High amount of equity, consumer debt combine to give brokers a chance to jump-start market
As potential homebuyers and homeowners looking to refinance mortgages continue to hold on to existing loans with low interest rates, brokers are trying to bring them to the market by unlocking equity and paying off consumer debt.
In March, Realtor.com reported that the amount of home equity currently available in the United States reached nearly $35 trillion. At the same time, total credit card debt reached $1.18 trillion in the first quarter of 2025.
Part of the issue with the accumulated equity is that people are holding on to mortgages financed during the aftermath of the COVID-19 pandemic, when rates were below 3%. However, some brokers are using this built-up equity as an opportunity to help customers pay off high-interest credit card debt.
Stacey Melton (pictured top) is the vice president at Reasy Financial. She sees clients with low mortgage rates, but large amounts of credit card debt. In some cases, these clients have no idea what rate they’re paying on their credit cards.
“When somebody comes to me, I give them their blended rate,” Melton told Mortgage Professional America. “They come to me and say, ‘Stacey, I’ve got a 2.75% mortgage rate.’ That’s great, but how many credit cards do they have? I know, because I have their credit report. They’ll have $67,000 in credit card debt, and I ask them if they know the interest rate on those cards. A lot of them don’t know.”
The blended rate is a method for calculating the actual interest rate on all combined debt. While the mortgage debt carries a very low rate, the credit card debt significantly raises the blended rate.
“I tell them the credit card interest rate is likely double digits,” Melton said. “They say, ‘Oh no. I’ve got really good credit.’ So do I, and I promise it’s like 18% or 20%. So you might have a 2.75% on your mortgage, but your blended rate on all of this is 11.5%”
A chance to eliminate credit card debt
Once they discuss the blended rate on all of a customer’s debt, Melton discusses how much they’re paying a month. Melton hopes this will show a hesitant seller how much they can improve their overall financial situation.
“So, they say the overall monthly output is $3,000 between their mortgage and minimums on these credit cards," Melton said. “So, I ask them, ‘What if you sold your house and you had no debt, and your new mortgage payment was $3,000 a month?’ Their output is the same, but they’ll get rid of consumer debt, which is going to make their credit score go up.”
This method enables customers to transition into a house that better suits their needs, while also eliminating high-interest debt.
Michael Brennan of Nationwide Mortgage Bankers says the Fed’s decision to hold rates is testing buyer patience, urging a shift from rate focus to strategy as inventory rises and equity remains untapped. https://t.co/M42wIAGg5X
— Mortgage Professional America Magazine (@MPAMagazineUS) May 15, 2025
“They can get into a house that is performing better for them for the same monthly output,” Melton said. “And the $3,000 is going into an asset and not to a credit card. It’s about educating the consumer on it, because they don’t think that way.”
This type of advice is why Melton believes the role of mortgage brokers is so important.
“Our title is loan originator by definition, MLO on papers and license, but we call each other mortgage consultants,” Melton said. “Our job is to consult with somebody not just about their mortgage, but their overall picture, and make sure we’re putting them in a better financial situation.”
Equity built on large homes bought during pandemic
Part of the reason there is so much equity for some of these customers is that they purchased larger homes during the uncertainty of the pandemic.
“A lot of people bought homes during COVID and realized now they don’t like that house,” Melton said. “A lot of clients bought bigger houses because their rates were lower. They bought that large house because the world was ending, and nobody knew what was going to happen.”
Many people thought the work-from-home situation might last for many years, or that people might never return to traditional office spaces. Melton notes that they all bought houses with that in mind, thinking it would have to be both a working space and a living one.
“You bought this large house because you decided that you were going to all have to work in this house,” Melton said. “You bought this big house, and now everybody’s gone. You are back in the office, and the kids are back at college.”
Melton said the blended rate method is a good option to help these customers get into homes that are more appropriately sized for their current needs, and to help pay off high-interest debt, ultimately improving their long-term financial situation.
“A lot of things happened during that time, and it wasn’t just buying because interest rates were low,” Melton said. “People were buying out of fear, needing more space and wondering how long they were going to be stuck in homes. So, we’ve got this weird group of people who bought during COVID, and we’ve got to figure out how to navigate through to them.
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