How do people spend their home equity loans?
As property values soared through 2021, homeowners in the United States found themselves with significantly more equity in their property – and historically low interest rates gave them more incentive to transform equity cash.
To get an idea of how homeowners planned to spend that money — and how those plans differed between major metropolitan areas across the country — the online lending platform LendingTree studied data from nearly 2.3 million homeowners who visited the site in 2021 and were offered home equity loans or home equity lines of credit. As part of the application process, these borrowers selected one of five reasons for applying for the loan: home improvement, debt consolidation, investment, retirement income, or other purpose. Their responses form the basis of this week’s chart.
Perhaps unsurprisingly, home improvement was the most popular motivation for loan seekers in all metro areas featured in the study, and around 49% overall. Last week, the Joint Center for Housing Studies at Harvard University reported that annual increases in home improvement spending rose from 4.7% in the first quarter of 2021 to 9.5% in the fourth quarter, and double-digit increases are expected through 2022. According to LendingTree, metropolitan areas Boston and Philadelphia, both with older housing stock, had the highest proportions of loan applicants planning to improve their homes.
The second most popular plan for equity was debt consolidation. Las Vegas leads the category, with 32% of applicants checking this box. Las Vegas also had the largest share of homeowners leveraging their home equity for retirement income — although that’s only 2.5% of applicants, making it clear that generating retirement income was the biggest motivation. less popular among borrowers. (About 17% of all applicants said projects were unknown or preferred not to reveal them.)
Finally, nearly one in 10 job applicants across the country listed investing as their primary goal for taking out a home equity loan. The cities with the largest shares of investor-minded borrowers were San Jose, California, Miami and Austin, Texas.
This week’s chart shows the five metropolitan areas in which candidates predicted the most for each use.