YOUNGSTOWN, Ohio – Officers at area lending institutions report increasing activity for home equity loans and home equity lines of credit, with much of that borrowing going toward house upgrades and consolidating debt.
At Farmers National Bank in Canfield, home equity loans and HELOCs represent about 85% of consumer production, up from 78% just three years ago, Rob Leonard, director of consumer lending, reports. The number of applications for the financial instruments also has increased during the same period.
The HELOC utilization rate has risen to nearly 42% from around 35% over the last two-plus years, he adds. Rates for home equity loans are about 6.25%, similar to first mortgages, while HELOCs are tied to the prime rate, usually plus a margin.
“Rates vary by credit and how much equity someone has, but right now our 4.99% introductory HELOC rate is really resonating with Ohio homeowners,” John Demmler, CEO of 717 Credit Union in Warren. “Fixed home equity loans are also available, giving people options depending on their goals.”
Rates for home equity products haven’t changed for a while at Mercer County Community Federal Credit Union in Hermitage, Pa., says Cheryl Deschand, vice president of lending.
“We’re pretty much holding where we’ve been for some time, because there’s so much uncertainty,” she says. Rate changes by the Fed had been anticipated during the past few months. “However, they have not done much with changing the rate, so we’ve been holding steady with where we are, and I think that’s pretty similar with other financial institutions as well.”
A spring uptick in activity for home equity products is typical, according to Sarah Palmer, senior vice president and chief lending officer at Mercer County State Bank, Sandy Lake, Pa.
“Typically this time of year, when we have a little bit of nice weather, believe it or not, that drives a little bit of the activity,” Palmer says.
Among the products Farmers offers is a five-year fixed rate HELOC “that we sell a lot of,” Leonard says. It has a 6.25% fixed rate for the first five years and converts to a 20-year amortized loan after that. It provides the borrower peace of mind knowing that the rate won’t jump up within the first five years.
“The Fed has held steady with those rates so we don’t know where they’re going to go,” Leonard says. “With that appreciation in their home, a lot of people are just coming and opening up a HELOC just to have that little safety net sitting out there.”
Deschand sees “a bit of a mix” in activity for home equity instruments. Demand isn’t as high as before the Covid-19 pandemic because of uncertainty about the economy.
“Now that the weather finally broke, we’re starting to see an increase in the number of applications that members are submitting, but there’s also a little hesitancy,” she says. “There’s so much uncertainty out there right now.”
Several factors are influencing activity in the home equity market, Leonard says. Among them are rate reductions that had been implemented by the Federal Reserve, with home equity loans and HELOCs specifically tied to the prime rate.
In addition, homeowners did a lot of refinancing around 2020, taking advantage of the low rate environment at the time before rates rose again. As they made the payments in the subsequent years, they continued to build equity through the appreciation in the mortgages and the properties themselves, he says.
“We see a lot of members concerned about the cost of living, increasing grocery and gas prices, and are feeling budget constrained,” Demmler says. “We believe this is a main driver in what we are seeing as a strong increase in applications for home equity loans. Homes in the Valley have appreciated quite a bit in the past few years and the strength of home values in our region is helping families consolidate their high-interest rate debts from other banks.”
The main reason for home equity borrowing is home improvements – renovations that increase the value of those properties, Leonard says. “Some people are doing some debt consolidation with these, allowing them to have a lower interest rate and saving on that interest that they’ll be paying,” he adds.
With credit card rates often in the high 20% range, home equity borrowing provides families with a practical way to lower monthly payments and get finances back under control, Demmler says.
“Most borrowers are focused on essentials – consolidating credit card debt, fixing up their homes, or keeping a HELOC available for emergencies,” he says. “The goal isn’t to overborrow; it’s to simplify finances and lower interest costs. We’re seeing families borrow what they need, with a plan to pay it back.”
Borrowers are utilizing Mercer County Community’s home equity products in various amounts, starting with the minimum $10,000, and varying according to need.
“A lot of them are for home improvements but there are also quite a few that are out there for debt consolidation. That is what we see a majority of our requests for the applications for the home equities and the line of credit,” Deschand affirms.
“Year over year, we’ve had a nice increase in home equity requests and activity,” Palmer says. “We have also noticed that it’s mainly for home improvements.”
Leonard says he’s seen a few borrows use the loans for educational expenses. “It’s another avenue where you can use it for tuition, whether it’s for college or different vocational training,” he says. “It’s a pretty good strategic way to utilize that equity in your house.”
With the expensiveness of many items, Leonard sees the home equity instruments as “a big option” for consumers.
“For the borrowers out there, it’s a little different than just your cash-out mortgages or equity loans. It seems like a lot of what we’re seeing is everybody’s looking at those HELOCs to utilize them,” he says. Customers are taking a step back and reviewing their overall portfolio and debt, and looking at ways to condense that debt and save money.
“Interest rates will always matter, but so will confidence,” Demmler says. “As long as Ohio’s housing values remain stable and people feel secure in repayment, home equity will continue to be a valuable tool. For us, it’s about using that tool responsibly to help build stronger households and ultimately, a stronger Ohio.”
