FirstClose Blog

Home equity products offer homeowners powerful tools to manage their finances, invest in opportunities and enhance their living spaces. Yet, despite their potential, many homeowners are still navigating the complexities of these financial instruments and don’t fully understand their benefits. In MBA’s recent Home Equity Lending Study, 56% of homeowners tapped into their home’s equity for a home renovation project while only 33% used their home’s equity for debt consolidation.

At FirstClose, we recently conducted a survey to uncover consumers’ level of awareness when it came to home equity and how it could be leveraged.  The survey pooled 1,000 homeowners who have lived in their homes for at least two years and who have at least two credit cards with outstanding balances.

The survey asked consumers a series of questions about their knowledge of home equity loans and home equity lines of credit and on their willingness to use these products for different applications, such as consolidating debt, home improvement and to pay for major life events.

The results revealed a glimpse into the current state of consumers’ home equity knowledge and perceptions of the products, revealing both opportunities and challenges in the market.

Some of the key findings include:

Lack of awareness of interest rates

• Nearly half of the respondents (44%) did not know what the interest rate was on their credit cards. (The average credit card rate was 22.6% as of May 2024, according to the Fed.)
• The majority of respondents (77%) did not know what the average interest rate is on a HELOC. (The average HELOC rate was 9% as of August 2024, according to Bankrate.)
• 30% of respondents had between $2,500-$10,000 worth of credit card debt. (According to Experian, the average credit card balance was approximately $6,500 at the end of last year.)

Willingness to tap into home equity

• 40% of respondents believe they have more than $200,000 worth of equity in their homes and within that, 27% believe they have more than $250,000 worth of equity.
• When asked if they would access their home’s equity to pay off debt, the responses were almost evenly split with 49% responding yes and 51% responding no.
• More than half of respondents (56%) said they would access the equity in their homes for a home renovation project.
• Only 34% of respondents said they would access their equity to finance a big purchase, such as a car, a trip, tuition etc.

Misconceptions about home equity products

• Nearly 40% did not know the difference between a closed-end home equity loan and a HELOC.
• 37% of respondents mistakenly believed that if they took out a HELOC, they would be giving up their historically low first mortgage interest rate. Considering that 35% of respondents have a first mortgage interest rate of less than 3.5%, this might be one of the reasons why they’re reluctant to tap into their home’s equity.

For homeowners, understanding and leveraging home equity effectively can unlock significant financial opportunities. For lenders, these findings emphasize the importance of providing comprehensive education and innovative solutions to meet diverse consumer needs. By empowering homeowners with accurate information and providing comprehensive guidance and resources, lenders can help their customers make informed financial decisions.

At FirstClose, we are committed to advancing the conversation around home equity and empowering homeowners with the knowledge and tools they need to make informed decisions. Stay tuned for more insights and resources as we continue to explore the dynamic world of home equity.