The party is over — all those poor millennials who bought overpriced homes

via CNBC:

  • The amount of home equity that consumers are sitting on has been rising steadily since it hovered at around $6 trillion from 2009 through 2011.
  • Homeowners who are considering turning to a home equity loan or line of credit should make sure they understand how these financial instruments work before signing on the dotted line.

With untapped home equity at an all-time high of $14.4 trillion, homeowners could be poised to start cashing in, new research suggests.

Home equity — the difference between a property’s value and the amount owed on it — is about $1 trillion higher than its peak in 2005 before the Great Recession, according to a TransUnion study released this week. By 2009, the level had dropped to about $6 trillion as the housing market struggled to recover.

“Consumers have been building up that equity over the last seven years or so,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “It has really come roaring back.”

With interest rates rising on consumer debt, home equity loans or lines of credit could be an appealing option for consumers looking to borrow money at a lower cost, Mellman said.

“When rates were low, consumers were taking out equity by refinancing their mortgage,” Mellman said. “Now, with [mortgage] interest rates up, a lot of people might not want to touch their original mortgage.”

In other words, if refinancing would mean paying a higher interest rate on your primary mortgage, it might not be a wise move.

The average rate on a 30-year traditional mortgage is now 5.01 percent, according to Bankrate. The average interest rate on a home equity loan is around 6 percent.

Why consumers tap their home equity

Use
Description
Percent using*
Major expense Take cash out, often for a large expense like home remodeling 91 percent
Debt consolidation Consolidate balances from other accounts 41 percent
Refinance Refinance to get a better rate or term 23 percent
Piggyback Concurrent with a mortgage origination, often used for down payment 4 percent
Undrawn Not used immediately (i.e., a rainy day fund) 2 percent
Source: TransUnion * Based on 2.4 million home equity loans originated between July 2016 and June 2017

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