Survey Reveals Homeowners’ Lack of Knowledge on Home Equity Loans and Financing Options

According to the latest U.S. Home Equity & Underwater Report from ATTOM, nearly half of all mortgaged residential property owners have built up at least 50% equity in their homes by the end of 2023. This puts them in a prime position to utilize that equity for home improvements. However, in a climate of high interest rates, many homeowners with lower interest rate mortgages may be hesitant to tap into their equity.

To gauge homeowners’ awareness of different financing options for home improvements, Rocket Loans conducted a survey of 1,000 homeowners. The results revealed that a staggering 79% of homeowners were unable to correctly define a home equity loan. Many mistakenly believed that it increased their primary mortgage or could only be accessed through a line of credit.

In reality, a home equity loan allows homeowners to convert their existing equity into cash without refinancing their primary mortgage. It functions as a second mortgage, with a lump sum payment and a separate repayment period. Despite the potential benefits of these loans, such as lower interest rates in comparison to other financing options, the majority of homeowners have never taken advantage of them.

Furthermore, the survey found that almost 21% of homeowners are unaware of how much equity they have in their homes. This lack of knowledge can impact their ability to access funds for home improvement projects. Online estimators can provide a rough estimate of home value, which can then be used to calculate available equity.

For projects that require less funding, personal loans can be a viable alternative to home equity loans. While personal loans typically have higher interest rates than home equity loans, they offer lower rates than credit cards and can be a good option for smaller-scale renovations.

Overall, the survey highlights a gap in homeowners’ understanding of home equity loans and their potential benefits for financing home improvements. By increasing awareness of these options, homeowners can make more informed decisions about how to fund their renovation projects.