Credit Union Marketing Strategy: Help Your Members Understand Home Equity Loans
As a marketing professional working within the credit bureau, knowing what your members are likely to need next is a key to increasing overall member engagement and sales. Our research indicates that as interest rates continue to rise, one of these member needs will be home equity loans or lines of credit – although this may seem counterintuitive due to last year’s changes in the tax law.
Last fall, the president signed the “Tax Cuts and Jobs Act,” (TCJA) which put additional deduction restrictions on certain types of borrowing. This effectively rendered cash-out refinances a less viable product than other types of credit for most purposes. The fear was that the deduction for home equity loan interest would also be severely limited, but that didn’t exactly happen.
Even so, there has been enough uncertainty to put a strain on the home equity business. Many people believe that if they can no longer write off interest from home equity credit, perhaps they would be better off using a credit card or even a personal loan for their financing needs. But this is not necessarily the wisest course.
And given the expected three interest rate hikes this year, followed by the Fed’s projected three additional hikes for 2019, the mortgage loan department is having trouble getting refinance business. More home equity lending could be good for both the credit union and its members.
It is true that certain types of home equity loans no longer qualify for previously available interest deductions, but despite the changes, there are still areas of great potential benefit for borrowers that know the rules.
The Impact of the New Law
While deductions for home equity interest has been largely restricted under TCJA, the deduction is still available for home equity credit used for any home purchase or improvement expenses – as long as the combined debt doesn’t exceed $750,000.
At present, people are renovating more than they are buying new homes. Under TCJA, home renovations offer the benefit of interest deduction as long as the borrower doesn’t exceed the $750,000 threshold. Between the deductible interest and the low interest rates that are available for these loan products, home equity loans are the best way for your members to finance renovations.
But what about home equity credit used to finance other purchases? Despite the absence of deductibility, home equity lines of credit can still be much more beneficial options for debt consolidation or other financing needs than either personal loans or credit cards.
Home equity interest rates currently average around 5%, while credit card interest averages around 15%. With a quick payoff and the low interest rate, home equity credit is more affordable for many borrowers than other financing options. And with home equity credit terms often running 15 years, for borrowers planning on selling their home within the next few years, taking out a home equity loan or line can be a smart and affordable option.
Help your members make the most of the new tax rules by sharing information about your affordable home equity loan products and the tax benefits of using them for home renovation. Don’t let fear, uncertainty, or doubt stop your members from accessing the credit they want. Share the facts about home equity and watch your member engagement increase.