HELOC borrowing climbs 20% as homeowners turn to equity while refinances slow

Expert Quote: "Home equity demand should remain relatively resilient, supported by several quarters of steady HELOC growth." — Satyan Merchant, Senior Vice President, TransUnion

Supporting Data: HELOCs represented more than half of all home equity activity in the second quarter.
Overview bullets generated by AI with editorial review.

With borrowing costs still high, many homeowners are looking for ways to access their home equity without taking out a mortgage refinance.

Home equity originations rose 10.1% from a year earlier to 757,000 in the second quarter, while home equity line of credit originations increased 20.3%, according to TransUnion's Credit Industry Insights Report. HELOCs made up more than half of total home equity activity.

Mortgage originations overall climbed 12.8% year over year to 1.5 million in the second quarter, helped by lower rates. Refinance volume surged about 40%, lifting its share of total originations to 21.5% from 17.4% a year earlier. Rate-and-term refinances drove much of the increase, rising nearly 60%, the report said.

Still, rates moved above last year's levels for much of the third quarter and have remained elevated, a trend Merchant expects will keep some buyers on the sidelines and weigh on activity. The 30-year fixed mortgage rate has eased recently to 7.24%, according to Freddie Mac, but it is still more than a percentage point above the same week a year earlier.

"However, home equity demand should remain relatively resilient, supported by several quarters of steady HELOC growth as homeowners continue to tap accumulated equity rather than refinance into higher-rate mortgages," Merchant said.

Finance of America's latest earnings also highlighted the theme. The reverse mortgage lender's funded volume rose 24% year over year and 2% from the prior quarter, even as much of the industry struggled with elevated rates.

Mortgage performance remained generally stable, though serious delinquencies continued to move back toward more normal levels after the unusually low pandemic period. Borrowers 60 or more days delinquent accounted for 1.64% in the third quarter. Most of the increase was concentrated in Federal Housing Administration loans, which now make up nearly half of all seriously delinquent mortgage accounts. Performance in Fannie Mae, Freddie Mac and jumbo loans was steady.

"Looking ahead, interest rates will continue to shape purchase and refinance demand," Merchant said. "At the same time, home equity products may remain an important source of liquidity for borrowers seeking to preserve their low mortgage rates."