More than 80% of mortgage holders now have available equity to borrow against
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Homeowners now have more equity available to borrow against than ever, according to the Mortgage Monitor Report released by Black Knight based on November 2017 data.
Black Knight found that tappable equity, or the amount available before reaching a maximum 80% loan-to-value ratio, is at an all-time high. Black Knight Data & Analytics Executive Vice President Ben Graboske said more than 80% of all mortgage holders at 42 million homeowners have an aggregate equity available to borrow against of about $5.4 trillion as of the end of the third quarter of 2017. The total is up more than $3 trillion since the lowest market level in 2012.
These mortgage holders can tap this equity via first-lien cash-out refinances or home equity lines of credit (HELOCs). Graboske said, however, that recent changes to the US tax code may have implications for equity utilization.
“We’ve noted in the past that as interest rates rise from historic lows, HELOCs represented an increasingly attractive option for these homeowners to access their available equity without relinquishing interest rates below today’s prevailing rate on their first-lien mortgages,” Graboske said. “However, with the recently passed tax reform package, interest on these lines of credit will no longer be deductible, which increases the post-tax expense of HELOCs for those who itemize.”
Graboske said that HELOCs are still the most favorable option for those with high unpaid principal balances who are taking out lower line amounts, although there are other factors to consider when choosing which method makes more financial sense for a borrower.
“However – assuming interest on cash-out refinances remains deductible – for low-to-moderate UPB borrowers taking out larger amounts of equity, the post-tax math for those who will still itemize under the increased standard deduction may now favor cash-out refinances instead, even if the result is a slight increase to first-lien interest rates,” he said.
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Tax reform may worsen housing supply issues says Black Knight
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Black Knight found that tappable equity, or the amount available before reaching a maximum 80% loan-to-value ratio, is at an all-time high. Black Knight Data & Analytics Executive Vice President Ben Graboske said more than 80% of all mortgage holders at 42 million homeowners have an aggregate equity available to borrow against of about $5.4 trillion as of the end of the third quarter of 2017. The total is up more than $3 trillion since the lowest market level in 2012.
These mortgage holders can tap this equity via first-lien cash-out refinances or home equity lines of credit (HELOCs). Graboske said, however, that recent changes to the US tax code may have implications for equity utilization.
“We’ve noted in the past that as interest rates rise from historic lows, HELOCs represented an increasingly attractive option for these homeowners to access their available equity without relinquishing interest rates below today’s prevailing rate on their first-lien mortgages,” Graboske said. “However, with the recently passed tax reform package, interest on these lines of credit will no longer be deductible, which increases the post-tax expense of HELOCs for those who itemize.”
Graboske said that HELOCs are still the most favorable option for those with high unpaid principal balances who are taking out lower line amounts, although there are other factors to consider when choosing which method makes more financial sense for a borrower.
“However – assuming interest on cash-out refinances remains deductible – for low-to-moderate UPB borrowers taking out larger amounts of equity, the post-tax math for those who will still itemize under the increased standard deduction may now favor cash-out refinances instead, even if the result is a slight increase to first-lien interest rates,” he said.
Related stories:
Tax reform may worsen housing supply issues says Black Knight
Purchase lending hits 10-year high
