During the heyday of home equity loans, some homeowners used their home equity like an ATM to pay for expensive vacations, boats or other luxury items. Today, borrowers are more likely to use a home equity loan for home improvements, college tuition or a major purchase such as a car, says Don McClintic, senior vice president of home equity and direct lending for SunTrust Bank in Richmond, Va.
"Borrower surveys show that home equity loans now are more likely to be used for a specific purpose rather than a lifestyle change," says McClintic. "We're also seeing home equity lines of credit used more often for an emergency fund to be prepared for a roof repair or unexpected medical bills. This is definitely more of a back-to-basics loan than borrowing for a vacation."
Brad Blackwell, executive vice president and portfolio business manager for Wells Fargo Home Mortgage in San Francisco, Calif., says Wells Fargo has been approving more home equity loans recently in comparison to the past four years, although not nearly the volume seen at the height of the housing boom. He says homeowners are being more responsible today and using their home equity to improve their home value or to pay for educational expenses.
"Home equity loans never went away entirely, but over the course of the past few years homeowners experienced a loss of equity and also became wary of taking on extra debt," says Blackwell. "The trend is changing a little bit now that prices are going up and stabilizing in some areas."