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Originally published on CUInsight.com
As we step into 2025, the mortgage and home equity landscape continue to evolve, presenting both opportunities and challenges for consumers and financial institutions. After a turbulent few years of inventory constraints and affordability concerns, we’re beginning to see a shift toward stability. But with that stability comes a new reality: homeowners sitting on historic levels of equity, lenders adapting to changing borrower behaviors, and the role of mortgage technology growing more critical than ever.
Consumers Are Holding Tight, But Equity Is in Play
For much of the past year, the housing market was in a state of cautious waiting. At the beginning of 2024, many expected mortgage rates to drop significantly, spurring a flurry of homebuying activity. That didn’t happen—not right away, at least. The anticipated relief was slower than expected, and many homeowners who locked in record-low mortgage rates during the pandemic were hesitant to list their homes. This “lock-in effect” kept housing inventory tight and home prices high.
While home purchases remained sluggish, home equity borrowing surged. With approximately $35 trillion in equity nationwide, homeowners sought alternative ways to put their wealth to work. HELOCs and second mortgages became attractive options for financing renovations, consolidating debt, or even investing elsewhere without having to give up historically low mortgage rates. The trend is expected to moderate in 2025 as the market normalizes, but home equity lending will remain a key component of financial institutions’ offerings.
Lenders Must Continue Adapting to the New Normal
Financial institutions have had to adjust their strategies accordingly. In a rising-rate environment, traditional purchase mortgage volume takes a hit, forcing lenders to shift focus toward home equity lending. But that’s not the only shift occurring. Borrowers today expect digital convenience, personalized guidance, and efficiency in their lending experiences. This is where technology plays a game-changing role.
Mortgage lenders who took advantage of slower market conditions to upgrade their technology infrastructure are now better positioned for what’s ahead. From data-driven underwriting to digital-first HELOC applications, the financial institutions that invested in innovation will reap the benefits. Those that didn’t will find themselves struggling to keep pace.
The Role of Automation in Mortgage Lending
One of the biggest transformations in lending has been the increasing role of automated underwriting software. In loan origination, this means streamlining processes, reducing errors, and improving efficiency. This is especially crucial in home equity lending, where speed and ease of access are key differentiators. Borrowers today need the ability to apply for a HELOC online, receive a decision within minutes, and complete the process without ever stepping into a branch.
At the same time, lenders must strike a balance between automation and personalized service. Borrowers, especially those unfamiliar with home equity lending, still want expert guidance. The best-performing institutions will be those that use technology to enhance—not replace—the human touch. A seamless digital experience may bring borrowers in the door, but knowledgeable guidance is what keeps them engaged.
A Cautious but Optimistic 2025
Moving forward this year, I expect home equity lending to remain an important tool for homeowners, but it’s clear from the data that the market is shifting. It looks like home purchase activity in 2025 will now continue at a measured pace, rather than a rapid surge. Some homeowners who have been holding off on selling may finally list their homes, providing a modest increase in available housing stock, but I imagine affordability will remain a significant challenge, particularly for first-time buyers.
Unlike the volatility of recent years, 2025 is shaping up to be a year of controlled, steady growth rather than rapid booms or busts. This stability will benefit both borrowers and lenders who can adapt accordingly. For financial institutions, the key to success lies in preparation. Credit unions must optimize their home equity lending processes to make them as seamless as possible, leverage automation to improve speed and accuracy, invest in digital tools that enhance the borrower experience, and educate consumers on the benefits and risks of home equity products.
I fully believe the mortgage and home equity markets are in the midst of a transformation, and with that change comes significant opportunity. Homeowners are adjusting to the new normal, lenders are shifting their strategies, and technology is redefining the lending experience. In 2025, it’s not just about surviving the market—it’s about thriving in it. The institutions that act now, rather than waiting for the market to dictate their next move, will be the ones best positioned for long-term growth.
Contact us to learn more about how MeridianLink® Mortgage can help prepare your credit union’s home equity lending process for future growth.
