Is it advisable to use your home equity to cover expenses during the upcoming holiday season?
Apr 4, 2023
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The holiday season is a time of year that many people look forward to. However, it can also be a time of financial stress as people try to cover the costs of gifts, decorations, travel, and other expenses. One option that some homeowners consider is using their home equity to pay for these expenses. But is this a good idea? Let's take a closer look.
First, it's important to understand what home equity is. Home equity is the difference between the current market value of your home and the amount you still owe on your mortgage. For example, if your home is currently worth $500,000 and you owe $300,000 on your mortgage, your home equity is $200,000.
There are a few ways to access your home equity. One common method is to take out a home equity loan or line of credit. This allows you to borrow money using your home equity as collateral. Another option is a cash-out refinance (also read), where you replace your current mortgage with a new one for a larger amount, and receive the difference in cash.
Using your home equity to pay for holiday expenses can be tempting, but it's important to consider the risks. One risk is that you're putting your home at risk. If you're unable to repay the loan or line of credit, you could potentially lose your home through foreclosure. Additionally, using your home equity for non-essential expenses means that you're putting your home equity on the line for something that doesn't necessarily provide a long-term financial benefit.
Another risk is that you're taking on debt that you may not be able to afford. If you're already struggling to make ends meet, adding more debt to your plate can put you in a precarious financial situation. Before taking out a home equity loan or line of credit, it's important to make sure that you can afford the monthly payments and that you have a plan to pay off the debt in a timely manner.
On the other hand, there are some potential benefits to using your home equity to pay for holiday expenses. One benefit is that home equity loans and lines of credit often have lower interest rates than other types of loans, such as credit cards. This means that you may be able to save money on interest charges.
Another benefit is that using your home equity can provide a lump sum of cash that you can use to cover holiday expenses. This can be helpful if you don't have enough savings to cover the costs, and don't want to rely on high-interest credit cards.
In conclusion, whether or not to use your home equity to pay for holiday expenses is a personal decision that should be made with careful consideration. It's important to weigh the potential risks and benefits, and to make sure that you're in a stable financial position before taking on additional debt. If you do decide to use your home equity, it's important to have a plan to pay off the debt and to make sure that you can afford the monthly payments.
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Hitch, Inc. NMLS #2383367 #2383367
2158 NW Toussaint Drive. Bend, Oregon 97703
1. Qualified applicants may borrow up to 95% of their home’s value. This does not apply to investment properties.
2. HELOCs have a 10-year draw period. During the draw period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) the total of all accrued finance charges and other charges for the monthly billing cycle. During the draw period, the monthly minimum payments may not reduce the outstanding principal balance. During the repayment period, the borrower is required to make monthly minimum payments, which will equal the greater of (a) $100; or (b) 1/240th of the outstanding balance at the end of the draw period, plus all accrued finance charges and other fees, charges, and costs.The lender will calculate this amount by taking the outstanding Account Balance on the last day of the draw period and dividing it by 240 months and then adding any finance charge that accrues but remains unpaid during the monthly billing cycle plus any other fees, charges and costs to the fixed principal payment that is due. During the repayment period, the monthly minimum payments may not, to the extent permitted by law, fully repay the principal balance outstanding on the HELOC. At the end of the repayment period, the borrower must pay any remaining outstanding balance in one full payment.
3. The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Most borrowers get their cash on average in 21 days. The time period calculation to get cash is based on the first 4 months of 2024 loan funding's, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications. Closing costs can vary from 3.0 - 5.0%. An appraisal may be required to be completed on the property in some instances.
4. Not all borrowers will meet the requirements necessary to qualify. Rates and terms are subject to change based on market conditions and borrower eligibility. This offer is subject to verification of borrower qualifications, property evaluations, income verification and credit approval. This is not a commitment to lend.
5. The content provided is presented for information purposes only. This is not a commitment to lend or extend credit. Information and/or dates are subject to change without notice. All loans are subject to credit approval. Other restrictions may apply.