Home-Equity Loan Concerns

A recent MReport article highlights the concerns homeowners have about home-equity loans. According to a LendingTree study, homeowners are sitting on a collective $22.7 trillion in equity. This is the highest amount since analysts began collecting data in 1945 and an increase in home prices is responsible for the trillions in equity. The study aimed to analyze why borrowers fear their credit will suffer if they request home equity loans. Tendayi Kapfidze, LendingTree’s Chief Economist and VP stated “Many homeowners aren’t rushing to tap their equity. In fact, certain types of home equity borrowing in 2020 hit their lowest level in more than 16 years”. Kapfidze comments that homeowners are hesitant because of strict lending guidelines and a fear of over-leveraging. He includes that based on data collected from borrowers who applied for a second mortgage, borrowers shouldn’t be afraid of home equity loans hurting their credit scores in the long run. There may be an initial decline in credit score, but it is relatively small and their credit score typically recovers in less than a year.

WHAT ELSE DOES THE REPORT SAY?

Research shows that on average, it takes roughly 201 days for credit scores to return to its former position before the home equity loan. Kapfidze provides suggestions for homeowners concerned about the negative credit impact a borrower will experience in the short term. He recommends that borrowers do not apply for further credit during the home equity loan recovery. Applying for new forms of credit may cause your credit to fall further and take longer to rebound. In addition, Kapfidze recommends the borrower use as little as credit necessary during the recovery period. If paying every bill on time becomes an issue, the borrower should attempt to connect with debt relief programs for assistance.

Click here to read the full MReport article and learn more!

Click here to read the full LendingTree study and learn more!