In late 2017 I made a huge mistake. My wife was accepted into an accelerated nursing school program. I owned my home and the real estate market was hot. I thought the odds of it cooling down were better than half.
So, I began the act of juggling opportunities and options... I had a dream of building a portfolio of rental properties, but we needed to reduce our expenses to account for the burden of student loans while she was out of work for 16 months. The plan was to renovate the home and pull some cash out of the higher appraised price, and then rent the home out while we find something cheaper to buy.
Researching HELOC’s, HELOANs, REFIs and cash-out REFIs is pure pain. Even bankers don’t all give you the same recommendation, I couldn’t help but wonder if their advice was influenced by the fact rates had dropped. And God forbid if you should solicit your family and friends for advice. But the real fun begins when you apply. The HELOC made sense, but the 45–60 day approval process, scheduling an appraiser to come out, piles of paperwork, and daily point-of-sale limits did not. I thought, forget it. I wanted to move faster than this so I gave the thumbs up to my contractor and ended up just paying out of pocket for the renovations, and then I sold the home outright to realize the returns.
Five years later two things are clear. I lost out on a few hundred thousand dollars of home price appreciation and the foundation for becoming a real estate mogul. My experience is unique to me but gets recorded into a common category right alongside the others. The customer journey begins with problem recognition and grades into information search, where a lot of mistakes are made. The pattern seeking consumers that we are benefit from the simplification of a point of reference:
Had there been a ‘HELOC card’, I would have gotten it.
So would millions of Americans. That’s the bet fintech investors and firms like hitch are making. Whether you want to renovate your home or have your in-ground pool ready by summer, you can benefit from the explanatory power of a HELOC card during ‘information search’, as well as the streamlined, online-based way in which its acquired. This enables many more transactions…
Consider, ATMs enabled to the wide-spread adoption of debit cards. Cash is going extinct, and as Americans sit on top of an astounding $9.4 trillion dollars in home equity, it's only a matter of time until the HELOC card replaces the traditional line of credit, as it makes its way into millions of wallets and Apple wallets, and is considered as normal and uncontroversial as debit cards and credit cards.
Debit, credit and home equity cards are at the intersection of flexibility and capital.
The HELOC customer journey is riddled with friction, whereas unsecured capital; credit cards, can be obtained quickly. The issue, of course, is that the rates are obscene and therefore impractical in a value-add application like renovations, and economically justifiable if used to purchase expensive musical equipment or other alternative types of assets. The average interest rate is 18.32% but you can get them approved in 15 minutes on an airplane or at Banana Republic.
There is something so ‘20th century’ about having to log into your bank account to transfer funds from your line of credit into your checking account. A HELOC card merges the flexibility of a credit card with the much lower interest rate of secured debt, 5% versus 18.32%.
My house, before and after:
We need Banks and their infrastructure, but they are old fashioned and sluggish. Forward looking banks partner with fintech companies who have better skins and overlays — essentially customer acquisition engines for the bank, underwriting many more customers and for a fraction of the cost. These collaborations create efficiencies in the market for consumers that ultimately save time and money by simplifying concepts and bringing offline customer experiences, like obtaining a HELOC, online. Reducing wait times from 6 weeks to 3 days makes a customer, a spender, out of someone who would otherwise not be. Thus, firms like hitch plan to develop APIs for large purchases types of businesses to offer the heloc cards at the point-of-sale.
With a HELOC card you don’t need to put your plans on hold or miss an opportunity.