Mortgage lenders, along with borrowers, are starting to welcome home equity lines of credit back into the market after the loan product began to disappear in the wake of the financial crisis.
Given their growing prominence in the market, a new report from the American Bankers Association’s Consumer Credit Delinquency Bulletin provides a current pulse on the health of the product by looking at delinquencies.
The report looked at both closed-end loans and open-end loans, since home equity loans fall into both categories.
Bankrate explains that there are two types of home equity loans: term, or closed-end loans, and lines of credit, open-end loans.
A home equity loan comes in a one-time lump sum that is paid off over a set amount of time, with a fixed interest rate and the same payments each month.
On the other hand, a HELOC is more comparable to a credit card.
Consumers can borrow up to a certain amount for the life of the loan, and during that time, they can withdraw money as they need it. As the principal is paid off, the credit revolves and can be used again.
While mortgage rates may be high, increasing home prices are creating a wealth of new equity for homeowners and causing a surge in HELOCs.
But how are these resurgent lines of credit doing? It turns out the products are performing well.
The report noted that delinquencies for home equity lines of credit fell 10 basis points to 1.06% of all accounts and are now below their 15-year average of 1.15%.
On the other side, home equity loan delinquencies increased 2 basis points to 2.61% of all accounts. However, they are still holding under their 15-year average of 2.85%.
“As the housing market continues to improve, so do home-related delinquencies,” said James Chessen, ABA’s chief economist. “With home prices on the rise and borrowers better positioned to honor their debts, we expect that home-related delinquencies will continue their gradual downward trajectory.”
