Home Equity Lending: Evidence from Recent Surveys

By Canner, Glenn B.; Luckett, Charles A. et al. | Federal Reserve Bulletin, July 1994 | Go to article overview

Home Equity Lending: Evidence from Recent Surveys


Canner, Glenn B., Luckett, Charles A., Durkin, Thomas A., Federal Reserve Bulletin


Accumulated equity in homes is one of the largest components of the wealth of U.S. households. Home equity differs from many other assets in that it cannot be readily used to purchase goods or services or to repay debt. It is widely accepted as collateral, however, and in recent years homeowners have raised substantial amounts of spendable funds by borrowing against the equity in their homes.

Homeowners can convert their home equity to a liquid form in several ways: by selling a home and either purchasing a lower-priced home or renting, by refinancing an existing mortgage for an amount greater than the outstanding mortgage balance plus closing costs, or by obtaining home equity credit.

Home equity credit takes either of two forms. One form, referred to here as a "traditional home equity loan," is a closed-end loan extended for a specific period that generally requires repayment of interest and principal in equal monthly installments. Such a loan typically has an interest rate that is fixed for the life of the loan. The other form, a "home equity line of credit," is a revolving account that permits borrowing from time to time, at the homeowner's discretion, up to the amount of the credit line; it typically has a more flexible repayment schedule than a traditional home equity loan. Most home equity credit lines have a variable interest rate that is pegged to an index such as the prime rate. Substantial equity in homes, aggressive competition among financial institutions, and revisions of the tax code all have contributed to the increased use of home equity credit.

Over the past few years, considerable information about home equity lending has become available through surveys of households and lending institutions. The Federal Reserve Board, for instance, periodically surveys households about their home equity borrowing. The regulatory agencies have for several years collected data from commercial banks on amounts outstanding under home equity lines of credit, via quarterly Reports of Condition and Income (frequently referred to as Call Reports). The agencies recently began collecting information about outstanding balances under traditional home equity loans as well.

To learn more about the current status of home equity lending, the Federal Reserve Board participated in a special nationwide survey of households conducted over the period November 1993 through March 1994. Results of this recent survey give a picture of current household borrowing activity and, together with results of earlier surveys, provide a means of measuring changes in consumer behavior.(1) This article presents results from the recent household survey and data obtained from other sources of information on home equity lending.

HOLDINGS OF HOME EQUITY LOANS

Growth of home equity credit, and of home equity lines of credit in particular, gained momentum in the mid-1980s with a boost from the Tax Reform Act of 1986, which mandated the phaseout of federal income tax deductions for interest paid on nonmortgage consumer debt. This change in tax law enhanced the attractiveness of using debt secured by homes to fund expenditures that consumers previously had typically financed by consumer credit: Almost one-third of the homeowners in the 1993-94 household survey who reported having home equity credit cited its favorable tax treatment as an advantage over other types of credit (table 1). Attractive interest rates on home equity credit relative to rates on most other types of consumer credit, as well as aggressive marketing and price competition among creditors, have further encouraged consumer interest in home equity credit.

1. Percentage of home equity credit users citing
advantages of home equity credit over other types
of credit
                                   Home equity   Traditional
       Advantage                     line of       home
                                     credit        equity loan
Low interest rate                     35              51
Easy to get                           21              32
Tax advantage                         31              28
Convenient(1)                         57               5
Can defer repayment of principal       7               *
Other(2)                               5              26
Note: Data have been weighted to ensure the representatives of the
sample. … 

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Home Equity Lending: Evidence from Recent Surveys
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.