Fintech provider, FirstClose, released its findings from a new national consumer survey that measured homeowners' level of awareness of home equity and how it can be used to pay down credit card debt. It turns out, consumers don’t know all that much about leveraging home equity debt versus other kinds of consumer debt.
Nearly half of the respondents (44%) did not know what the interest rate was on their credit cards. The average credit card rate was 27.9% as of April 2024, according to Forbes Advisor. And the majority of respondents (77%) did not know what the average interest rate is on a HELOC. The average HELOC rate was 9% as of April 2024, according to Bankrate.
Additionally, 30% of respondents had between $2,500 to $10,000 worth of credit card debt. According to Experian, the average credit card balance was approximately $6,500 at the end of last year.
The survey also identified some misconceptions about home equity products. Nearly 40% did not know the difference between a closed-end home equity loan and a HELOC. Also, 37% of respondents mistakenly believed that if they took out a HELOC, they would be giving up their historically low first mortgage interest rate. Considering that 35% of respondents have a first mortgage interest rate of less than 3.5%, this might be one of the reasons why they're reluctant to tap into their home's equity.
"The findings of this survey underscore the critical gap in consumers' understanding of the financial benefits of leveraging their equity," said CEO of FirstClose, Tedd Smith. "U.S. homeowners currently have more than $28 trillion in tappable home equity that could be used to pay down credit card debt, which now has topped $1.14 trillion. If a consumer with an average balance of $6,500 made only the minimum payment it would take 13 years and cost roughly $11,800 to pay off the debt completely."
The survey also gauged consumers’ willingness to tap into home equity. About 40% of respondents believe they have more than $200,000 worth of equity in their homes and within that, 27% believe they have more than $250,000 worth of equity. When asked if they would access their home's equity to pay off debt, the responses were almost evenly split with 49% responding yes and 51% responding no. More than half of respondents (56%) said they would access the equity in their homes for a home renovation project. But, only 34% of respondents said they would access their equity to finance a big purchase, such as a car, a trip, and tuition, among other things.
"Lenders are uniquely positioned right now, while rates are still on the high end with no sign of coming down anytime soon, to educate homeowners on the advantages of utilizing home equity responsibly," Smith pointed out. "By empowering homeowners with accurate information and providing comprehensive guidance and resources, lenders can help their customers make informed financial decisions."
