Now that the recently enacted tax reform bill has eliminated the interest deduction for home equity loans, it is hard to predict how the product will perform going forward.

Under the old tax law, borrowers who itemized deductions could write off interest on up to $100,000 of a home equity loan. But with the deduction gone, that form of borrowing is now more expensive at a time when interest rates are expected to rise throughout the coming year.

“The banks are going to have to look at their products to homeowners,” said Charles Kennedy, director of tax services at the Milton-based CPA firm G.T. Reilly & Co. “You will see refinancing, people rolling their home-equity loan into their mortgage, as long as the [total] mortgage is no more than $750,000.”

Another provision in the new tax law decreases the limits on the homeowner mortgage interest deduction from $1 million to $750,000, leaving less wiggle room for those interested in rolling their home equity loans into a mortgage.

While home equity loans only represent a small portion of total loans, it is a product that has been growing in the commonwealth.

State-chartered banks in Massachusetts have collectively seen home equity loan volume grow by close to $1.1 billion since 2014, reaching over $5.8 billion as of Sept. 30, 2017, according to FDIC data.

Bram Berkowitz

Eastern Bank was the biggest community bank originator of home equity loans and lines of credit in Massachusetts, with roughly $350 million in total loan volume in 2017, according to analysis from The Warren Group, publisher of Banker & Tradesman.

Other community institutions that made the top 10 in the state were DCU, Cape Cod Five, Salem Five, Rockland Trust and Century Bank.

Checking the Crystal Ball

Predicting the fate of home equity loan products is no easy task at this stage, but some believe there are more factors at play than just tax reform.

“First and foremost, the condition of the overall economy is ultimately what drives how well things go for financial institutions,” said Robert “Bert” Talerman, first executive vice president and head of retail lending at Cape Cod Five Cents Savings Bank.

Cape Cod Five had over $185 million in home equity loans as of Sept. 30, and Talerman still feels optimistic about the product.

“At this point it is very, very difficult to predict what the future outcomes of tax reform will be,” he said. “The home equity loan continues to be the most economical way to access credit if you have equity in your house, and I am not convinced tax reform significantly changes that.”

He’s not alone: According to recent national study by the Illinois-based research firm Raddon, 28 percent of consumers anticipate opening a loan in the next 12 months, and home equities are among the products showing increasing demand due to rising home prices and lower inventories.

But Kennedy said he expects consumer demand for home equity loans to dramatically decrease as account holders refinance existing loans into mortgages.

One bright spot is small business owners; they may still choose to use HELOCs to help with business cash flow. It is often easier for a small business owner to obtain a home equity loan or line of credit than it is for a business line of credit, he said.

Talerman said regardless of what happens with home equity loans in the year to come, Cape Cod Five will be ready.

“We will be able to adapt,” he said. “Our job is to adjust and do the best we can to serve our customers in a prudent way so we can help them achieve their financial goals. If volumes change, or activity changes, like any business, we will adjust to that.”