Ever wonder what consumers are doing with their home equity accounts? The 2015 BMO Harris Bank Homebuyers Report revealed that making improvements to a home is the most popular use of a home equity account (47 percent), followed by consolidating debt (22 percent) and major purchases (20 percent) such as a car.
The study also revealed why a home equity account is chosen over another type of financing.
- The potential to use the interest paid as a tax deduction was favored by 45 percent of the respondents.
- It provided a better interest rate than other options (37 percent).
- The ease of accessing the funds (33 percent) and the ability to get the right amount needed (30 percent) were additionally cited for this choice of financing.
“A home equity account can provide the flexibility a homeowner is looking for to take care of financial priorities. Using a home equity account to make both major and minor home improvements can add significant value to your home,” said Alex Dousmanis-Curtis, Head, U.S. Retail Banking, BMO Harris Bank. “A financial professional can help you determine the affordability of a renovation and ensure you get the greatest return on your investment without overextending yourself.”
According to the study, one in four (25 percent) of U.S. homeowners have a home equity line or loan and more than half (55 percent) opened it for a specific purpose and haven’t used it since. Slightly more than half (52 percent) of homeowners have never had a home equity account.
When asked about using their home equity account, the study found:
- Eleven percent of those with a home equity line have not yet used it
- Four in ten (40 percent) have used their credit line and will likely use it again
- Nearly one-third (30 percent) who have used their line in the past do not plan to use it again.
“As a percentage of household real estate, homeowners’ equity in real estate has rebounded to 54.5 percent from a low of 36.9 percent in 2009, although it has not fully made up the ground to levels seen before the recession,” said Jennifer Lee, Senior Economist, BMO Capital Markets.