HELOC loans surged at end of 2021 amid rising mortgage rates: TransUnion

Rising interest rates and higher costs have begun to impact consumers across the U.S., but they're still finding ways to take out loans and pull cash from their homes, according to a new report from TransUnion. 

Interest rates for the 30-year mortgage have far surpassed the 5% annual percentage rate (APR) mark, up from less than 3% this time last year, according to Freddie Mac data. But home values are also up, enticing homeowners to tap into their equity despite rising rates. 

As mortgage rates rise, homeowners are turning away from a traditional mortgage refinance and toward home equity lines of credit (HELOCs), TransUnion said in its Q1 2022 Quarterly Credit Industry Insights Report (CIIR). New home equity loans increased 4% annually and 80% from 2018 to 1.2 million total originations. 

When comparing types of home equity loans, fewer homeowners are navigating toward cash-out refinances, which decreased 6% annually in the fourth quarter, according to TransUnion. Meanwhile, HELOC’s increased 31% year-over-year in the fourth quarter of 2021 and home equity loans increased 13%.

If you are interested in tapping into your home’s value, using an online marketplace like Credible can help you find the best option for a cash-out refinance. Visit Credible to find your personalized interest rate without affecting your credit score.

NEARLY THREE-QUARTERS OF US METROS SEE DOUBLE-DIGIT HOME PRICE INCREASES IN Q1 2022: NAR DATA

Inflation pushes consumers toward alternative forms of credit

Inflation remained near its 40-year high in April, with the Consumer Price Index (CPI) hitting an 8.3% annual increase, according to the latest data from the Bureau of Labor Statistics (BLS). 

"Compared to a year ago, the price of everything from filling a gas tank to buying a carton of eggs has increased due to inflation," Michele Raneri, TransUnion vice president of research and consulting, said. "Since wages of many consumers have not kept up with inflation, people are spending more to get less. 

"However there are several positives to note, including low unemployment, lenders increasing access to credit, and strong consumer performance," Raneri said. "These are all indications that consumers are well-positioned as the economy continues to find its footing from the financial volatility of the pandemic."

Total new mortgage loans decreased 28% annually as mortgage rates rise, but HELOCs have risen significantly over the past year because they allow homeowners to pull cash from their homes without changing the interest rate on their entire mortgage loan. While a borrower's interest rate on the HELOC could be higher than the rate on the entire mortgage, it is likely to still be lower than the interest rate on a personal loan, TransUnion said.

While Credible doesn’t offer HELOCs, their marketplace does show you options for cash-out mortgage refinances, which also allow you to tap the equity in your home. You can visit Credible to compare multiple mortgage lenders at once and choose the one with the best rate for you.

INFLATION EASES FOR FIRST TIME IN MONTHS, BUT REMAINS NEAR 40-YEAR HIGH

Rising home prices make more funds available to homeowners

Because of rising home prices, the average size of new mortgages increased 7% annually to $315,543, according to TransUnion. Home price gains reached double digits in 70% of real estate markets in the first quarter of 2022, according to the National Association of Realtors (NAR). This allows homeowners to take out a higher credit line from their home. 

"The rising interest rate environment has impacted mortgage origination volume," Joe Mellman, TransUnion senior vice president and mortgage business leader, said. "There is less incentive to go through a rate and term refinance and for those looking to purchase a home, low inventory and high home prices presents a challenge. 

"A marginal reduction in new cash-out refinance volumes and a substantial increase in HELOC and home equity loan originations indicates that for those who are already homeowners, the continued home price appreciation offers an opportunity to tap into growing home equity and gain access to cheaper capital," Mellman said. "Mortgage lenders can bolster growth in a subdued market by leveraging tools that can identify and reach consumers who are in the market to tap their available home equity."

If you are interested in pulling cash out of your home's rising value or potentially lowering your monthly payments, you may want to consider a cash-out refinance. To see if this is the right option for you, you can contact Credible to speak to a home loan expert and get all of your questions answered.

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