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How to Use a Home Equity Line of Credit (HELOC) for Debt Consolidation

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Mar 11, 2023

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Table of Contents

I. Home Equity Access
II. Increasing Debt Risks
III. Benefits of HELOCs
IV. Home Price Corrections
V. How Hitch Helps You

I. Home Equity Access

Are you able to quickly access your home equity that’s grown and compounded in value over the past few years or decades? Home prices increased by +6.9% year-over-year as of December 2022 in spite of rising mortgage rates, as per CoreLogic. As compared to historical annual home price gains over the past 50+ years, this almost 7% home price gain number is almost double the average annual gains which are closer to 3% or 3.5% per year.

Between late 2019 and late 2022, the average home value nationwide has increased by 43% while boosting the overall net worth for those fortunate people who owned their homes. Even as mortgage rates rose at a rapid pace in 2022, the average homeowner gained approximately $60,000 in just 2022 alone according to Money.com.

Through the 3rd quarter of 2022, the average homeowner with a mortgage held an estimated $185,000 in equity. The home equity dollar amount gain between 2021 and 2022 for the typical mortgage holder jumped by 35%.

With a home equity line of credit (HELOC), it’s usually most advantageous to borrow funds when your home value is at or near peak highs partly since you can access a much larger amount of equity from your home as needed.

Hitch and other lenders will closely review your credit scores, the equity available in your home as estimated by an appraiser, and whether or not your income is much higher than your monthly debt obligations. A borrower who has a solid debt repayment history and maintains minimal debt is likely to have high credit scores above 700. The better the borrower’s FICO credit scores, the better the rate pricing for the HELOC or other types of mortgage loans.

While the equity in your home will create significant wealth for you over time, excessive consumer debts that aren’t paid off can be a financial drain or anchor holding you back.

II. Increasing Debt Risks

Upwards of 38% of all homes nationwide are free-and-clear with no mortgage debt. These lucky homeowners usually have on average at least $400,000. Some pricier states like California have average home prices that are about double the national average at $800,000 or higher. For free-and-clear homeowners, there’s a significant amount of equity that they can access by way of a HELOC.

As per 2021 data published by the Experian credit bureau, the average American held a debt balance of $96,371 partly due to rising mortgage and credit card debt. Here in 2023, the average debt per person is likely well over $100,000.

Total credit card debt reached a new record high of more than $930 billion in the fourth quarter of 2022. At the same time, credit card rates and fees also reached all-time record highs with typical interest rates exceeding 20%, opposed to likely much lower HELOC in the single digits. That is less than half of the interest paid.

In December 2022, credit card spending fell from $33.1 billion in November 2022 to $11.56 billion for December 2022 just one month later in spite of December usually being a peak holiday spending month. This dropoff in credit card spending was possibly related to so many consumers being maxed out with their credit cards, card issuers cutting back on their clients’ spending ceiling limits, and rates and fees hitting 20% or more. By comparison, a 1st or 2nd mortgage or HELOC is much more affordable for a borrower than trying to keep up with the credit card rates and fees.

Some of the risks associated with HELOCs are related to closing costs that are usually lower than most types of mortgage loans. Other risk factors are that some borrowers pull out too much cash from their HELOCs and don’t apply it towards paying off other consumer debts. In these types of situations, their future risk of default on their mortgage and consumer debt might increase.

Most mortgage lenders who make loans to clients don’t want to be forced to file foreclosure on the delinquent borrower after several months of no payments. To minimize the risk of mortgage default, the borrower should create a financial budget that they can follow. Other options besides a HELOC for borrowers include a business loan or credit card transfers that offer a 0% rate for short periods of time.

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III. Benefits of HELOCs

Just like with life, any decision that you make can have possible benefits and risks. Nothing is guaranteed here in life. You must closely analyze any financial decision that you make while writing down a list of positives and negatives associated with your choices.

Statistically, the equity in your primary home where you live is the most likely to represent the highest percentage of your overall net worth. Yet, you need access to sufficient amounts of income and cash to pay your monthly bills. If not, you may be forced to sell your home and move into a rental while missing on our future home appreciation gains.

Some homeowners may carry multiple credit cards, one or two automobile payments, a massive student loan balance, a business loan, and a mortgage payment. For most of the consumer debts, the loan terms are generally much shorter than mortgages or HELOCs and have interest rates much higher as well. As a result, the total combined monthly consumer debt payments could be several thousand dollars or more.

How would you like the option to consolidate most or all of your consumer debts into a new HELOC loan while reducing your monthly payments by hundreds or thousands of dollars?

Let’s take a closer look at some of the benefits associated with a HELOC:

  • Just one consolidated monthly payment
  • Increase your loan payment terms for lower payments
  • Lower your interest rates for lower payments
  • Your monthly payments may be tax-deductible
  • Your monthly debt-to-income (DTI) ratios should drop
  • The elimination of multiple credit accounts can boost your credit scores

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Any upgrades that you make to your home such as a kitchen remodel, adding a pool or spa, or increasing your total square footage can be viewed as more of an investment rather than an expense. For example, a $50,000 draw from your HELOC that is primarily used to add improvements to a home may increase the total overall value by $100,000 or $200,000, especially if the homeowner adds more square footage to the property.

In some regions, the construction costs may be $100 per square foot to make additions while homes are selling nearby at $300 per square foot. A homeowner who invests $50,000 to add 500 square feet to the home ($100 per square foot for construction costs x 500 new square feet = $50,000) may increase the total overall home value by $150,000 ($300 square foot resale value x 500 new square feet). If so, this is a profit gain of over $100,000.

Your lowered debt-to-income (DTI) ratios and potentially improved credit scores after drawing funds from your HELOC should make it much easier for you to qualify for future mortgage or other types of consumer loans. If any when mortgage rates may fall back to near historical lows like seen in recent years, you have the option to refinance your existing mortgage debt and lock into lower rates at some point down the road.

Some or all of HELOC payments may be tax-deductible if you use the funds to make home improvements. Please check with an experienced tax advisor before making a decision.

To learn more, watch the Hitch digital HELOC video linked here: Hitch HELOC

IV. Home Price Corrections

Home values go through periods of time when values reach all-time peak highs like seen in recent years or home values may fall at a rapid pace within a relatively short period of time in one, two, or three years as last seen in the years following 2008.

While the pace of annual price gains has slowed down to near 7% year-over-year, national home price gains were above 10% year-over-year as of October 2022. Annual home price gains have historically averaged at or above published annual CPI (Consumer Price Index) inflation rates over the past several decades. The fact that inflation rates in recent years have been much higher than the norm has been an incredible benefit for most homeowners as values have risen 10%, 20%, 30%, and even 40% in certain regions in just one year.

The last big housing and economic correction really became readily apparent in 2008 and for several years thereafter. A core reason for the economic slowdown time period that’s been described as both The Credit Crisis and The Great Recession was due to the Federal Reserve’s 17 separate rate hikes that took place between June 2004 and June 2006. The Federal Reserve raised rates from 1% to 5.25% in just 24 months for a total increase of 4.25%. As rates rose, the borrowing costs for consumers also increased while becoming unaffordable for millions of homeowners across the nation.

The Sun Belt regions which included states like California, Arizona, Nevada, and Florida were hit the hardest with home price declines beginning in 2008. Prior to 2008, these were possibly four of the best states for price increases.

Let’s review how significant the home price declines were in 2008:

  • Home values decline in 35 states.
  • California experienced the largest price decline at -29.6%.
  • Nevada home prices fell the 2nd most at -22.8%.
  • Arizona home prices dropped -19%.
  • Florida home prices declined by -18.2%.

What’s interesting is that both before 2008 and after 2008 home prices in the Sun Belt regions increased the most in spite of so many of these Sun Belt states having the largest price declines in 2008. Those homeowners in these regions who held on to their properties during the previous economic slowdown were financially rewarded as their homes may have doubled or tripled in value through early 2023.

Homeowners who have a steady access to income and cash are more likely to hold on to their properties through both boom and bust markets. During periods of time when the economy starts to slow down, one of the best safety nets to have available is a HELOC that can be used to pay bills, add improvements to the home, and to replenish cash reserves. Homeowners who don’t have access to cash are the ones who are more likely to be forced to sell their home even when they’d prefer to remain there.

Another major reason why applying for a HELOC sooner rather than later is related to your income trends. If you and/or your spouse or co-borrower may have declining income in the near future, it is wiser to apply when both your income and home values are peaking instead of potentially falling.

You can review the information about the HELOC funding solution that can help you pay off your debts sooner rather than later. Hitch has leveraged and combined advanced technology, the online loan application process, and access to capital for our clients so that it’s more simple and at a faster application and approval pace. To learn more details about the Hitch digital HELOC, see how much the equity in your home is worth here.

V. How Hitch Helps You

Hitch has simplified the digital application process for our clients. Time is the most valuable commodity of all. Few things can be more frustrating for mortgage applicants who are in need of quick cash than a slow and sluggish application process that takes up to 9 months to complete. We here at Hitch know that your time is precious and limited, so we do our best to get you a quick “Yes” or “No” answer instead of a long drawn out “Maybe” answer.

If, by chance, you don’t qualify for a HELOC today. Our team here at Hitch can offer you free support like how to boost your FICO scores or reduce your debt-to-income ratios so that you can easily qualify the next time with us. Hitch wants to build long-lasting relationships with our clients who also tend to become exceptional referral sources for us after we provide them all with solid lending solutions.

You’re welcome to ask our team members about creating a financial spreadsheet analysis that will show you how the digital Hitch HELOC can drastically lower your total monthly payments before you even commit to signing the loan documents. We’re confident that you will be pleasantly surprised with how much lower your monthly debt payments will be as well as quite happy with how much cash that you can access.

Please feel free to compare our flexible and affordable HELOC programs with any other lender out there today. We’re certain that you’ll soon realize that you made the right choice by selecting the Hitch HELOC programs.

You need to remain in control of your finances. You’re the person who can best protect you and your household more than anyone else. To get started on unlocking the value of your home, click to get access to your money now: Digital Hitch HELOC

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Equal Housing Lender
Hitch, Inc. 23833672158 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 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.