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Preparing Financially for the Unexpected

Homes-090714By Lisa Scontras

“Life is what happens when you’re busy making other plans,” but being financially prepared for unforeseen twists and turns can certainly make dealing with emergencies less stressful.

Traditionally, saving for a rainy day means committing a certain amount of cash — typically three to six months of living expenses is recommended. And while putting aside funds in a savings account may offer peace of mind, the truth is that most people don’t.

According to statistics from the Federal Reserve, U.S. Census Bureau and the Internal Revenue Service, the average American family savings account balance is $3,800 — and 25 percent of families in this country have no savings account at all.

Michael Tottori, senior vice president and region manager of the Wealth Advisory Division at First Hawaiian Bank, recommends supplementing your emergency plan with a home equity line of credit, or HELOC.

“HELOC allows you to have immediate access to a large amount of cash in case of an emergency or to take advantage of an opportunity without having to keep excess cash in savings,” says Tottori. “A home equity line of credit should not take the place of cash reserves, but it can provide a safety net for emergencies that you may not have enough savings to cover.”

Such emergencies might include repairs to your home due to termites, hurricanes, flooding or wind damage; or other surprises like job loss, medical emergencies, a death in the family, disability, an accident or tuition expenses.

Hurricane Iselle’s devastation of homes on the Big Island in August is a reminder that emergencies always cost money. And the last thing you want to have to do in an emergency is to be financially strapped. Although many of us have insurance, it’s reassuring to know you have a line readily available to do immediate repairs while you may have to wait for home insurance claims to be settled.

While Tottori says three to six months of living expenses is typically what he recommends, he also says there are advantages to additionally having a home equity line of credit.

“You could be losing purchasing power over time on cash in savings accounts due to inflation,” he says. “However, in some circumstances, such as a job loss, it is better to have a cash reserve than to borrow money that may put additional strain on your financial situation if you don’t find a job right away.”

One of the additional benefits of having a HELOC is that you don’t make any payments or accrue interest on the loan until you draw on the funds. Even if you don’t need the money right away, money is available for when you need it.

Darrell Yamagata, vice president and team leader of the Private Banking Division at First Hawaiian Bank, says being prepared is the key with a HELOC.

“Having a home equity line of credit in place will save you the time of a new application and appraisal with funds basically immediately available for unexpected cash requirements,” Yamagata says. “The advantages are readily available funds as a back up for any expense with no finance charges until you draw funds, and the flexibility to prepay principal at any time without a penalty. Generally, the borrower’s only carrying cost for the HELOC is a modest annual fee.”

First Hawaiian Bank makes opening up a home equity line of credit easy. First, the bank will match you with a personal banker who will help you determine the best financial product to fit your needs. Then your personal banker will assist you through the entire application process.

“HELOC underwriting requires a complete mortgage application and submission of financial information, including tax returns, and is subject to a current appraisal report or property valuation,” Yamagata says. “While it may seem daunting, personal bankers will guide you through each step of the process.”

With the understanding that life rarely goes as planned, First Hawaiian Bank can help you plan ahead so that you can be financially prepared for the unexpected.

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