Home equity lines of credit, known as HELOCs, are becoming increasingly popular as homeowners look to revamp their current homes rather than purchase a new house with a high mortgage rate.
Key Details
- Homeowners looking to make a change may be deterred from buying due to high mortgage rates, but HELOCs provide an alternative.
- HELOCs allow a homeowner to borrow an amount less than the total value of the whole house to make renovations, pay debt, or cover other expenses.
- By tapping into the value of their home, homeowners can avoid getting stuck with a higher mortgage rate.
- Homeowners need a high credit score to qualify for a HELOC, but if they can get approved, the loan can provide relief from expenses or fund a needed renovation.
Why it’s news
HELOCs are expected to remain a popular option this year. Homeowners with high-interest credit-card debt can consolidate debt through HELOCs. Lenders aren’t seeing as many mortgage applications come through their doors, and HELOCs seem to be a feasible way to drum up business, Axios reports.
High prices have driven many Americans to rely on credit cards more than they typically would. High rates on credit cards can leave consumers in a growing pile of debt, but HELOCs tend to have a lower interest rate than credit cards.
However, HELOCs aren’t a simple solution to getting a handle on debt. To qualify, homeowners need a high credit score. Additionally, if the homeowner cannot pay off the debt, he is at risk of losing his home.
Backing up a bit
A new report has found that the number of sellers offering incentives to potential home buyers jumped in the last months of 2022.
In the years following the pandemic, the housing market has largely been a seller’s market, but new reports show that it may be shifting.
During the final three months of 2022, real estate company Redfin found that many sellers incentivized their buyers to close a deal. Nearly 42% of homes sold at the end of 2022 included buyer incentives such as price reductions, covering closing costs, and warranties on appliances. That marks an increase from 30% in the third quarter of 2022.
For homebuyers looking to offset the increased mortgage rate costs, these incentives were motivators to buy. Sellers of both existing and new build homes offered incentives to buyers. Experts expect that this trend of incentives will continue into 2023.
Rising mortgage rates have forced buyers to look for lower-priced options or pushed them out of the buying market altogether. However, as housing sales have slowed, buyers who remained in the market are enjoying increased negotiating power.
Redfin reported that 22% of the homes sold by its agents in the last three months of 2022 included a lowered listing price and some other seller concessions. Nearly 19% offered concessions and lower prices while the home was still listed.