"It's clear that homeowners are becoming more sophisticated about tapping into their home's borrowing power," said LendingTree Chief Consumer Officer Brian Regan. "When used wisely, home equity loans are a sound choice for many consumers. They can be used for virtually anything-from home repairs to college costs to debt consolidation, even buying a car or covering unexpected medical expenses-their interest rates are usually lower than other forms of credit, and the interest paid on the loan may be tax deductible."
Key findings of the survey include:
- Home Equity Loans on the Rise: By the end of 2004, a projected 23.5% of respondents will have secured a home equity loan, double the number who did so in 2003. For comparison, 11.7% secured home equity loans in 2003, 6.7% in 2002, and 5.5% in 2001.
- Home Equity Loans Equal Smart Debt: 55.4% considered home equity loans the most financially responsible lending option, as compared to 20% for personal loans,17.5% for mortgage refinancing with cash out option, and 7.1% for credit card loans.
- Giving Credit to Lines of Credit: The popularity of home equity lines of credit has increased dramatically over the past decade. In just the first four months of 2004, 68.3% of homeowners selected a home equity line of credit instead of a home equity loan. For comparison, 37.5% selected HELOC in 1999, 23.1% in 1994.
- Eligibility: Even though a majority of homeowners are eligible for home equity loans (approximately 80% according to industry estimates), a significant group of the homeowners surveyed didn't realize they were eligible. Of those surveyed, 35% were either unsure of their eligibility or certain they do not qualify for a home equity loan. According to LendingTree, many borrowers, depending on their credit, can qualify for a home equity loan even if they have no equity in their homes.
- Understanding Home Equity Loans: As financially savvy as some homeowners have become, many are still confused about the specific characteristics of home equity loans. 80.2% of homeowners were unsure if a home equity loan and a second mortgage are the same thing.
- Trading Bad Debt for Smart Debt: For those who secured a home equity loan for debt consolidation purposes, almost half (49.1%) indicated that their current financial circumstances had significantly improved. After that, 36.6% said their financial circumstances remained about the same.
- Versatile Uses: The most popular uses for home equity loans were home improvement at 38.1%, debt consolidation at 31.9%, home purchase at 4.6%, auto purchase at 4.3%, college tuition at 2.9%, and small business expenses at 2.2%.
- Creative Uses by Age and Demographic: Among 18-35 year-olds, 7.4% felt that a home equity loan would be a good tool for covering baby-related expenses. Among 36-54 year-olds, 18.8% indicate home equity loans would be ideal for healthcare expenses, and 20.4% think they would be useful to cover college costs. Among those ages 56 and over, 17.0% thought home equity loans would be ideal for a new auto purchase.
- Internet Benefits: More than 44% of respondents used the Internet for financial/consumer transactions, and 71.3% of them cite convenience and speed as the primary benefit of using the Internet. After speed and convenience, the ability to compare multiple offers was seen as the most beneficial aspect of using the Internet for consumer and financial transactions.
- Research: After financial advisors at 33.6%, 21.3% considered the Internet the best method for conducting research on home equity loans.
A home equity loan, which is sometimes referred to as a second mortgage, is simply a one-time loan that is secured using the equity in the borrower's home as collateral (equity is the difference between the appraised value of the home and current principal balance of the mortgages on the property). It typically bears a fixed interest rate for a fixed term with the same payments each month. Home equity loans make sense for major purchases and one-time projects such as a home renovation or auto purchase, when a borrower wants to lock in an interest rate over an extended period of time.
A home equity line of credit, which works somewhat like a credit card but is drawn against the equity in the home, allows a borrower to obtain cash as needed. Monthly payments vary based on the fluctuating interest rate and the amount drawn against the loan. Home equity lines are often useful for long-term projects, or to cover ongoing costs such college tuition payments or unexpected costs such as medical expenses.
About the Consumer Trends in Home Equity Lending Survey
In its first annual survey on Consumer Trends in Home Equity Lending, LendingTree, via InsightExpress®, polled more than 800 homeowners in May 2004 and asked respondents to indicate their attitudes and experiences with home equity loans and lines of credit, and to compare them with other customary lending products. Additional results of the survey can be found at http://www.lendingtree.com/stm/aboutlt/pressreleases/pressroom-hesurvey2004.asp.
About LendingTree, Inc.
Founded in 1996, LendingTree is an online exchange that connects consumers with Lenders and REALTORS®. LendingTree has facilitated nearly $81.5 billion in closed loan and real estate transactions since its inception, serving more than 12.8 million consumers. Loans available via the LendingTree exchange include home mortgage and refinance, home equity, automobile, personal, debt consolidation, and credit cards. The LendingTree Realty Services offering enables consumers in the market to buy or sell a home to choose from a nationwide network of REALTORS® who can help them from start to finish. LendingTree is an operating business of IAC/InterActiveCorp (NASDAQ: IACI). LendingTree also owns and operates RealEstate.com, Domania, and GetSmart.com.