined with historically high home prices continue to curb enthusiasm for those who want to purchase, many homeowners are thinking outside the box, finding ways to spruce up and add value to their current homes through renovations, even amid current labor and supply chain shortages.

TD Bank’s HELOC Trend Watch survey found that 43% of homeowners who are planning to renovate intend to use a HELOC or home equity loan to finance the project. Additionally, 65% of the total respondents are currently planning or have plans to renovate their homes within the next two years.  

As labor and supply chain shortages also extend the timelines and budgets of projects, homeowners are favoring flexible financing options. HELOCs allow homeowners to draw funds from their credit lines when they need them and typically offer lower rates than other fixed loan mortgage products and many unsecured consumer lending options. So, they stand out as offerings that can provide the flexibility and convenience consumers need when completing home projects where costs can fluctuate. 

Of those who plan to renovate, TD Bank’s survey also found that 78% plan to move forward with their renovations regardless of potentially longer wait times due to labor and supply chain shortages. 

The road ahead for homeowners in 2023 

An Urban Institute Housing Finance Policy Center report found that in the first five months of 2022, nearly $101 billion in HELOC funds and $38 billion in closed-end home-equity loans were originated in the U.S. With the Federal Reserve planning more rate hikes to combat inflation in 2023 — albeit at a slower pace — and with first mortgage rates remaining higher, home equity originations will continue to gain popularity.  

Homeowners have an opportunity in this market to better navigate and secure their financial goals, and HELOCs and home equity loans should be top of mind as a viable financing option to do that. 

There is risk involved as HELOCs are tied to the prime rate and can continue to rise. Further, everyone’s financial risk appetite and financial standing are different. So, it’s imperative to speak with a lender. They can advise borrowers on how they can optimize these products to fit their unique personal financial situations.

Whether homeowners are considering renovations, consolidating debt, or paying for education costs, lenders can help borrowers understand how HELOCs and home equity loans can enhance the ability to meet financial goals and power their financing needs.  

Steve Kaminski is head of U.S. Residential Lending at TD Bank.

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