Consumers applying for a new mortgage are two to three times more likely to open a new auto loan or credit card account over the following 12 months—many within a month of the mortgage payoff, according to research from TransUnion.
TransUnion released the findings of its research during its Financial Services Summit in Chicago. The study focuses on mortgage applicants in the prime or better risk tiers with an existing mortgage—those who are likely moving or refinancing.
“Our research found that consumers either purchasing new homes or refinancing their mortgage loans are far more likely to open a new auto loan or credit card soon after this major life event,” said Ezra Becker, co-author of the study and TransUnion’s senior vice president of research and consulting. “This finding is important, both because it quantitatively confirms conventional wisdom and because it illustrates how necessary it is to look across products to get the full picture of consumer credit behavior.”
The study found that prime or better mortgage applicants on average are more than 50% as likely to open a new credit card over the 12 months following a mortgage inquiry compared to the overall population. These same consumers can be up to three times as likely to open a new auto loan in that same 12 month period.
The study also found that average daily credit card originations for consumers who moved into new homes were 54% higher 30 days after paying off a mortgage compared to 30 days prior. Average daily auto originations were 84% higher in that same timeframe.
Nearly identical credit card and auto origination trends were observed for consumers who refinanced an existing mortgage.
“Clearly, consumers who are planning to move or refinance their mortgages wait until after that event to seek new credit,” Becker said. “But once that new mortgage event occurs, their demand far outstrips the overall population. This information is particularly valuable for lenders who are seeking credit-active consumers with higher demand for new credit cards and auto loans. This population is much more likely to respond to new offers, making them an attractive segment that lenders can now identify.”
A credit card surprise
According to TransUnion’s research, for existing mortgage borrowers who move or refinance, 71% of all mortgage inquiries occur between 30 and 90 days prior to existing mortgage payoff and new mortgage origination.
During this timeframe, consumers who are preparing to originate a new mortgage change their credit card spending and balance behaviors.
Consumers significantly increase credit card spending—at a rate of two to three times—and begin building balances in the months prior to mortgage payoff and new mortgage originations, not after.
Contrary to popular belief, the study also found that consumers increase credit card spending—up to three times higher than levels six months earlier—in the month prior to paying off their existing mortgages.
“A long-held assumption among lenders is that new mortgage applicants spend less on their credit cards prior to their mortgage closing event, either to ensure their credit picture does not change or simply because they anticipate spending more once they move into their new home,” said Charlie Wise, co-author of the study and vice president of TransUnion’s innovative solutions group. “Our research indicates that millions of consumers actually increase their card spending in the months before the new mortgage origination. Whether it’s to purchase furnishings or make updates to their existing property, many consumers who move increase their spending before moving into their new residence.”
“Card spending increases are even greater for mortgage borrowers who refinance,” he continued. “These consumers may be anticipating lower mortgage payments and take advantage of the greater available cash flow by increasing card spending in the months before their refinancing. They may benefit from increased credit limits on their cards. Lenders can take advantage of these insights by identifying existing cardholders with mortgage inquiries for proactive credit line increases.”
TransUnion’s study included 16.7 million consumers who paid off their mortgages and obtained new mortgages or refinanced existing mortgages between first-quarter 2013 and second-quarter 2015.