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4 home equity borrowing risks to know (and how to protect against them)
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The economic climate has been challenging for many Americans. Inflation and the elevated costs of goods, services, and labor have been troublesome and some have found themselves in need of extra help financially.
While credit cards are an option, those come with double-digit interest rates right now. For homeowners, a home equity loan or home equity line of credit (HELOC) may be a better option. With lower rates and the ability to large sums of financing, these options can often help consumers pay off debt, cover home repairs, or just pay for unexpected expenses or medical bills.
But this type of borrowing isn’t perfect. In fact, there are some major risks to consider, too. We asked some experts about the potential risks, along with the ways to protect against them.
Are you considering a home equity loan now? See what rate and terms you can qualify for here.
4 home equity borrowing risks to know (and how to protect against them)
Ready to access your home equity? Before you proceed, be sure to thoroughly understand these four potential risks:
Your home serves as collateral
With a home equity loan or HELOC, your home is the collateral. That means if you skip payments, the lender has the right to claim your home and sell it to cover those missing payments.
“If a person defaults on a credit card, that doesn’t have any ramifications for their home,” says Shmuel Shayowitz, president of Approved Funding, a mortgage lender in Bergen County, N.J. “A HELOC default can jeopardize a person’s residence.”
The potential losses are big with these types of loans — and it could mean giving up your home if you’re not careful. To protect against this risk, make sure you have plenty of cash in the bank, and get a clear estimate of what your payments will look like.
“The best approach is careful budgeting and analysis,” says Matt Dunbar, senior vice president of the Southeast Region at Churchill Mortgage. “Break down your monthly budget to consider the payment and any future variability in payments due to interest rate changes. Budgeting conservatively is also key.”
Start calculating your potential home equity loan costs online now.
You could end up upside down on your mortgage
Home equity loans can also put you at risk of going upside down on your loan if your home loses value. This means you’d owe more on the loans against the house than the home is actually worth — a problem, because if you need to sell the house, your sale won’t net you enough cash to cover those loan balances.
That’s why it’s crucial you “leave enough equity to withstand any market shifts,” Dunbar says.
“Real estate values have risen dramatically in recent years, but it’s important to consider that this surge was largely driven by high demand fueled by historically low interest rates and inventory that did not adequately satiate demand,” Dunbar says. “Values may decrease at some point.”
Before you borrow against your equity, then, research property value trends in your area and look at sales of homes comparable to yours. If you spot recent jumps in value that don’t make sense or you see prices moving downward, “set a limit on how much equity you’re willing to leverage,” Dunbar says. This will offer a buffer in case your home loses value in the future.
You will reduce what you can leave to beneficiaries
Using your equity now also stops you from using it later on. That might mean you’ll have less to pass on to your children or heirs once you pass away, or it could eat into your retirement opportunities, too.
As Jennifer Beeston, branch manager and senior vice president of mortgage lending at Guaranteed Rate, explains, “I have seen way too many people over the years treat their home like a piggy bank and then when retirement comes, they can’t afford their home.”
Make sure you have your future goals in mind before you borrow from your home equity. Know what you plan to leave to heirs and how much you need from your home for retirement. If there’s no equity left to borrow from, you may want to consider other financial solutions.
You might face more financial stress
Home equity loans can also contribute to financial stress, as they add an additional monthly payment. With HELOCs, you’ll typically have a variable interest rate, so your payment may not be easy to estimate or plan for either. Again, good budgeting is critical.
“For households with multiple incomes,” Dunbar says, “relying on the most consistent and conservative income for budgeting is a safer approach than counting on multiple, seasonal, commission, or bonus incomes.”
Make sure you only borrow what you need, too. If you’re borrowing cash to cover a home renovation, for instance, you’ll want to have a contractor provide an estimate you can base your loan amount off of.
“I would not advise taking equity out for a home project until you had the property fully bid out — meaning you know exactly what it will cost,” Beeston says.
Home equity alternatives to explore
Home equity loans and HELOCs aren’t your only option if you need cash as a homeowner. You could also sell your home and move to renting (or a smaller property), and leverage the sale proceeds however you wish.
A cash-out refinance is an option, too, though this would require replacing your existing mortgage loan with a new one — including a new rate, term and payment. This might not be wise if you’ve locked in one of the record low rates offered during the pandemic.
As Beeston puts it, “If you have an interest rate below 5.5% I would encourage you to do everything you can to keep it.”
NEW YORK — Timothée Chalamet made a surprise appearance Sunday at his own look-alike contest in Manhattan.
At least one person was arrested after a large crowd formed and police broke up the event in Washington Square Park.
Chalamet posed for photos with his doppelgängers, some of whom came dressed as his characters from the movies “Wonka” and “Dune.”
The look-alike contest was one of several such competitions hosted by the YouTube personality Anthony Po, and it promised $50 for the winner. As word spread on social media, thousands of people RSVP’d.
From “a silly joke” to “pandemonium”
Stefan Jeremiah / AP
Minutes after the competition started — and before Chalamet arrived — police ordered the group to disperse from the park. Organizers were hit with a $500 fine for an “unpermitted costume contest,” and police said one person was issued a summons for disorderly conduct.
“It started off as a silly joke and now it’s turned pandemonium,” Paige Nguyen, a producer for the YouTube creator, told The Associated Press.
The group relocated to another park, and the audience eventually crowned Miles Mitchell, a Staten Island college senior, as the winner.
“I’m excited and I’m also overwhelmed,” Mitchell said. “There were so many good look-alikes. It was really a toss-up.”
The contestants were asked to demonstrate their French skills, about their romantic plans with Kylie Jenner, and what they would do to make the world a better place.
WESTON – A small group of loyal customers gathered in Weston Saturday morning to thank a pharmacist who is relocating as Walgreens closes the location where he served the community for almost three decades.
The celebration was led by an 11-year-old boy who shocked the pharmacist by presenting him with thousands of dollars that he raised as a thank you gift.
Weston Walgreens closing
In the midst of corporate cutbacks at Walgreens, the location on Boston Post Road is closing permanently. So a small group came out to thank the pharmacist at the store.
“It’s humbling. I can’t believe it. It’s amazing,” said veteran pharmacist Bob Hesselberg, who has worked at the store for nearly 30 years. “I don’t want to retire, even though I am 75. I don’t want to retire. I’m not ready for it.”
Hesselberg is moving on to a store in Waltham. The sendoff was led by 11-year-old Aarav Khanna, whose school bus routinely drops him off right across from the Walgreens location.
“I’ve seen the amount of kindness and hard work he puts into his job,” Khanna said.
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Money raised for pharmacist
Khanna got the idea to raise money for Hesselberg as a going away present. And the total grew quickly. Thanks to the community, Kanna was able to present Hesselberg with a check for $6,000 on Saturday, leaving the pharmacist in shock.
During the Saturday celebration, a young girl gave a handmade card to Hesselberg, who people in the community call “Pharmacist Bob.”
“You walk in, he not only greets you by name, but he wants to know how your family is, and how is that medication you had last time, and how are you doing? And he means it,” customer Carol Ott said.
The Weston Walgreens closes in the middle of November. Hesselberg hopes some customers will follow him to Waltham, but he worries about some of the older residents driving that distance, especially since the chain won’t be doing home delivery anymore.
“I’m gonna miss everybody. And I’m very grateful for all of this. And thank you so much,” Hesselberg told the crowd.
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Harris tells Philadelphia church election will “decide the fate of our nation for generations to come”
Vice President Kamala Harris is back in Philadelphia Sunday as the countdown to election day nears one week.
Harris, who spent several days in the Delaware Valley over the past week, spoke at the Church of Christian Compassion in Philadelphia on Sunday morning and will hold a campaign rally in the city later in the night.
“In just nine days we have the power to decide the fate of our nation for generations to come,” she told the congregation.
Several minutes into her speech, some shouting broke out in the crowd. Harris paused during the disruption. “That’s why we fight for our democracy. Every voice is important,” she said while the outburst was quieted.
Harris went on to encourage the Philadelphia church to lean on faith in the days leading up to the election, and urged worshippers to use their feet to get to the polls.
“Here in Pennsylvania, right now each of us has an opportunity to make a difference. Because in this moment we do face a real question. What kind of country to we we want to live in,” she said. “The great thing about living in a democracy is we the people have the choice to answer that question. So let us answer not just with our words, but with our works.”
On Wednesday, Oct. 23, Harris visited the Famous 4th Street Deli in Philadelphia’s Queen Village neighborhood before attending a town hall in Delaware County. Earlier in the week, the vice president sat down with former Congresswoman Liz Cheney in Chester County in the first of three moderated conversations in battleground states.
During that conversation, Harris appealed to Republican voters who are on the fence about voting for former President Donald Trump, and claimed he used the presidency as a way to “demean and to divide” Americans.
“I think people are exhausted with that, rightly,” Harris said. “And it does not lead to the strength of our nation to tell American people that we must be suspicious of one another, distrust one another.”
On Monday, Harris will harness the star power of some of her biggest supporters during a benefit concert at Temple University’s Liacouras Center, according to multiple sources.
Twenty-time Grammy winner Bruce Springsteen will headline a concert and a rally with former President Barack Obama as part of the Harris campaign’s effort to mobilize voters in the final weeks of the 2024 presidential election.
Speaking to CBS News Philadelphia’s Joe Holden, Harris said she’s “honored” to have Obama’s support on the campaign trail. “And people like Bruce Springsteen, to have their support, and of course he is an American icon, I think it just shows the breadth and depth of the support that we have,” Harris said.
When asked if any other big name supporters are planning to turn out for the event Monday, Harris said with a laugh, “I have nothing to report at this moment. Stay tuned, however.”
Earlier this month, Springsteen endorsed Harris and her running mate Minnesota Gov. Tim Walz.
