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Using home equity to pay off your mortgage? Here are the pros and cons
Do you own your home? If so, you may have some $299,000 in equity at your fingertips. That’s the average amount of equity American homeowners have. And, those homeowners can take advantage of an average of $193,000 of that equity and maintain a healthy, 20% stake in their homes.
Moreover, when you borrow against your home equity, either with a home equity loan or home equity line of credit (HELOC), you can use the money you borrow for any purpose you’d like. You could even use it to pay your mortgage off.
But, does using home equity to pay off your mortgage make sense?
Whether or not it’s wise to use your home equity to pay your mortgage off depends on multiple factors. But, before you determine whether doing so makes sense or not in your unique situation, it’s important to consider the pros and cons.
Compare your home equity borrowing options now.
Using home equity to pay off your mortgage? Here are the pros and cons
Here are the pros and cons to consider before using your home equity to pay off your mortgage.
Pro: You’ll eliminate your biggest monthly bill
If you’re like most Americans, your mortgage represents your biggest monthly bill. However, if you use your home equity to pay off your mortgage, you could potentially eliminate that bill. And, depending on the details of your mortgage and the home equity loan you use to pay it off, doing so could make a difference in your overall monthly expenses.
For example, if you’ve paid off a portion of your mortgage, the total value of the home equity loan or HELOC you need to pay off the remainder of your balance will be lower than your starting mortgage value. As such, you may qualify for lower monthly payments by paying your mortgage off with your equity.
Tap into your home equity to say goodbye to your biggest monthly bill today.
Cons: You’ll still have a monthly bill
Even if you pay your mortgage off with your home equity, you won’t be completely eliminating the monthly cost of your home. Instead, you’ll be trading your current mortgage payment for a home equity loan or HELOC payment. So, you’ll still have a monthly bill to pay.
Pro: You can delay principal payments
If you use a HELOC to pay off your mortgage, you could delay principal payments. That’s because HELOCs typically start with a draw period that lasts anywhere from five to 10 years. While your loan is in the draw period, you’ll need to make interest-only payments. But you won’t typically be required to pay anything toward your principal HELOC balance until the repayment period begins (following the draw period). This could lead to meaningful monthly savings for the first several years after you pay your mortgage off using a HELOC.
Con: You may be penalized if you prepay
Some mortgage companies charge prepayment penalties. These penalties incentivize consumers to pay their mortgages slowly, giving lenders the opportunity to collect more interest than they would if homeowners were to pay their mortgages off too quickly. So, if you use your home equity to pay your mortgage off, you may need to add the cost of this penalty to your home equity loan. Prepayment penalties can be as high as 2% of your mortgage balance.
Pro: You may still have leftover equity
Depending on the amount of money you owe on your home, and the amount of equity you have available, you may have leftover equity after paying your mortgage off. You could use this equity to make home repairs or renovations, pay off high interest debt or cover any other large expense that you see fit.
Just keep in mind that your monthly payments will reflect the amount of money you borrow. So, if you tap into more equity than you need, you may end up with a higher monthly payment than you want.
Cons: Your payments may change over time
While home equity loans typically come with fixed interest rates and payments, HELOCs usually offer variable rates and payments. So, if you choose the latter, your payments may change over time. And changes to your monthly payments could prove burdensome.
After all, if interest rates increase at any point during your payment period, you could be faced with higher monthly payments. Moreover, variable payments can be more difficult to budget for. So, only choose the HELOC option if you can withstand potentially higher payments in the future.
Find out how affordable a home equity loan or HELOC could be now.
The bottom line
Using your home equity to pay off your mortgage may be a wise idea. But doing so comes with pros and cons to consider. Paying your mortgage off with your equity could help you eliminate your biggest monthly payment, give you an opportunity to delay principal payments and put some leftover equity in your pocket to cover other expenses with. On the other hand you’ll still have a monthly payment to make, you may be penalized if you pay your mortgage off early, and your payments may change over time if you use a HELOC to pay off your mortgage.
If you’ve weighed these pros and cons and decided that it’s best to use your equity to pay your mortgage off, compare leading home equity borrowing options now.
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Gazan chefs cook up hope and humanity for online audience
Renad Atallah is an unlikely internet sensation: a 10-year-old chef, with a repertoire of simple recipes, cooking in war-torn Gaza. She has nearly a million followers on Instagram, who’ve witnessed her delight as she unpacks parcels of food aid.
We interviewed Renad via satellite, though we were just 50 miles away, in Tel Aviv. [Israel doesn’t allow outside journalists into Gaza, except on brief trips with the country’s military.]
“There are a lot of dishes I’d like to cook, but the ingredients aren’t available in the market,” Renad told us. “Milk used to be easy to buy, but now it’s become very expensive.”
I asked, “How does it feel when so many people like your internet videos?”
“All the comments were positive,” she said. “When I’m feeling tired or sad and I want something to cheer me up, I read the comments.”
We sent a local camera crew to Renad’s home as she made Ful, a traditional Middle Eastern bean stew. Her older sister Noorhan says they never expected the videos to go viral. “Amazing food,” Noorhan said, who added that her sibling made her “very surprised!”
After more than a year of war, the Gaza Strip lies in ruins. Nearly everyone has been displaced from their homes. The United Nations says close to two million people are experiencing critical levels of hunger.
Hamada Shaqoura is another chef showing the outside world how Gazans are getting by, relying on food from aid packages, and cooking with a single gas burner in a tent.
Shaqoura also volunteers with the charity Watermelon Relief, which makes sweet treats for Gaza’s children.
In his videos online, Shaqoura always appears very serious. Asked why, he replied, “The situation does not call for smiling. What you see on screen will never show you how hard life is here.”
Before dawn one recent morning in Israel, we watched the UN’s World Food Program load nearly two dozen trucks with flour, headed across the border. The problem is not a lack of food; the problem is getting the food into the Gaza Strip, and into the hands of those who desperately need it.
The UN has repeatedly accused Israel of obstructing aid deliveries to Gaza. Israel’s government denies that, and claims that Hamas is hijacking aid.
“For all the actors that are on the ground, let the humanitarians do their work,” said Antoine Renard, the World Food Program’s director in the Palestinian territories.
I asked, “Some people might see these two chefs and think, well, they’re cooking, they have food.”
“They have food, but they don’t have the right food; they’re trying to accommodate with anything that they can find,” Renard said.
Even in our darkest hour, food can bring comfort. But for many in Gaza, there’s only the anxiety of not knowing where they’ll find their next meal.
For more info:
Story produced by Mikaela Bufano. Editor: Carol Ross.
See also:
“Sunday Morning” 2024 “Food Issue” recipe index
Delicious menu suggestions from top chefs, cookbook authors, food writers, restaurateurs, and the editors of Food & Wine magazine.
CBS News
A study to devise nutritional guidance just for you
It’s been said the best meals come from the heart, not from a recipe book. But at this USDA kitchen, there’s no pinch of this, dash of that, no dollops or smidgens of anything. Here, nutritionists in white coats painstakingly measure every single ingredient, down to the tenth of a gram.
Sheryn Stover is expected to eat every crumb of her pizza; any tiny morsels she does miss go back to the kitchen, where they’re scrutinized like evidence of some dietary crime.
Stover (or participant #8180, as she’s known) is one of some 10,000 volunteers enrolled in a $170 million nutrition study run by the National Institutes of Health. “At 78, not many people get to do studies that are going to affect a great amount of people, and I thought this was a great opportunity to do that,” she said.
It’s called the Nutrition for Precision Health Study. “When I tell people about the study, the reaction usually is, ‘Oh, that’s so cool, can I do it?'” said coordinator Holly Nicastro.
She explained just what “precise” precisely means: “Precision nutrition means tailoring nutrition or dietary guidance to the individual.”
The government has long offered guidelines to help us eat better. In the 1940s we had the “Basic 7.” In the ’50s, the “Basic 4.” We’ve had the “Food Wheel,” the “Food Pyramid,” and currently, “My Plate.”
They’re all well-intentioned, except they’re all based on averages – what works best for most people, most of the time. But according to Nicastro, there is no one best way to eat. “We know from virtually every nutrition study ever conducted, we have inner individual variability,” she said. “That means we have some people that are going to respond, and some people that aren’t. There’s no one-size-fits-all.”
The study’s participants, like Stover, are all being drawn from another NIH study program called All Of Us, a massive undertaking to create a database of at least a million people who are volunteering everything from their electronic health records to their DNA. It was from that All of Us research that Stover discovered she has the gene that makes some foods taste bitter, which could explain why she ate more of one kind of food than another.
Professor Sai Das, who oversees the study at Tufts University, says the goal of precision nutrition is to drill down even deeper into those individual differences. “We’re moving away from just saying everybody go do this, to being able to say, ‘Okay, if you have X, Y and Z characteristics, then you’re more likely to respond to a diet, and somebody else that has A, B and C characteristics will be responding to the diet differently,'” Das said.
It’s a big commitment for Stover, who is one of 150 people being paid to live at a handful of test sites around the country for six weeks – two weeks at a time. It’s so precise she can’t even go for a walk without a dietary chaperone. “Well, you could stop and buy candy … God forbid, you can’t do that!” she laughed.
While she’s here, everything from her resting metabolic rate, her body fat percentage, her bone mineral content, even the microbes in her gut (digested by a machine that essentially is a smart toilet paper reading device) are being analyzed for how hers may differ from someone else’s.
Nicastro said, “We really think that what’s going on in your poop is going to tell us a lot of information about your health and how you respond to food.”
Stover says she doesn’t mind, except for the odd sounds the machine makes. While she is a live-in participant, thousands of others are participating from their homes, where electronic wearables track all kinds of health data, including special glasses that record everything they eat, activated when someone starts chewing. Artificial intelligence can then be used to determine not only which foods the person is eating, but how many calories are consumed.
This study is expected to be wrapped up by 2027, and because of it, we may indeed know not only to eat more fruits and vegetables, but what combination of foods is really best for us. The question that even Holly Nicastro can’t answer is, will we listen? “You can lead a horse to water; you can’t make them drink,” she said. “We can tailor the interventions all day. But one hypothesis I have is that if the guidance is tailored to the individual, it’s going to make that individual more likely to follow it, because this is for me, this was designed for me.”
For more info:
Story produced by Mark Hudspeth. Editor: Ed Givnish.
“Sunday Morning” 2024 “Food Issue” recipe index
Delicious menu suggestions from top chefs, cookbook authors, food writers, restaurateurs, and the editors of Food & Wine magazine.
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