Home Equity Lines Adjust on Prime Rate Change

November 11, 2004

ARLINGTON, Va., /PRNewswire/ -- About half (48%) of home equity lines of credit change when the prime rate changes, while others are adjusted on a monthly basis, according to the Consumer Bankers Association's 2004 Home Equity Loan Study, released today. Most (78%) line of credit rates are based on the prime rate as published in the Wall Street Journal, plus a spread over that index.

The average amount outstanding on lines of credit was $36,427, based on data as of June 30, 2004, virtually unchanged from $36,602 a year earlier. A .25% increase in the prime rate will increase the monthly payment on a $36,000 balance by $7.50 per month. The spread over the pricing index continues to shrink, to .59% from .85% a year earlier.

More respondents (44%) report offering home equity lines with the ability to fix drawn portions, the "loan in line" feature, compared to 29% last year. That feature allows consumers to draw down a portion of their line at a fixed rate, for instance, for the purchase of a vehicle.

The average size of new home equity line of credit approvals increased to $77,526, a 12% increase over last year's average of $69,513, according to the study.

The large majority (91%) of respondents use tiered pricing strategies, meaning that prices vary based on the risk characteristics of the customer or loan product. The loan amount is the most common basis for tiered pricing (81%), while credit risk (57%) and term of credit (62%) are commonly used.

The average credit score for approved customers was 726. The average household income for new home equity bookings was $76,467, compared to $80,829 a year earlier. The average appraised home value for new home equity bookings was $246,772, compared to $249,598 a year earlier.

The 23 lenders had average portfolios of $4.8 billion in lines and $2.7 billion in home equity loans. Analysis is prepared by BenchMark Consulting International, Atlanta, GA. Complimentary copies of the study are available to the media.

The Consumer Bankers Association is the recognized voice on retail banking issues in the nation's capital. Member institutions are the leaders in consumer financial services, including auto finance, home equity lending, card products, education loans, small business services, community development, investments, deposits and delivery.

SOURCE Consumer Bankers Association

Contact ALTA at 202-296-3671 or communications@alta.org.