Homeowners are tapping into their equity once again. Over the last decade there was over $1 trillion in home equity withdrawn. Many homeowners did this through home equity lines of credit, cash-out refinances, and home equity loans. Much of that money was spent on home upgrades, flat screen TV’s, cars, and vacations. And, while there are nearly 11 million homeowners still underwater, it is not stopping home equity lines of credit from being on the rise.
The rise of home values have helped attribute to home equity lines of credit. As home values increase, homeowners will have more equity to play with. Consumer confidence has also helped homeowners feel better about repaying loans. So, because of these two factors, we have seen a 19% jump in home equity lines of credit.
Now that home prices are up by 8% since December 2012, homeowners will see a quick gain on home equity. Over 1.4 million borrowers are now above water on their mortgages. So, does this mean we will start seeing reckless home equity use again? Probably not. It’s now a little harder to pull the equity out, but those who are able to seem to be reinvesting it back into their home.
To show some actual numbers in home equity use, there was $28 billion in home equity used in 2006 and only $7.2 billion used in 2012. Of course the numbers are expected to go up in 2013 as interest rates and home values rise. However, cash-out refinances are expected to stay low. Most homeowners will turn toward home equity lines with a fixed rate. Some banks are now offering lines of credit with a fixed rate for up to 3 years. Others are still offering a variable rate.