In the world of home equity financial products, it's the mortgages that tend to get all the fanfare: first mortgages for a home purchase, second mortgages to draw on the equity, a refinance when interest rates are low. But as mortgage interest rates creep back up from their 2013 lows, the playing field has changed.
Many customers who would be prime candidates for refinancing have already done so, and among those who haven't, the rise in interest rates has made the option less palatable. Fortunately, there are other ways for your customers to draw on their home equity which may be more suitable to the current financial environment.
We're going to shine the spotlight on another deserving member of the equity family: the home equity line of credit. We will then discuss why it makes sense to market HELOCs, even to those of your customers who are new to their homes or who have recently refinanced.
1. A HELOC provides flexibility and "long-termability"
Unlike a mortgage, the HELOC is a continuing line of credit that can be drawn upon over an extended period of time. This makes it an ideal means for financing ongoing expenses: the monthly overhead of a start-up business, for example, or the nursing home costs of an aged parent. The key word to use in marketing HELOCs is flexibility; the money can be used for whatever your customer wants (although only home-related expenses are tax deductible) and the monthly payments are attractively low, allowing them to repay the bulk of the loan at a later time.
There is no such thing as a free lunch, of course, and HELOCs are no exception. The price of this flexibility is a credit score hit somewhere in the neighborhood of 80 points. It is not an ideal choice, then, for those who are struggling to maintain good credit.
But for those of your customers whose solid credit allows them both to take the hit and to shop around for the best deal, a HELOC makes a lot of sense. Lenders need to understand these nuances when making the decision to market to this type of customer segment.
2. It gives you a home court advantage. Research has shown the more products a customer has with you, the greater the likelihood that they will stay with you — through good times and bad. For mortgage marketers, this means giving a little on the interest payment is more than compensated by the advantages of locking in a preferred customer over the long term.
Once you've steered your preferred customer into the right mortgage, or a timely refinance, the next question is: what else can you do for them? With home values rising steadily, homeowners suddenly find themselves sitting on a pool of equity they haven't thought possible since the economy turned south in 2008. And here's the thing: many of them don't even know it.
What is more, mortgage marketers tend to ignore customers who are in the first three years of a new mortgage. Don't make that same mistake.
Just because a customer is new to a mortgage doesn't mean they don't have the exact same credit needs as anyone else. These are customers you have already taken the time to cultivate a relationship with and would benefit from this type of loan product. Take advantage of this opportunity.
As a chief marketing officer and mortgage marketing leader, your job is to educate these and other customers about their equity situation and the advantages HELOCs provide. It is very common for a homeowner with credit to take a look at rising interest rates, realize a refinance makes no sense, and give up.
But that doesn't mean you should. Once you have culled your database down to those customers who are both qualified and likely to benefit from a home equity product, you can target your messaging and educate this group accordingly.
3. A HELOC provides security in volatile times.
In today's globalized economy, the only certainty is that nothing is predictable.
A stock market disaster in Asia, a hurricane in the Caribbean, a trade war with China — any number of events could hurt America's economic recovery. In this environment, you need to rethink your marketing strategy to supercharge your customer lifecycle and drive more originations for your mortgage business. All the more reason for you to lock in valued customers with a strong and varied portfolio of equity products. And for customers with new mortgages or refinances, the HELOC is a smart, go-to secondary product to market.
Kesna Lawrence is the senior vice president for client strategy at Datamyx, a provider of data-driven technology solutions for direct marketing in the financial services, automotive and insurance industries.