According to the Federal Reserve, American homeowners with mortgages have nearly $28 trillion in home equity.
Rocket Mortgage wants to help them tap into it.
Rocket, the nation’s largest mortgage lender and a part of Rocket Companies, on Monday introduced a home equity loan. Homeowners can access $45,000 to $350,000 of their home's equity with 10- or 20-year term, fixed-rate loans, while maintaining at least 10% equity in their homes, Rocket said. Rates for the loans were not disclosed.
“When you see interest rates go from the 3% range last year, and a lot of people locked in that rate, to over 5%, as a homeowner you have only so many options,” said Bill Banfield, Rocket Mortgage’s executive vice president of capital markets, in an interview with National Mortgage Professional. “You can do a cash-out refinance to reset their existing rate. You can do a personal loan, at a 15% to 20% rate. Or, you can do a home equity loan.”
He added, “With $28 trillion in equity out there, this ... will serve a portion of the need in the market.”
The rapid growth in home equity — CoreLogic said in June that approximately 62%, or 62,000 homeowners with mortgages, saw their equity increase in the first quarter of 2022 by 32% year over year (an average gain of $63,600 per borrower) — has coincided with a rapid increase in U.S. household debt.
According to a report from the Federal Reserve Bank of New York, household debt totaled $15.84 trillion at the end of the first quarter, up $1.7 trillion from the end of 2019, before the COVID-19 pandemic began. The report also showed that credit card balances in the first quarter were up $71 billion from 2021.
“Americans are grappling with high credit card bills — driven by a combination of rising prices, and record-high credit card rates resulting from the Federal Reserve's aggressive (federal) funds rate increases,” Rocket Mortgage said in a news release. “This combination has consumers looking for options to make their monthly payments more manageable.”
"Our goal is to consistently create financial products that help our clients achieve their goals," Rocket Mortgage CEO Bob Walters said in the news release. "In the current market, short-term interest rates have risen sharply — making it much harder to pay off credit card debt. With our new home equity loan, clients can improve their lives by having a payment they can more comfortably afford."
That’s particularly true for Rocket Mortgage’s home equity loans, which unlike typical home equity lines of credit, or HELOCs, have a fixed interest rate for the term of the loan.
“A HELOC is a revolving line of credit,” Banfield said. “How they traditionally work, a HELOC is tied to the prime rate plus a margin. The prime rate is 3% over the federal funds rate, which means it’s 2.5% plus 3%, so 5.5%.”
However, the Fed has increased the federal funds rate four times this year (it started at zero) in its battle against rampant inflation, and is scheduled to meet three more times before the end of the year to discuss possible additional increases.
“In a rising rate environment, we wanted to offer consumers a fixed-rate payment through a home equity loan, as opposed to a line of credit,” Banfield said.
Rocket Mortgage added that, while its minimum for home equity loans is $45,000, consumers looking for smaller loan amounts can secure $2,000 to $45,000 from its sister company, Rocket Loans.
Detroit-based Rocket Mortgage closed $351 billion in mortgage volume across all 50 states in 2021.