Rising home values brought unexpected equity to homeowners in 2016, and they’re lining up in record numbers to reap the benefits. According to Black Knight Financial Services, there are 39.5 million homeowners with equity that is available for lending under current CLTV guidelines — representing $4.7 trillion.
With interest rates on the rise, borrowers with low-interest mortgages are less likely to use refinancing as a means of tapping into equity, so an equity loan makes more sense. Ben Graboske, executive vice-president at Black Knight said, “The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent.”
Among those actively seeking equity funds are the Millennials (ages 18 – 34). According to the U.S. Census Bureau, this age group is 83 million strong and now represents one fourth of our nation’s population.
Although Millennials are entering the housing market at a slower pace than past generations, they represented 61% of the nation’s first-time homebuyers in 2016, says the National Association of Realtors.
What does this mean for home equity lenders? A recent survey conducted by TD Bank revealed that more than a third of Millennials are considering applying for a home equity line of credit in the next 18 months. The number one reason is home remodeling.
Some believe this younger generation is entitled and lacking in responsible values, but a CEB Study revealed a much different story. It appears most Millennials are very serious about their financial future and more fiscally conservative than the Gen-Xers and Baby Boomers. The 2009 recession, high student debt and a sluggish job market for new college grads have contributed to a more cautious mindset within this group.
The other thing to know about Millennials — they’re tech savvy. They manage their lives through the efficient use of technology and they have little tolerance for old-school paper shuffling. The lender who can deliver a quick turn-around equity loan will have their allegiance.
Automation is key to maintaining a competitive edge in this technology driven market. Lenders who need 45 days to close an equity loan will fall short of consumers’ expectations. Centralized platforms that provide accurate data and ensure compliance with federal and local lending regulations can drastically reduce costs and the time required to process a loan.