03 Jul Home Equity Loans
With home values climbing to record highs, many have rushed to their bank to take out a line of credit against their homes. For some it has been to make home improvements or consolidate debts. For others it was to take a vacation or purchase a car.
Recent changes have made home equity loans less favorable. For one, home equity loans no longer provide a tax deduction. Secondly, most have variable rates that are moving higher with each rate hike the Federal Reserve makes. Given new tax laws and the outlook for continued Fed rate hikes, the cost of borrowing against a home equity line of credit is increasing.
In most cases, I’m not a fan of home equity lines. If they help solve critical financial issues, they are wonderful. However, most are used to spend money that a family would otherwise not need to spend.
If you have a small balance on a line of credit, focus on paying it off as quickly as possible. Make minimum payments on your primary mortgage until the balance of the credit line is paid. Then take the amount your budget is used to paying and apply that as a principal reduction to your mortgage. That will help you pay off your home faster.
If you have a large home equity line balance, consider at what point it makes sense to consolidate that into your primary mortgage. The blended rate of a home equity loan and your current mortgage is often higher than the current rates to refinance. If you need help determining what is best, we are here for you.