As interest rates increase, hovering higher than rates last year, buyers have little incentive to refinance their mortgages.
But as refis drop, a whole new loan type rises to take its place – home equity lines of credit. While mortgage rates may be high, so are home prices, creating a wealth of new equity for homeowners.
Thus the increase in HELOCs, according to an article by Diana Olick for CNBC. And more than any other generation, Millennials are utilizing this cash-out mortgage loan.
From the article:
"The last time interest rates rose as much as they have over the past few months, we saw cash-out refinances decline by 50 percent," said Ben Graboske, executive vice president at Black Knight. He expects to see more HELOCs instead.
And more millennials are using HELOCs than Gen-Xers or baby boomers, according to a survey by TD Bank. In fact, more than a third of millennials said they are considering applying for a HELOC in the next 18 months, which is more than twice the rate as Gen-Xers and nine times that of baby boomers.
The article explains these results while somewhat surprising, make sense. As the short supply of inventory makes starter and trade-up homes scarce, many Millennials are choosing to remodel rather than look for a new home.
From the article:
"We were a little surprised about that," admitted Mike Kinane, general manager of home equity products at TD Bank. "I think millennials are taking a more conservative approach, but they recognize that HELOCs have a good purpose, especially for remodeling."
