As Boston North Shore mortgage borrowers continue to see home prices rise they have increasingly more equity to utilize. Industry experts say that nationwide home equity has risen by nearly $825 billion. That represents a 250% increase over home equity levels of just four years ago. However, tapping into that equity by using a home equity line of credit, or HELOC, is more challenging than ever.
HELOCs: A Boston North Shore Mortgage Dilemma
Mortgage analysts report that HELOCs currently being extended to Boston North Shore mortgage borrowers are principally reserved for those with extremely good credit. HELOC originations during the first quarter of 2015 reflected the highest average credit scores since that data has been recorded.
While HELOC lending has increased by 40% from a year ago, origination levels are 85% less than those of the housing boom of 2007. Most notably, in addition to record high credit scores, are the reasons Boston North Shore mortgage borrowers are utilizing the home equity.
Mortgage lenders say the trend these days is for home owners to tap into their home equity for necessities rather than luxuries. Simply put, it’s more about what they need versus what they want. Plus, industry insiders say that most of the HELOC activity is relegated to wealthier homeowners in the more expensive housing markets. During the housing boom, Boston North Shore mortgage borrowers were using the equity in their homes — and then some. Because housing values were artificially inflated and lenders did a poor job of restricting loan-to-value ratios, many homeowners found themselves in trouble when the job market experienced a slowdown and the economy softened. This was a key contributor to the housing crash, and many HELOC borrowers were faced with foreclosure.
Those that were able to weather the housing crisis have HELOCs that were originated between 2005 and 2007 and are nearing the end of their principal draw periods. These borrowers will soon be required to repay the principal and interest, adding on average roughly $250 per month to their mortgage payment. What’s worse is a large number — estimates are as high as 30% — of homeowners have loan-to-value ratios that exceed 85%, meaning a refinance will be difficult.
In summary, the Boston area mortgage market, as well as others throughout the country, will be scrutinized closely in the coming months to see how homeowners react to the impact of the HELOCs.
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