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Most Popular Reasons Why Homeowners in the Nation’s Largest Metros Are Considering Home Equity Loans and HELOCs

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

Since the start of the coronavirus pandemic, home prices in many parts of the U.S. have risen dramatically. In turn, many homeowners have seen the amount of equity they have in their homes increase. Because of this, it’s no surprise that millions of Americans considered a home equity loan or home equity line of credit (HELOC) in 2021.

There are many reasons why someone would consider tapping their home’s equity. When a homeowner uses the LendingTree platform to look for a home equity loan or HELOC lender, they select one of five reasons why they’re seeking the money. Those reasons are:

  • Making home improvements
  • Consolidating debt
  • Getting money for non-home improvement investment purposes
  • Getting extra retirement income
  • Using the money for another reason

By analyzing home equity loan or HELOC offers made by lenders to LendingTree users through the entirety of 2021, we were able to determine how popular each of these reasons was across the nation’s 50 largest metropolitan areas.

Key findings

  • On average, 48.59% of people seeking a home equity loan or HELOC across the nation’s 50 largest metros cited making home improvements as their primary reason. This was the most popular reason in every metro featured in our study.
  • An average of 23.96% of homeowners considered tapping their home’s equity to help consolidate debt. Because home equity loans and HELOCs often come with lower rates than other types of debt — like credit card debt — using one to pay off high-cost debt can help borrowers save money.
  • Using a home’s equity for non-home improvement investment purposes was the main goal for an average of 9.16% of homeowners. The money generated can be useful for activities such as investing in a small business. That said, those who plan to invest with their home’s equity should be especially aware of their responsibility to repay the money — even if the investment doesn’t pan out.
  • Only 1.43% of homeowners considered using their home’s equity as retirement income. Retirees who’ve generated considerable equity in their home might show interest in tapping into it as a temporary boost to their incomes. But this strategy shouldn’t be pursued recklessly. Like any debt, the money needs to be repaid, even if you’re retired.
  • A significant percentage of homeowners — an average of 16.85% — considered a home equity loan or HELOC for a reason other than those listed above. Though we don’t know specifically how these potential borrowers had hoped to use their home’s equity, they may have wanted one to pay for college, a wedding or emergency-related expenses.

Metros where the largest share of homeowners considered tapping home equity for home improvements

  • No. 1 — Boston (54.33%)
  • No. 2 — Philadelphia (52.96%)
  • No. 3 — Milwaukee (52.78%)

Metros where the largest share of homeowners considered tapping home equity for debt consolidation

  • No. 1 — Las Vegas (31.82%)
  • No. 2 — Phoenix (28.27%)
  • No. 3 — Louisville, Ky. (28.04%)

Metros where the largest share of homeowners considered tapping home equity for non-home improvement investment purposes

  • No. 1 — San Jose, Calif. (16.95%)
  • No. 2 — Miami (14.00%)
  • No. 3 — Austin, Texas (13.08%)

Metros where the largest share of homeowners considered tapping home equity for retirement income

  • No. 1 — Las Vegas (2.50%)
  • No. 2 — Los Angeles (2.16%)
  • No. 3 — Miami (2.08%)

Metros where the largest share of homeowners considered tapping home equity for another reason

  • No. 1 — San Jose, Calif. (24.13%)
  • No. 2 — Los Angeles (21.11%)
  • No. 3 — San Francisco (21.05%)

Tips for tapping into your home’s equity

Regardless of why homeowners think about getting a home equity loan or HELOC, they should keep the following tips in mind. This can give them a better idea of how to score their best rate on a loan — and the potential risks.

  • Consider what type of home equity will better fit your needs. While this study looked at homeowners who considered home equity loans or HELOCs, both are different. Home equity loans let you borrow against your home’s equity and receive the amount as a lump sum, while HELOCs give you access to a revolving line of credit. Depending on your financial goals, they can both be beneficial, though there are instances where one may be better than the other. It’s important that you understand the differences before applying.
  • Make sure you first consider the risks. Failure to repay a home equity loan or HELOC can have severe negative impacts on your credit score and — in some cases — can result in you losing your home. Before applying for a home equity loan or HELOC, carefully consider their pros and cons. That way, you’ll learn how to avoid potential drawbacks.
  • Shop around to get the lowest possible rate on a home equity loan or HELOC. By shopping around and comparing offers from various lenders, homeowners can increase their chances of finding a lender willing to work with them and getting the lowest possible rate.

Methodology

Data was derived on the metropolitan statistical area (MSA) level from loan offers made to nearly 2.3 million homeowners; these homeowners visited the LendingTree website to compare home equity loan and home equity line of credit (HELOC) options from Jan. 1, 2021, through Dec. 31, 2021.

Because of rounding, the total percentage of homeowners considering a home equity loan for each reason may not add up to 100% in every metro.

 

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