HELOC for the Holidays

Gift Box In The House Of Banknotes On A White

Home values jumped double digits in most west coast markets during the pandemic and have remained strong through 2024. The welcome equity boost is now helping many of my clients combat high interest rate consumer debt and update to their aging homes.

Demand drives solutions in the mortgage industry and Fairway now boasts over a dozen different choices to tap into that equity beyond the traditional cash out refinance.

The RIGHT Choice to Preserve that Low Rate First Mortgage

My favorite clients are those that pick up the phone and start asking me questions. With numerous choices that vary in their terms and rate, evaluating your specific circumstances paired with the right loan can improve your monthly cash flow substantially. Eliminating higher interest debts or offering an avenue to home improvement dollars without compromising a low rate first mortgage is the perfect implementation of a Home Equity Line of Credit (HELOC).

Key Qualifiers Determining Rate

Credit score and loan-to-value factor heavily on the rate available to you and often dictate the appropriate course of action. From the traditional HELOC with a variable rate interest only payment favorable in times of declining rates, to the closed end fixed rate second mortgage that offers piece of mind in a volatile rate market, let us help you make the right choice.

Introducing the Blended Rate

The blended rate takes the emotion out of the numbers. Wrapping all debt together with the associated rate and calculating the resulting “blended” rate can help you create your desired outcome. From ditching high interest debt to seeking a low-cost way to make a few updates to your home, it is a failsafe approach to an informed decision.

Below is an example of how to calculate if a debt consolidation will achieve your desired savings target.

The Consumer Debt + Mortgage example represents a homeowner with $50K in consumer debt at an average rate of 16%. Some debts will be 20%+ others may be sub 10% like student loans. Pair the high interest debt with a $300K low rate first mortgage of 3.25% and the blended rate is 5.07% as the low interest mortgage accounts for most of the debt.

Compare the 5.07% blended rate and monthly payments to the same numbers with the HELOC debt consolidation to guide your decision.

A HELOC + Mortgage debt consolidation analysis removes the guess work. In this example paying off the consumer debt with a HELOC results in a blended rate of 4.18% and a monthly savings of $594. The likelihood this debt can now be eliminated completely in the future is much higher at the new lower rate all while protecting the low 3.25% first rate loan. As a bonus, a bump up in credit score often accompanies the reduction in consumer and revolving account debts.

Cropped Debt Consolidation

 

Making a Remodel a Reality

Home remodeling is the number two reason most clients seek advice on tapping equity. The blended the rate will quickly answer the question, should I do a cash out refinance or a HELOC? Below is an example of drawing $150K on a home equity line of credit leaving the low rate first mortgage in place. At today’s rates, the HELOC is the choice over a cash out producing a blended rate of 5.42%, which is below current market 30-year fixed rates.

As the amount needed on a HELOC grows, the blended rate could exceed the current 30-year fixed rate, justifying a cash out refinance as the more affordable long-term choice.

If the HELOC is the best short-term option, we can do the same exercise as rates drop to determine where it makes to wrap those dollars back into a single low rate first mortgage.

Cropped Remodel Example

The In-House Advantage

Fairway’s product team ensures we have a wide variety of loans catering to a broad set of borrower requirements. From consultation to close we manage our equity access products in-house, including the underwriting, typically closing loans within 2 to 3 weeks of application.

The Soon to be Seller

Planning a few updates in advance of a future move will maximize sales price when that day arrives. Similarly, ditching high interest debts that could also be placing a drag on credit score positions homeowners for the best qualifying rate when it comes time to apply for that next home loan.

The Barrage of Offers

If you have a home loan, you’re receiving offers weekly to refinance or draw some equity. Think through how you will use the money, for how long and read the fine print on how the rate will perform overtime. If it looks to good to be true…you get the idea. There are a lot of teaser rates out there, a practice I never engage in. I’m here to pair you with the right loan and full disclosure. No teaser rate, no surprises.

A HELOC for the holidays could offer the perfect start to the new year, planning those updates or saving some cash.

Additional Resources:

FHFA Home Appreciation Data thru Q3 2024

FRED National Home Price Index

Trading Economics Home Price Data

Improve Your Credit Score (note: the instant “boost” is just marketing, sorry)

Remodeling Impact Report

 

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Steve Landis

Branch Sales Manager
NMLS #112929

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12909 SW 68th Parkway, Suite 250
Portland, OR, 97223

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