People in the U.S. may be stuck in their homes, but they can still get their money out.
Home prices have gone through the roof in the past few years, and people who have built up equity are taking out home-equity loans to cash in on their gains.
An analysis company called CoreLogic said in a report released Wednesday that home equity loans have reached their highest level since 2008 in the first half of this year.
The company said that during that time, lenders made more than 333,000 new home-equity loans worth a total of $23.6 billion.
Home-equity loan versus HELOC
HELOCs, which stand for home equity lines of credit, are not the same as home equity loans.
People who own their own homes get home-equity loans and get a lump sum up front. The interest rate is set, and the person makes payments on time until the loan is paid off.
A home equity line of credit (HELOC), on the other hand, lets a person borrow money against the value of their home. The Consumer Financial Protection Bureau says that during the draw period, which can last up to 10 years, borrowers can spend up to their credit limit. After the draw period, they will begin the payback period. The rates on HELOCs change based on the policy rates set by the Federal Reserve.
As of Oct. 9, Bankrate said that the average interest rate on a home equity loan was 8.36% and the average interest rate on a home equity line of credit was 8.73%.
Demand for HELOCs went through the roof in the first half of 2022, but it has since dropped.
CoreLogic said that lenders started about 671,000 new HELOCs worth a total of $105 billion in the first half of 2024. This was less than the same time last year.
Why people are breaking into their homes to get cash
People are using the value of their homes as collateral to pay for things like home improvements or to combine their debts into one payment. They are getting a second mortgage instead of refinancing because they don’t want to lose the low rate on their first mortgage.
Nine out of ten homes with a mortgage have a rate below 6%. Many of these rates are much lower than the 30-year rate of 6.67% that Mortgage News Daily reported on Thursday morning. That has made people feel stuck, which has slowed down the home-selling process.
For now, the housing market is not likely to move. CoreLogic also said that because home prices have been high for a long time, some owners are likely to keep using their home equity for things like repairs or paying off high-interest loans.
California homeowners were the most busy when it came to home equity loans.
In the first half of 2024, the four cities in California with the most home equity loans were all in that state: Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Diego-Chula Vista-Carlsbad, and Riverside-San Bernardino-Ontario.
CoreLogic said that over the past year, the average homeowner in California earned about $55,000 in equity.
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