Liquidating home equity can spell big business for originators, but financial planners have been warning clients against the practice, arguing it’s a faulty financial move
The refi boom could come to an end sooner than you think if consumers take the advice of financial planners and others offering a list of bad reasons to tap into home equity.
With the threat of a Fed move to raise rates this week and with home prices on the ascendency in so many US markets, originators have seen a flurry of refi activity this month. But how much of that tapping into home equity represented a sound financial move? And how much represented a misstep?
Here’s a list, courtesy of HSH, of dubious reasons to convert some home equity in to cash. Originators, beware.
1 – “Guaranteed” investments
Taking cash out of home equity to buy into the stock market is risky. The money homeowners put up can disappear as the market fluctuates – and your clients will be left with a larger home loan to pay off.
2 – Monthly expenses
Repeatedly chipping away at home equity to cover monthly costs, like groceries, utilities or transportation, could be a sign that clients are living beyond their means.
3 – Expensive gifts
Holidays and special occasions are tempting times to splurge on gifts for loved ones, but home equity can cause clients to overspend unnecessarily.
4 – A wedding
It’s easy to fall for an expensive designer gown and an exotic honeymoon, and home equity can seem like a great source of cash to cover those costs, but it’s important that your clients establish priorities: a one-day wedding, or a home they can truly call their own.
With the threat of a Fed move to raise rates this week and with home prices on the ascendency in so many US markets, originators have seen a flurry of refi activity this month. But how much of that tapping into home equity represented a sound financial move? And how much represented a misstep?
Here’s a list, courtesy of HSH, of dubious reasons to convert some home equity in to cash. Originators, beware.
1 – “Guaranteed” investments
Taking cash out of home equity to buy into the stock market is risky. The money homeowners put up can disappear as the market fluctuates – and your clients will be left with a larger home loan to pay off.
2 – Monthly expenses
Repeatedly chipping away at home equity to cover monthly costs, like groceries, utilities or transportation, could be a sign that clients are living beyond their means.
3 – Expensive gifts
Holidays and special occasions are tempting times to splurge on gifts for loved ones, but home equity can cause clients to overspend unnecessarily.
4 – A wedding
It’s easy to fall for an expensive designer gown and an exotic honeymoon, and home equity can seem like a great source of cash to cover those costs, but it’s important that your clients establish priorities: a one-day wedding, or a home they can truly call their own.
