Home News Colorado homeowners go big when it comes to home equity loans

Colorado homeowners go big when it comes to home equity loans

by admin
0 comment

This year, Colorado homeowners looking to leverage their home equity are borrowing on average about 50% more than consumers in other states.

“People are bit by bit trying to get a home equity loan,” said Jacob Channel, senior economist at LendingTree. investigated how much people owe their home equity on an online lending platform. Nowhere are they munching more than in Colorado.

It’s rare to see home equity loans above $150,000 or $100,000, with the US average of $83,872 this year. But this year, Colorado’s average is $128,482, the highest of any state.

Colorado’s next highest loan averages are Hawaii at $119,172 and Connecticut at $112,721. At the other extreme is Iowa, with an average home equity loan of $30,904 this year, followed by Alabama at $55,098 and Nebraska at $56,509.

Home equity loans are more delayed than mortgages due to post-default repayments, so they carry higher risk for the lender and higher interest rates to compensate. And that rate varies more by location than it does on mortgages. LendingTree found that the average interest rate for home equity loans issued this year is 8.47% in Alaska, while Maryland, which has the lowest cost, has an average interest rate of his 4.55%.

In Colorado, the average interest rate charged was 5.2%, at the lower end of the scale, but the channel warned that it included loans made earlier in the year when borrowing costs were much lower. Those who borrow against home equity today should expect to be paid more.

LendingTree only looked at fixed-rate home equity loans, not floating-rate HELOCs or lines of credit. However, after years of decline, HELOC balances eventually increased by $2 billion in the second quarter, according to the Federal Reserve Bank of New York, jumping the limits of those lines by $18 billion.

Credit bureau TransUnion measured a 41% increase in the number of HELOCs issued nationwide in the second quarter.

another funding source

Mark Bittner, senior economist at Wells Fargo Economics Group, said the renewed interest in extracting home equity comes as inflation, the highest level in 40 years, puts some households under economic stress. Rising food and gas prices have pushed average interest rates above 15% and increased credit card usage.

“We don’t have a measure of who is passing credit card debt onto HELOCs, but we wouldn’t be surprised to see an increase. It’s a good way,” he said.

Chris Brown, vice president of policy research at the Common Sense Institute in Greenwood Village, said in a recent research note that the typical Colorado household will have about $7,522 in cost of living after 2020 due to rising inflation. I estimate that I had to spend more dollars. Wages are also rising, but not keeping up with inflation. 8.2% increase in July.

Many borrowers have mortgages made at historically low interest rates, so it doesn’t make sense to refinance and cash out everything. prize.

Another factor is the abundance of stocks available. Homebuying activity surged when the US Federal Reserve (Fed) cut interest rates in 2020 and bottomed out to protect the economy from the shock of the pandemic. . From March 2020 to May 2022, Metro Denver House prices rose 46%, According to the S&P Case-Shiller Home Price Index. In the last seven years they have doubled.

In the first quarter, US homeowners Additional $3.2 Trillion in Home Equity compared with the previous year, according to real estate research firm Core Logic. In Colorado, the average homeowner earned her $92,000 in property in the first quarter year-over-year, while in the Denver metropolitan area, the gain was her $97,300.

In addition to dealing with inflation and doing the usual things like paying for renovations, some consumers may have tried to get low-cost home equity this year ahead of rising interest rates. There are. Some may have even tried to build up fiscal reserves for possible recessions and job losses. Colorado came out on top for some reason.

Are there any risks?

The concern for those using home equity to finance their spending is that they could remain vulnerable if house prices start to fall. During the housing boom of the 2000s, people used their home equity to buy additional homes to fund more luxurious spending, so homes came to be called cash machines.

And when those ATMs stopped spewing dollars, consumers found themselves overextended, and the economy lost its source to encourage more spending. This country experienced not just a recession, but the “Great Recession”. This time, however, consumers are starting to withdraw more money as the economy slows, which could soften the blow of the recession.

Home equity extraction may act as a cushion against recession rather than being the primary driver of recession.

Second home loans of all kinds in the United States reached $1.1 trillion in 2006, according to Lou Burns, loan officer at Cherry Creek Mortgage in Boulder. First quarter trading volume was $393 billion for him. Consumers are much more cautious than he was in 2006, even though there is a lot more home equity available.

You may also like