Blog Layout

Why HELOC demand will surge

Didier Malagies • May 3, 2022


Between February 2020 and January 2022, we witnessed something in the mortgage industry that we thought we’d never see — 30-year fixed-rate mortgages under 3.5%. These rates drew a record number of people refinancing their homes, with cash out refinances reaching $1.2 trillion in 2021.

Then, in what felt like an instant, in Q1 2022 mortgage rates skyrocketed and the refi boom ended. As people look for alternate means to access the equity in their homes, home equity lines of credit (HELOCs) are poised to make a comeback. Here’s why:


Homeowners will still want to use the record levels of equity in their homes


The residential real estate industry faces an interesting dynamic of rising mortgage rates while, at the same time, homeowners have record equity in their homes. According to CNBC, homeowner equity is an aggregate $9.9 trillion. The average homeowner has about $185,000 in equity they can access while still keeping a 20% stake in their home. 


Taking out a HELOC is a viable option for homeowners who want to keep their primary mortgage, and still tap the equity in their home. 


A HELOC is now cheaper than a refi

While the interest rate on a HELOC today is probably higher than the rate on a primary mortgage, homeowners will likely to find that refinancing no longer makes mathematical sense.


Most households have a low rate on their primary mortgage, so doing a cash-out refi will yield a higher monthly payment than keeping the mortgage they already have and adding a HELOC on top.


For example, if a homeowner has a $400,000 mortgage at 3.25% and wants to tap another $100,000 of their equity, they might consider accessing $100,000 of equity through a HELOC versus a cash-out refi:

  • Cash-out refi: Accessing $100,000 of equity would mean taking out a $500,000 mortgage at today’s rates, which are averaging over 5%. This will cost $2,684 per month. 
  • HELOC: If, instead, a homeowner simply adds a $100,000 HELOC at 5%, they’re looking at monthly payments totaling $2,157. Even a 7% HELOC will only cost $2,324 a month. Also, the homeowner is likely paying interest on less than $100,000, since they only pay interest on the amount of the HELOC that they’ve withdrawn. For instance, if the homeowner has only withdrawn $50,000 of the HELOC for a renovation or downpayment on a new home, the person would only be paying interest on the $50,000.

HELOCs offer flexibility 

In the current market conditions, here are a couple of aspects of a HELOC homeowners will find most attractive:

First, HELOCs are arguably more flexible than a traditional cash-out refi. Once approved for a HELOC, they can access the line of credit as needed, as opposed to having cash sitting in a savings bank from a refi. In cases where the homeowner ends up needing to take only the minimum required draw from a HELOC, they would only end up paying back that part of the loan. In contrast, when they do a cash-out refi, they’re committed to paying the new principal and interest balance for the duration of the mortgage — likely 15 or 30 years. 


Second, and very much related, the monthly payback amounts on HELOCs are more flexible. During months where you need additional capital to finance a home repair, or a move, they may choose to pay the interest only part of the loan. 



For the foreseeable future, I anticipate HELOCs being the equity-access vehicle of choice for many U.S. homeowners. Much like 2021 was a record year for refinancing, 2022 could be a record year for HELOCs.

David Friedman is the CEO and co-founder of Knox Financial.



Start Your Loan with DDA today
Your local Mortgage Broker

Mortgage Broker Largo
See our Reviews

Looking for more details? Listen to our extended podcast! 

Check out our other helpful videos to learn more about credit and residential mortgages.

By Didier Malagies November 20, 2024
The trend line for mortgage rates has been the same for several weeks, even as some of the uncertainty surrounding the 2024 election is fading. The cost of a home loan continues to move in a negative direction for U.S. consumers and housing professionals alike as the downward movement that started in August has been erased entirely. At HousingWire’s Mortgage Rates Center on Tuesday, the average rate for 30-year conforming loans was 6.99%. That was up 4 basis points (bps) from a week ago and 75 bps higher than when rates bottomed out in late September. Meanwhile, the 15-year conforming loan rate — which had been as low as 5.57% less than two months ago — stood at 6.98% on Tuesday.  The pace of increases is moderating. “Mortgage rates are expected to be lower today as bond yields have been decreasing throughout the night and early morning, slightly dropping further following the recent softer housing starts data,” HousingWire Lead Analyst Logan Mohtashami wrote on Tuesday.
By Didier Malagies November 18, 2024
Homebuyers who are part of Generation X — primarily born between the mid 1960s and the early 1980s — should keep accessibility features in mind as they approach retirement, since Americans are increasingly looking to age in place in their own homes once their time in the workforce is complete. This is according to a recent article at the Boston Globe that took a closer look at the kinds of homes that those currently in their mid-to-late 50s may want to prioritize as they look to the future. Not only is it a good idea to think ahead for themselves, the article explains, but many members of Gen X are also a part of the so-called “sandwich generation” where they may be taking care of both their own children, and their parents simultaneously. “So for those considering moving out of the homes where they raised their children, there are some key boxes to check to make living in their next house easiest for everyone,” the story said. The biggest aspect to keep in mind is the one that could make the biggest accessibility difference, and that is keeping the house confined primarily to a single floor. “In most of our remodeling, we use a design technique called Universal Design,” said Brian Harvey, owner of Boston-area business Harvey Home Modifications . “That essentially is a design that will serve anyone of any physical capability in the house.” Keeping in mind what is not needed is also a useful exercise, he said, and ensuring that door frames are wide enough to accommodate wheelchairs could be beneficial for any current or future wheelchair users that do, or will, reside in the home. Bathrooms are also a major focus, since they can often serve as common sites for falls or other accidents since slippery, wet surfaces can be easy to find. “If the home you’re hoping to buy doesn’t have the accessibility you’re looking for, you’ll want to check with a contractor to see what kind of renovations are possible,” the story said. One of the ways the reverse mortgage industry has aimed to position the potential value proposition for prospective borrowers is by the ability to use the loan proceeds to fund home modifications. The U.S. Department of Housing and Urban Development (HUD) has also given attention to home modifications specifically for aging in place. This past summer, the department greenlit a new round of grant funding specifically to assist more older Americans with aging in place.  Reporting earlier this year by the Associated Press (AP) also tracked the increasing desire of older Americans to remain in their homes for longer, illustrating how they were increasingly “splurging” on home modifications to better fashion their living spaces for later life’s natural mobility limitations. Home improvement retailers have also taken notice, with The Home Depot refreshing an in-house brand with accessibility in mind for things like grab bars and easier-to-use faucets. In 2021, Lowe’s established a single stop for items including wheelchair ramps and shower benches, the AP reported.
By Didier Malagies November 18, 2024
When a property appraisal comes in lower than the agreed-upon purchase price, it can complicate financing for the buyer. Here's what typically happens for FHA, Conventional, and VA mortgages: 1. FHA Mortgages Impact of a Low Appraisal: The loan amount is limited to the lower of the purchase price or the appraised value. A low appraisal means the buyer must: Renegotiate the purchase price with the seller. Pay the difference in cash. Walk away if the contract allows it. Required Repairs: FHA appraisals assess both value and property condition. If issues arise (e.g., safety concerns), the seller or buyer must make repairs before closing. Appraisal Stays with the Property: FHA appraisals are tied to the property for 120 days. If a different FHA buyer comes along within that period, they inherit the appraisal value. 2. Conventional Mortgages Impact of a Low Appraisal: Conventional loans also limit the loan amount to the appraised value. If the appraisal is low, the buyer must: Negotiate a lower price with the seller. Increase their down payment to cover the gap. Cancel the deal if allowed by a financing contingency. Appraisal Appeal or Second Appraisal: Buyers or lenders can challenge the appraisal or request another one if there’s evidence the appraisal was inaccurate. More Flexibility: Conventional loans often have fewer property condition requirements than FHA or VA loans, so the appraisal focuses more on market value. 3. VA Mortgages Impact of a Low Appraisal: VA loans use a Notice of Value (NOV) to determine the property’s worth. If the NOV is lower than the purchase price, options include: Negotiating a price reduction with the seller. Paying the difference in cash. Requesting a "Reconsideration of Value" (ROV) through the VA if there’s a strong case for higher value. VA Escape Clause: VA loans include a clause allowing buyers to walk away if the property appraises lower than the purchase price without forfeiting their earnest money deposit. Minimum Property Requirements (MPRs): If the property doesn't meet VA MPRs, repairs are required before closing. General Buyer Options in Case of a Low Appraisal: Renegotiate Price: Sellers may agree to lower the price to match the appraisal. Bring Extra Cash: Buyers can cover the gap out-of-pocket. Challenge the Appraisal: Provide additional data to support a higher value. Walk Away: Utilize financing or appraisal contingencies to exit the deal. Would you like more details on how to handle a specific type of mortgage? tune in and learn at https://www.ddamortgage.com/blog didier malagies nmls#212566 dda mortgage nmls#324329
Show More
Share by: