Survey: Only Half of Home Equity Loans Go to Home Improvement
A survey from LendEDU, Hoboken, N.J., found little more than half of consumers who take out home equity loans use those funds for home improvement projects.
The survey also found less than 5 percent of respondents understood ramifications of home equity loan interest deductions resulting from the new tax law in effect. Just 4.4 percent said they knew about removal of home equity loan interest deductions as part of the tax law.
LenderEDU commissioned the survey of 1,000 American consumers who own a home and have a home equity loan. Conducted online by polling company Pollfish, the survey, which consisted of 16 questions, took place on Jan. 30-31.
Key findings:
–Only 4.40% of respondents knew about the removal of home equity loan interest deductions from the new tax plan. Previously, consumers could deduct interest paid on up to $100,000 of home equity debt.
–52.20% of respondents used a home equity loan for home improvement projects; 89.46% of these respondents believe the home equity loan increased the value of their home.
–23.30% of respondents used a home equity loan for debt consolidation with credit card consolidation being the most popular type with 75.54% of responses.
–83.80% of respondents believe the value of their home will increase over the next three years; the same proportion believe it will increase over the next five years.
“If you need money and have built equity in your home, then you might be considering a home equity loan,” LenderEDU said. “Over the last few years the home equity loan market has become increasingly popular with increasing home values and a recovering economy. However, changes to the tax code from the end of 2017 may slow down the home equity loan market.”
When asked, “Which of the following correctly describes how the new tax code impacts the treatment of home equity loans?” nearly 20% of respondents answered “The new tax code will not impact the treatment of home equity loans” (incorrect); 25 percent answered “Advantageous to home equity loan borrowers by increasing the proportion of interest deductible” (incorrect); 9 percent answered “Disadvantageous to home equity loan borrowers by increasing the proportion of interest deductible” (incorrect); 8.50% answered “Advantageous to home equity loan borrowers by decreasing the amount of interest deductible” (incorrect); 4.40% answered “Disadvantageous to home equity loan borrowers by eliminating the borrower’s ability to deduct interest costs” (correct); and 33% answered “unsure.”
When asked why they took out a home equity loan, just 52.2 percent said for a home improvement project. Nearly one-fourth said they used the loan for debt consolidation; 2.3 percent used it to pay for a vacation; 8.6 percent said they used it for an “emergency;” 3.2 percent cited “medical expenses;” less than 1 percent said they used it to “pay for a wedding;” and nearly 10 percent said “other.”
Of those who said they used a HELOC for debt consolidation, the most frequent type of debts cited were credit card debt, student loan debt, auto loan debt and personal loan debt. More than half of respondents said they wanted to save money by obtaining a lower interest rate.
Nine in 10 respondents said the home improvement undertaken increased the value of their home; 3.6 percent said the improvements did not increase the home’s value; 7 percent said they were unsure.
Full results can be found at https://lendedu.com/blog/home-equity-loans.
