Despite their growing popularity, many homeowners don’t fully grasp the intricacies of home equity loans.
Given the uncertainty of interest rates and remnant challenges rooted in the coronavirus pandemic, an increasing number of borrowers are turning to home equity loans for much-needed funds and financial relief. Yet according to a new study, about half of those availing themselves of the financing have a strong understanding of how a home equity loan works.
The survey by MeridianLink – a provider of modern software platforms for financial institutions and consumer reporting agencies – found that while 21% of respondents are likely to take out a home equity loan in the next 12 months, only 52% have a strong understanding of how a home equity loan works. “Elevated interest in home equity lending is driven by the current economic environment with high house prices and interest rates slowing purchase transactions and providing existing homeowners with high available equity,” MeridianLink's President Chris Maloof told Mortgage Professional America. “Not all loans are the same and it’s important for financial institutions to offer a range of options for consumers and help educate them on the type of loan most appropriate for their situation. Financial institutions that help consumers with lending options can create more opportunities for themselves and their members or customers.” Home equity loans are taken to fulfill a wide variety of needs, Maloof explained: “While I can’t speak for people’s unique lending needs, some traditional reasons people take out home equity loans are to fund home renovations or cover the cost of major life events. How a borrower uses the funds from a home equity loan can have tax implications, and it is important that a lender is able to provide appropriate guidance.”
Despite their growing popularity, a great number of people don’t fully grasp the intricacies of home equity loans. Among the survey findings, 48% of respondents scored their understanding of a home equity loan below 7 out of 10 and 13% had no understanding at all.
Source: Mortgage Professional America