Wednesday, September 10, 2003
Contact: 512-463-4070
Home Equity Lines of Credit Good Choice for Texans
Opinion-Editorial by Carole Keeton Strayhorn, Texas ComptrollerTexans love home equity loans. But the home equity system in Texas still has a gaping hole in it. Texas homeowners are currently unable to access the most flexible of home equity loans, the home equity lines of credit (HELOCs), but that can change with Saturday's election.
Texas is the only state without access to home equity lines of credit.
Because HELOCs aren't an option in Texas, Texas lags the nation in home equity lending. Nationally, more than 14 percent of homeowners have some form of home equity loan, either the traditional home equity loan or home equity line of credit.
Earlier this year I issued a special report that examined the positive economic impact of allowing Texas homeowners to have access to HELOCs. My bottom line is what is best for Texas; Texans need and deserve the right to take out home equity lines of credit. This simple change could pump up to $741 million back to Texas homeowners. This estimate is based on banks and financial institutions offering HELOCs at the same interest rates found in other states.
HELOCs essentially allow the homeowner to have a revolving line of credit based on their home's equity. But unlike unsecured lines of credit issued by a bank or other lender, the interest rates are substantially lower on HELOCs and interest paid is deductible from federal income taxes.
HELOCs are more flexible than traditional or closed-end home equity loans and are preferred by homeowners in other states. Many of the major lenders in Texas make HELOC loans to homeowners in other states. About 88 percent of consumers in Georgia, Florida and California choose HELOCs compared with about 12 percent choosing traditional home equity loans.
HELOCs are revolving accounts that permit borrowing from time to time, at the homeowner's discretion, up to a set credit limit. Traditional home equity loans extend for a specified length of time and generally require repayment of interest and principal in equal monthly installments with interest rates fixed for the life of the loan.
The brightest economists at my shop estimate that if Texas homeowners had the option to take out home equity lines of credit, the economic impact would be immediate and dramatic.
An estimated $12.7 billion in higher-cost, non-tax-deductible loans that currently exist could be replaced if home equity lines of credit were available now and Texans took advantage of them at the same rate as homeowners nationwide.
Based on average credit card and home equity lines of credit interest rates, Texas homeowners could save more than $100 in combined interest payments and federal income tax deductions annually for every $1000 of credit card debt.
Recent interest rate data show that the average interest rate on credit card debt is 13.8 percent, the rate for new auto loans is 5.8 percent and on home equity lines of credit, 4.4 percent.
It's time we level the playing field. Texas homeowners deserve the same borrowing rights as homeowners in all other states. Hard-working Texas families deserve lower interest payments, lower federal taxes and $741 million in their pockets for their families' priorities without incurring an additional dime of debt.
As the state's chief financial officer it is my constitutional obligation to watch out for Texas taxpayers. And in this tight economy when hardworking Texas families are stretching their dollars to make ends meet, it is fiscally foolish to deny homeowners access to HELOCs.
I applaud Texas lawmakers for removing the padlock, but it is up to voters to open the door to financial freedom by voting yes on Proposition 16.
Texas is great but we can do better!