Mind the Gap: Examining Public Understanding of Home Equity Offerings

Fintech provider FirstClose has released the findings of a national consumer survey that explored the level of awareness of home equity, and how homeowners could it to pay down higher interest credit card debt.

In March, FirstClose commissioned a third-party online survey of 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 (HEL) and home equity lines of credit (HELOC), and on their willingness to use these products for different applications, such as consolidating debt, making home improvements, and to pay for major life events.

FIrstClose found that there was a significant lack of awareness among consumers regarding the financial advantages of leveraging home equity debt versus other kinds of consumer debt.

“The findings of this survey underscore the critical gap in consumers’ understanding of the financial benefits of leveraging their equity,” said Tedd Smith, CEO of FirstClose. “U.S. homeowners currently have more than $28 trillion in tappable home equity that could be used to pay down credit card debt, which now has topped $1.14 trillion. If a consumer with an average balance of $6,500 made only the minimum payment it would take 13 years and cost roughly $11,800 to pay off the debt completely.”

What is the state of interest rates?

The study found that 44% of respondents did not know what the interest rate was on their credit cards. According to Forbes Advisor, the average credit card rate was 27.9% as of April 2024.

FirstClose found that the majority of respondents (77%) did not know the average interest rate on a HELOC. Bankrate reports the average HELOC rate was 9% as of April 2024.

Of those polled, 30% of the respondents reported they 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.

Gauging home equity

Of those polled, 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. And 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

Nearly 40% did not know the difference between a closed-end home equity loan and a HELOC.

Of those polled, 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.

“Lenders are uniquely positioned right now, while rates are still on the high end, with no sign of coming down anytime soon, to educate homeowners on the advantages of utilizing home equity responsibly,” said Smith. “By empowering homeowners with accurate information and providing comprehensive guidance and resources, lenders can help their customers make informed financial decisions.”

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Eric C. Peck

Eric C. Peck has 25-plus years’ experience covering the mortgage industry, most recently serving as Editor-in-Chief for National Mortgage Professional Magazine. He graduated from the New York Institute of Technology, where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books, and has served as Copy Editor for Entrepreneur.com.
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