FirstClose Blog

The best lenders understand that they add value and do right the right thing for their customers or members by helping them select the right products for their needs. One decision that hundreds of thousands of homeowners will be making this year is, which is right for me: a Home Equity Line of Credit (HELOC) or a closed-end home equity loan (HELOAN)?

At the moment, both options are popular and growing in usage. Through the first three quarters of 2024, a new TransUnion study showed HELOAN origination slightly ahead of HELOCs on a unit basis (320,000 to 304,000.) However, there is still a lot of confusion and misconception among consumers about home equity products. In fact, in a recent consumer survey we conducted, nearly 40% of respondents did not know the difference between a closed-end home equity loan and a HELOC and 37% of respondents mistakenly believed that if they took out a HELOC, they would be giving up their historically low first mortgage interest rate.

Historically, helping clients make this decision required a loan officer (LO) to sit down with a borrower and find out what their goals are. The LO would most likely order an AVM to get a sense of the amount of equity that was available and then explain specific features of each product to the borrower.

Some of the questions that would likely be covered in this conversation:

• Why are you considering a home equity product? Debt consolidation? Remodeling? A major life event: college tuition? A wedding?
• Do you need all the money at once and do you want start making P&I payments?
• Would you prefer to draw the funds over time and pay interest on the amount outstanding for X years and then pay P&I for the next 20?
• Are you comfortable with a floating interest rate that can go up or down? Or do you want the certainty of a fixed-rate loan?
• Are you willing to pay closing costs or not?

With these answers, an experienced LO could usually make the right recommendation.

Recently, FirstClose introduced a new white-labeled calculator – the Digital Loan Product Wizard – within FirstClose Equity that’s designed to help borrowers answer their questions either in collaboration with an LO or on a self-serve basis before they engage with a lender.

Our new debt consolidation tool lets consumers get a real sense of what they could save by paying off higher interest debt and do it on a self-serve, no pressure basis. The feature is not designed to replace the loan officer in these transactions but rather to create a warm handoff to a motivated borrower. In our early piloting with several credit unions and one large national lender, we have seen a lift of more than 10% in terms of conversion.

To use this tool, the borrower enters a few pieces of information—their name, date of birth, property address, loan purpose (construction, debt consolidation, personal, etc.), and property use (primary or secondary residence)— creating a soft credit pull that instantly shows their potential tappable home equity as well as current credit card, auto and student tradelines along with their monthly payments.

The Wizard allows prospects to determine the size of the loan or line they want to consider and the amount they would like to draw down. They can also toggle back and forth between different potential home equity products that they might qualify for and compare interest rates and potential monthly payment amounts.

Consumers can then select which lines they would like to pay off, how much cash they would like to draw down and then see what their total monthly payments would be by consolidating the debt.

For more information on the Digital Loan Product Wizard, visit: https://www.firstclose.com/firstclose-equity-digital-inquiry/