Equity Loans Don’t Match Borrower Needs

Traditional home equity financing vehicles no longer match the realities home owners are living with, a new study has found.

Across generations and financial scenarios, owners' unmet needs are consistent: They want more flexible ways to access the equity they’ve built in their homes and they increasingly feel stressed, underserved or boxed in by today’s conventional products, the survey of 1,000 people discovered.

Mortgages, home equity lines of credit (HELOCs), and home equity loans no longer align with their financial situations, they told pollsters for Hometap, the Houston-based technology company which “pioneers” equity financing solutions. Three out of the four owners queeried want alternatives to those traditional products.

Many owners are taking a closer look at where their housing costs are creating strain, Hometap found. They want greater flexibility and financing options that evolve with life changes and rising homeownership costs.

Owners want “a house and a life, not a house or a life,” said Hometap CEO Jeffrey Glass.”More choices are needed.”

Nearly half said they would turn to cash reserves, credit cards, or personal loans before using a home equity product, and 15% more wouldn’t pursue financing at all. Almost one in four said they would delay or forgo major expenses or life goals if traditional financing didn’t meet their needs.

This, said the company, indicates a “growing preference” for financial control over quick access to cash. Flexibility is their benchmark, with 87% wishing they could tap into their home equity without monthly payments.

Asked what characteristics mattered most in a financial product, the answers ran the gamut, from options in repayment terms or timing and a more streamlined process, to products that flex with life changes and options that do not impact debt-to-income ratios.

But the answer that stood out the most: Nearly two out of five said lower fees and closing costs.

What makes traditional products unappealing? Again, there was a wide range of responses, from credit score requirements to concerns about a long-term commitment. But nearly one in four said high interest rates were their main turnoff, while one in three said it was taking on more debt.

Millennials are leading the shift away from traditional lending: The cohort, which entered the ownership ranks in a high-rate environment, is far more likely than older generations to question traditional lending and explore new options.

About one in four would consider innovative financing if traditional products don’t fit their needs, compared with 43% of baby boomers who say they would rely on savings or emergency funds before trying something new.

On another front, frustration with lenders runs deep. Among the 75% of owners who say they want new types of financing, 86% feel traditional lenders don’t have their best interests at heart and nearly 80% describe the process of accessing home equity as outdated and slow.

Together, these findings reflect widespread skepticism toward a system that many feel no longer works in their favor, Hometap believes.

“Owners are thinking differently now,” said Pat, a South Carolina owner whose last name was not supplied. “We want financing options that meet us where we are and move with us as life changes.”