What influences borrowers’ decisions in taking out loans?

by MPA10 Apr 2017
When it comes to taking out a loan, interest rates are the top deciding factor for current and potential borrowers, according to a recent survey by TD Bank.

Some 46% of respondents in the bank’s second annual Home Equity Sentiment Index ranked interest rates as the most influential factor in taking out a home equity line of credit (HELOC) among all other options, including fees, loan amount, draw period length and even trust in their lender. The figure is more than double the second most influential factor – loan amount (18%).

TD Bank’s poll of 1,356 American homeowners was conducted from March 3 through 9. On March 15, the Federal Reserve announced it would raise interest rates by a quarter of a percent.

"Although the rate increase may worry some HELOC borrowers, they should keep in mind that a rate increase of .25% is going to have a minimal effect on their monthly payment," said Mike Kinane, general manager of home equity products for TD Bank. "But if a borrower is concerned with potential increases in rate, they should contact their lender to learn more about HELOC features, such as converting all, or a portion, of the balance to a fixed rate option."

More millennials (39 percent) are HELOC users than Gen-Xers (31 percent) and baby boomers (31 percent), the survey also found. Some 35%cent of millennials are considering applying for a HELOC within the next 18 months –more than twice as much as Gen-Xers (15 percent) and nine times as much as baby boomers (4 percent).

"Although most borrowers choose to use their HELOCs for home renovations, they should remember that this money can be used for almost anything, including paying off student loans or buying a car," said Kinane. "There is also a misconception that a HELOC works like other loans, but it is truly a line of credit.
The consumer is in control of when and how much money they want to draw, and they are only paying on the portion they are actually using, therefore having greater control over interest charges."

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