Equity lines of credit are pulling away from fixed-rate equity loans as the most popular product among owners who wish to borrow against their homes.

A preliminary reading of the data collected for the Consumer Bankers Association's annual home equity loan study found that HELOC volume out paced that for loans by a three-to-one margin.

With credit lines, home owners are approved to borrow any amount at any time up to a predetermined figure, usually 70 to 75 percent of the total equity they have in their homes. So, if you have a home worth $200,000 and still owe $100,000 on it, you could have access to perhaps as much as $75,000.

Usually, moreover, the rate lenders charge on credit lines varies, rising up and down with current market conditions. And in many cases, you could pay it back at any way you wish.

Loans, on the other hand, are just that, fixed-rate loans which must be repaid at a certain amount over a certain period of time.

For the 12-month period between June last year and this June, the study found that lenders have booked $1.3 billion in new equity lines and $500 million in new equity loans.

CBA President Joe Belew called the shift dramatic, noting that the two types of home equity credits have shared roughly equal popularity until this year.

The preliminary results, which are based on data from 25 lenders, were released at CBA's home equity lenders conference in Hollywood, Fla., late last week. The full study covering a total of 36 lenders will be released in November.

The study by BenchMark Consulting International of Atlanta, also found that the equity products of the lenders queried are performing on an almost equal footing with those surveyed by the Federal Deposit Insurance Corp.

As of July 1, the 30-day average delinquency rate on lines and loans were virtually unchanged from the year before -- 0.9 percent for lines of credit and 0.8 percent for loans.

"The stellar credit quality of these loans has held up over the past year, despite the challenging economic climate," Belew remarked.

However, the study also found that only 43 percent of the $3.8 billion is equity line commitments, about $1.5 billion, is currently outstanding. The challenge for lenders, said Penny Hayes of BenchMark Consulting, is how to increase utilization.

Also, the average commitment has slipped from $59,000 to $54,225 for equity lines but remain unchanged at about $38,350 for loans. Penetration is up, though, with 12 percent of the participating lenders' deposit customers having equity loans or lines. Last year, only 10 percent had one product or the other.

The typical borrower, the study found, was between the ages of 35-64, had a household income of $86,000 and owned a home worth $209,000 that he has lived in for about eight and a half years. The average borrower had a first mortgage of $107,000, has been on his current job for 8.3 years and had three dependents.

For the most part, they used the proceeds from their equity loans to pay off other debt or make home improvements.

Published: October 16, 2002

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