But HELOC’s, on the other hand, have variable interest rates, unlike the 30-year fixed primary mortgage, so the rate on a HELOC can change. A HELOC is therefore more risky because the Federal Reserve has been raising rates steadily, and HELOC’s follow that.
“Who wants uncertainty when it comes to monthly finances,” said Ben Graboske, executive vice president of Black Knight’s Data & Analytics division. “I think a lot of Americans look at, what are my payments? What is my income coming in and what are my payments going out? They want certainty that they can cover their costs and not worry about it.”
Nearly 80 percent of tappable equity is held by homeowners whose current mortgage interest rate is below 4.5 percent, and 60 percent of it is held by borrowers whose rate is below 4 percent. The average rate on the 30 year fixed today is around 4.8 percent, according to the Mortgage Bankers Association.
Still, those who are tapping equity are doing it more through cash-out refinances than HELOCs. HELOC originations are flat, and the amount of equity being withdrawn on HELOCs that are originated is at a two-year low.
More borrowers are doing cash-out refinances, even at a higher interest rate, because they are leery of the variable rates on HELOCs. But overall, just 1.17 percent of available equity was tapped in the first quarter of this year, the lowest amount in four years. Why? They may not know just how rich they are.
“I think the typical American doesn’t have that level of awareness, they’re not probably studying the numbers,” added Graboske.