HELOCS on the Rise as More Home Owners Get Bank Approval

Increasing home prices have resulted in a surge in home equity lines of credit over the past year, with a $2.15 trillion increase in homeowner’s equity holdings between the first quarters of 2013 and 2014.

New research from Experian and consulting group Oliver Wyman shows that home equity lines of credit are once again becoming popular, citing a 27% increase in borrowing over the last 12 months. The increase can be seen in states across the country, as well, with the greatest loans coming from states with the most expensive real estate.

Banks have been very generous, handing out just under $120,000 lines of credit to those with the best credit scores. Even homeowners with lousy credit have been approved for up to $30,000.

HELOCS, as home equity lines of credit are also known, are essentially a second mortgage and are most often used for big expenses, such as tuition for higher education or medical bills. HELOCS allow owners to borrow from their line of credit up to a predetermined limit, similar to how a credit card works.

HELOCS often come with low interest rates and flexible repayment options, with interest rates currently running between 3% and 4% for homeowners with good credit. The initial repayment period also usually includes only interest payments for the first few years.

Typically, a bank approves home equity lines of credit for homes with a mortgage debt of less than 80%, but recently banks have extended the margin to 90% for owners with high incomes and outstanding credit scores.

The recent increase in home prices and HELOCS has some concerned that a bubble is forming, but experts say that due to stricter rules and regulations by banks and fewer owners defaulting on loans, the surge is not a concern.

For now it would appear that the rise in home equity is not a bad sign, but it is always wise to take caution when borrowing such high dollar amounts and be careful not to bite off more than you can chew.

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