While no industry experts are predicting home equity lending will return to its stunning record-high activity from 15 years ago, there could still be a huge opportunity brewing from 2021 to 2022 and beyond. If both short-term and long-term interest rates rise, home equity lending rates could become attractive in relative comparison to mortgage-refinance rates.
That means home equity lines of credit (HELOCs) and second mortgages would be a sweet spot for some borrowers having a mortgage with your credit union.
Consider these homeowner reasons and marketing tips for whether now might be the time to up your credit union’s home equity lending strategy for members:
- Many big banks reportedly cut back or halted home equity lending during the pandemic in 2020. This has left a gap that probably won’t need filling until short-term and long-term interest rates start rising. You can prepare your marketing right now. Just know that online lenders have been seeing some success in marketing unsecured personal loans to homeowners who would have taken out a home equity loan 15 years ago.
- Would-be home sellers are not selling instead, they’re pondering what to do with their massive amount of equity. Part of today’s home inventory shortage is simple: there are no good reasons for many homeowners to sell. This is especially true when: 1) your home is worth more than ever; 2) you can’t trade-up into a better home without possibly overpaying due to buyer bidding wars; and 3) your employer is contemplating a post-pandemic “hybrid” work schedule.
- You should educate your members with home equity facts. Be clear about how a floating HELOC interest rate works versus an amortized second mortgage. Emphasize that while home remodeling projects bring the most return on investment from a household asset/net worth perspective, the money can actually be used for other things such as consolidating/paying off other debt with higher interest rates.
- You can personalize your home equity product offerings with options and service that stand out. Infuse solutions into the process that put a human touch on the relationship you have with members compared to the one-size-fits-all approach. If the borrower’s first mortgage is already with your credit union, be judicious about whether you really need to require an appraisal, title insurance or other requirements that may or may not be necessary. A better member experience will speak volumes.
Remember: Remodeling is a key element right now, especially during this period where many workers will be working from home. For context, check out the Harvard University Joint Center for Housing Studies’ "Five Insights from 25 Years of Remodeling Research" report, as well as the center’s "Small Consumer Segment Drives Majority of Remodeling" report.