PASCO COUNTY, Fla. — According to a report by TransUnion, home equity lending is the fastest-growing sector of consumer lending.

A home equity line of credit (HELOC) is a type of second mortgage that enables residents to borrow funds using the equity in your home. HELOCs are commonly used to finance home renovation projects, pay for educational expenses, or to consolidate debt.

The interest rate on a HELOC is usually lower than credit cards and personal loans.

Scott Johnson, the Senior Vice President of Consumer Lending at BayFirst, said that consumers are turning to the second lien market due to high mortgage rates.

“It was the first mortgage craze back in the pandemic, offering record interest rates and the 2.5, 3% range," Johnson said. "People are not looking to cash out of their house, refinance their first mortgage. So they're looking at the second mortgage to highlight programs because the interest environment right now is that advantageous to do a first-mortgage refinance. So to use any equity to buy those purchases, remodeling, things of that nature,” said Johnson.

FAMILY UPGRADES HOME WITH HELOC DUE TO CURRENT ECONOMY

To be closer to his children’s schools, Doug Gallagher and his family moved into their new home in Pasco County in February.

“They can walk to school from here,” said Gallagher.

His family created a 10-year plan which involved remodeling.

“Here would be all of the deck pavers,” said Gallagher.

He said his family wanted a pool.

The neighborhood has two community pools, but since the developer did not partner with a pool builder, Gallagher plans to be the first homeowner to have a pool on his own property.

After careful planning, he took out a $55,000 home equity loan to finance the addition to his home due to the current state of the economy and higher mortgage rates.

“My first thoughts was to just to pay the cash. But then when you sit back and you start to think about some of the other benefits, you know, it is a debt, but you don't have to carry the debt as long as you can only carry it as long as you want to," he said.

A HELOC offers several advantages such as:

• Flexible withdrawals and repayments. 
• A potential boost to credit history. 
• Interest is tax-deductible for home improvements
• Lower annual percentage rates than credit cards.

A home equity line of credit may not be the best option for everyone as it has certain drawbacks. To secure the loan, lenders require borrowers to put up collateral, which in this case is their home.

If you fail to repay the loan, the lender can take over ownership of your home since it is being used as security. Therefore, it is important to weigh the risks and benefits of a home equity line of credit before making a decision.

The number of home equity loan originations in 2021 reached their highest level since 2010, according to TransUnion data.

“So you got to put your head around it and have the thought that get past the current interest rate and what that entails," Gallagher said. "And to know that you have the tax deductibility because you're you're adding value to your home. One of the biggest things, too, is especially when they have their friends and they want to go swimming then we can watch them and what they're doing with their friends as well, too.”

Gallagher’s neighbors are also considering long-term plans to add value to their homes.

“My son is in middle school. My daughter's in high school. And just that aspect of once they're out of school and after college, that's when we'll look to sell the home," he said. "And by having the pull, um, it would definitely add a lot of value. And I think it'll be a quicker sell for the home as well to oh, the homes in here do not. “

The loan is now an investment expected to pay off.